Category Archives: Family and Matrimonial

An Exception to Swallow The Hague Convention Return Rule?

Articles, Family and Matrimonial, Immigration, Latest News

The 1980 Hague Convention Treaty regarding the Civil Aspects of International Parental Abduction (“Hague Convention”) is currently being threatened in the Unites States under a proposed new amendment to the United States’ version of the Hague Convention, which proposal would stop numerous returns of abducted children to their countries of habitual residence.

Any proposed new legislation which attempts to widen one of the exceptions to the rule that abducted children must be returned home is extremely concerning.  Expanding the exceptions to having to return abducted children to their home countries may so weaken the enforceability of the treaty, as to nearly stop the enforcement of the Hague Convention treaty in the United States.

By way of background, pursuant to the Hague Convention ( 42 U.S.C. 11601, et seq.), a left-behind parent whose child has been abducted by another parent and taken or retained in a contracting country may, through a Hague Convention proceeding, obtain an order returning the minor child to his/her country of habitual residence.

The text of the Hague Convention sets forth three clear requirements for the return of the minor child.  As a general summary, these are:

  1. That the child was a habitual resident of the state from which he/she was taken;
  1. That the child was wrongfully removed from the state by the abducting parent, meaning that the non-abducting parent had parental rights which he was actually exercising at the time of the abduction; and
  1. That the case does not fall into any exceptions.  These limited exceptions are:

    a. That the non-abducting parent was not actually exercising his custodial rights, or consented to the removal and/or retention of the child;

    b. “There is a grave risk that his or her return would expose the child to physical or psychological harm or otherwise place the child in an intolerable situation”; or

    c. That the Hague Convention proceedings were commenced more than one year from the date of abduction/retention.

Importantly, as set forth in Article 16 of The Hague Convention, a Hague Convention proceeding is per se, not a custody proceeding, and any request by either parent for a custody determination, such as to determine which parent should be the primary or sole custodial parent, is irrelevant to a Hague Convention matter:

“. . . [T]he judicial or administrative authorities of the contracting state to which the child had been removed or in which it has been retained shall not decide on the merits of rights of custody . . . [Emphasis added.]”

This directive is not only expressly stated in the text of The Hague Convention but has been repeatedly upheld in the United States and other courts hearing Hague Convention cases.  In Nunez-Escudero v. Tice-Menley, (1995) 58 F.3d 374, 8th Cir., for example, the court stated unequivocally:

“We instruct the court not to consider evidence relevant to custody or the best interests of the child.” Id. At 378.

Unfortunately, instead of following, the relatively simple dictate of the Hague Convention to return children to their countries of habitual residence rather than make a determination as to which parent a child is better of living with, Hague Convention Courts have often taken into consideration claims of domestic violence by abductors as an exception to the return rule.

However, this debate is not about leaving victims of domestic violence without protection, and attempting to justify this Amendment by focusing on victims of domestic violence is a “red herring”.  Indeed, a victim of domestic violence who abducts a child and loses a Hague Convention matter need not return to the previously violent relationship or to the previously shared home in the country of habitual residence. He/she has every right to protection from the other parent whom she/he claims is abusive, and to ask a court for custody based on the other parents’ behaviour-and all of this should take place in the home court, rather than stop the return of the child his/her country of habitual residence.

The focus of the “grave risk of harm” exception to the Article 13 exception to returning the children is on the children themselves rather than on their parents.  A victim of domestic violence will have the right to obtain all the benefits and protections of the legal system in the country of habitual residence including police assistance, obtaining restraining orders, and the like. If he or she would not have such protections, the focus of the Hague Convention’s hearing would be on determining whether the country of habitual residence has such working assistance systems in place.

Indeed, the focus, as clearly set forth in the Hague Convention treaty itself is not exposing the child to physical or psychological harm or otherwise placing the child in an intolerable situation.

Any domestic violence claims should be litigated in the country of habitual residence, the only country which is allowed to make a custody determination. Any amendment to the Hague Convention in the United States which would add domestic violence as an additional Article 13 exception, to be litigated in the abducted-to location would blur the line between making a custody determination (which only the country of habitual residence may do per Article 16) as opposed to determining if a child was wrongfully abducted from his/her country of habitual residence.

The purpose of the Hague Convention per its Article 1 is: “to secure the prompt return of children wrongfully removed to or retained in any Contracting State.”  Per the literal words of Article 1 of the treaty, the return is per se and on its face not being made “to the other parent”, but to the country of habitual residence.

 

Leaving the EU – what this means for you and your business

Articles, Banking and Finance, Employment and HR, Family and Matrimonial, Food/Drugs/Healthcare/Life Sciences, Intellectual Property, Latest News, Real Estate and Construction

Now that the dust is settling on the UK’s decision to leave the EU, our clients are asking what this means for them.  We are the first member state ever to  leave the European Union and as such, the result has ignited much uncertainty and debate about what lies ahead.

Change always brings opportunities, as well as challenges, and we are focused on helping our clients understand how these changes can benefit their business during the period of transition ahead.

A recent survey we commissioned suggests that only 20% of businesses had set in place a continuity plan for the leave vote. In the public sector, there is concern about what will happen to staffing arrangements as well as EU-funded collaboration projects.  We understand that there is much uncertainty at present, but we will continue to support and provide innovative solutions to help our clients invest and grow.

Of course, it’s not only businesses that are affected.  Exit from the EU will likely have a knock-on effect on a range of private and family law matters which are currently governed by a system which in many areas combines both EU and domestic legislation into an integrated European framework.

Whilst it is not clear what the exit will look like or how we will take forward the laws that the UK has adopted over the last 40 years, we do know that there will be opportunities coming out of these changes and we will be supporting our clients in understanding how these can be used to their advantage.

In this article, I explore some of our key sectors and what the implications may be for them of leaving the EU.

Real Estate

Real Estate markets, whether commercial or residential, always prefer certainty. The last few months have led to a slowdown in transactions while people awaited the outcome of the Referendum. In some recent cases, transactions have been entered into with options to determine depending on the result of the vote, and those agreements may now be determined. Now that we know that the Leave vote has won, we expect to see the Real Estate markets to pick up rapidly. Banks are still in the market to lend to the right product, and there is a significant amount of private equity cash available for property transactions. However, there may be some weakness in areas involving prime offices if companies start relocating their HQs.

Private Law

Since 17 August 2015, we have been coming to terms with new EU legislation for succession (known as Brussels IV). Paradoxically, this system is intended to unify the succession laws which apply to an estate, and now, we have voted to leave just at the point when the member states choose to change things for good!

That said, the UK opted out of the full implementation of the legislation, along with Ireland and Denmark, so the impact strangely has been simplified as there was some uncertainty as to how the legislation applied to the UK. The intention is that EU citizens are able to make an election of the law of the jurisdiction of their nationality to govern the whole of their estate (including foreign property located in another EU state). Post-Brexit the UK is clearly a ‘third state’ under the Regulation, like the USA

This means less flexibility in the choice of succession rules and potentially more tax, although double taxation treaties should continue to apply. Our EU neighbours mainly favour a succession system which includes forced heirship, and we could find ourselves in a position where there is less choice on the ultimate distribution of foreign immovable assets.

Employment

Employment law is unlikely to see too many dramatic changes as the UK leaves the EU. Despite the claims that businesses are stifled by EU labour laws, the fact is that many Employment law rights either originated in the UK or have become deeply embedded in UK law as the UK’s attitudes to social issues have evolved. A move to scale back all but the most minor Employment law rights would, in all likelihood, be politically unpopular.

In addition, potential changes could be severely limited by the subsequent trade deal negotiated – other non-EU countries such as Norway and Switzerland have not in practice been able to free themselves of many EU labour laws. In several areas, such as data protection, we are likely to produce laws that mirror EU legislation to ensure we can conduct business effectively.

Such changes as there are could be seen in the areas of collective consultation rights, clarification on Working Time rights such as paid holiday and a repeal of the 48-hour limit, tweaks to the Transfer of Undertakings (Protection of Employment) Regulations 2006, and potentially more significant changes to/removal of the Agency Workers Regulations 2010.

As well as the immediate impact on markets and the business outlook for employers, the referendum result will also throw up longer-term issues, such as the migration of staff in and out of the UK and a potential re-run of the Scottish referendum. Unfortunately, the lack of a clear indication as to what any exit deal would look like makes it very difficult for businesses to plan for it in any practical way at the present time.

Banking and Finance

The financial markets and the banking sector hate uncertainty. The government needs to move quickly to reassure the business community by setting out a clear plan to replace existing trade and other arrangements with the EU and the world as a whole.

Particularly in the short term, the role of the Bank of England will be key. At a time when the monetary tools available to them are already limited, they need to find a way to protect the pound and keep interest rates at a level that enables companies to continue to borrow and invest in what will hopefully be a prosperous economic future for the UK.

Healthcare

The Referendum campaign highlighted a fundamental lack of objective data regarding the impact of EU membership on our healthcare system, and therefore the effects of an exit. However, staffing is likely to be impacted as the NHS, and social care are reliant on overseas migrants to help alleviate intense staffing pressure.

The London location of the EU Medicines Agency has been cited as a positive factor in the NHS’s successful positioning of its R&D capabilities, attracting overseas investment and funding. If the EMA must now relocate, the long-term impact on trials revenue and participation will depend on the strength and depth of relationships already established.

European systems have influenced several of the new models of care programmes in the NHS.  Many independent healthcare operators have pan- European activities. Uncertainty in the short term about implications of an exit could impact collaboration and appetite for financial risk in organisations supporting the NHS.

Education

It is impossible to ignore the fact that the higher education sector, which is presently reliant on the EU as a reliable source of funding, in the form of students, research grants, and capital finance, faces a challenging future, given the uncertain nature of the relationship between the UK and the EU. In the next five years, we may well see a more innovative approach to funding and collaboration required, with institutions looking further afield for support, or collaborations with the private sector.

Intellectual Property

For the moment it is business as usual and trade mark and design owners should not panic – European Union Trade Marks and Registered Community Designs remain valid in the UK, and there is no immediate loss of IP protection.

Once the UK formally gives notice to exit, the EU negotiations will begin on the status of EU marks in the UK and whether any transitional provisions will be required to grandfather across EU trade mark and registered design rights into the UK.

Planning

There maybe harmful consequences for major infrastructure projects as much of the funding comes from Europe including Crossrail and HS2.  How such projects will be funded in the future will apparently be included in the Brexit negotiations.

It is impossible, though, to predict what the wider impact will be on our economy or the property market at this stage but if migration is reduced, then the pressure on housing should be reduced and the housing needs assessed more accurately.

Information Governance

Most of the laws in information governance are derived from European legislation. The Data Protection Act, the Privacy and Electronic Communications Regulations, the Re-use of Public Sector Information Regulations, the Environmental Information Regulations – all of these are examples of UK laws derived from EU directives.  For primary legislation, such as the DPA, leaving the EU will have no immediate effect.  For secondary legislation, such as the EIRs, the situation is more complicated.  These were made under powers derived from the European Communities Act 1972, which is the statute that governs our membership of the EU.

Family Law

Leaving the EU will have a knock-on effect on a range of family matters governed by the current system, which pulls together strands of EU and domestic legislation into a single Family law regime. Changes are likely to be felt most keenly by international families.

In terms of jurisdiction in divorce matters, the current rule of “first in time” as to where proceedings will be dealt with will disappear. Parties will therefore potentially be afforded greater flexibility as to where they choose to divorce. However, matters could become increasingly costly if the proposed jurisdiction is contested and, in these circumstances, parties may well find themselves litigating over jurisdiction issues before the main proceedings are dealt with at all.

Enforcement of existing domestic Orders concerning maintenance, child contact, and domestic violence will also be affected. EU legislation currently works with domestic legislation to provide a relatively simple framework for enforcement of such Orders in other EU member states. Brexit means that the system will not operate as such any longer, thereby potentially undermining the current system of mutual co-operation between Courts.

The law governing international child abduction would also see some changes, albeit that these would be less significant. This is because the main international legislation governing this area is found in the 1996 Hague Child Protection Convention and the 1980 Luxembourg Convention, which will remain in force. However, changes incorporated into these Conventions by later EU Regulations will fall away, leaving gaps to be filled at a later stage. The child abduction regime may be weakened in the interim until a comparable system is put back into place through re-negotiation of bilateral agreements with different states to replicate the lost provisions.

For more information on what leaving the EU will mean for your business visit www.blakemorgan.co.uk/brexit or email [email protected]

Can Parents Contractually Select the Forum for A Custody Dispute?

Articles, Family and Matrimonial, Latest News, Litigation Mediation & Arbitration

Where a custody dispute will be litigated can be a critical concern when voluntarily entering into an agreement regarding custody of children. Child custody issues can be further complicated when dealing with laws across state or country lines.

UCCJEA

“The National Conference of Commissioners on Uniform State Laws promulgated the UCCJEA [Uniform Child Custody Jurisdiction and Enforcement Act] in 1997 ‘to deal with the problems of competing jurisdictions entering conflicting interstate child custody orders, forum shopping, and the drawn out and complex child custody legal proceedings often encountered where multiple states are involved.’” Friedman v. Eighth Judicial District Court, 264 P.3d 1161, 1165 (Nev. 2011) (quoting In re Custody of A.C., 200 P.3d 689, 691 (Wash. 2009)). In the U.S., the UCCJEA (“the Act”) has been adopted by 49 states, the District of Columbia, Guam, and the U.S. Virgin Islands, but not by Massachusetts or Puerto Rico.

Under the Act, once a U.S. state has issued an initial child custody order, it will retain exclusive and continuing jurisdiction over future custody disputes so long as one parent continues to live there.[1] No other state has the authority to act and the original court’s authority does not end until one of two things happens: (1) the original court finds that the child and both parents have moved out of the state, and, it no longer has subject matter jurisdiction, or (2) the original court determines that it is an inconvenient forum and a court of another state or country is a more appropriate forum   This issue can be raised by either party, the original court, or the court of another state.  However, the decision to decline or relinquish jurisdiction must be made by the original court.[2]

Pursuant to the Act, eight factors apply when considering an inconvenient forum motion.  One factor is whether any agreement of the parties exists as to which state should assume jurisdiction. Other factors are: whether domestic violence issues exist; the length of time the child has resided outside the state, distance between possible courts, the parties’ relative financial circumstances, the nature and location of the evidence required to resolve the pending litigation, the ability of each state’s court to decide the issues expeditiously and the procedures necessary to present the evidence, and the court’s familiarity with the pending litigation’s facts and issues.  UCJEEA §207(b).

If the original court decides it is an inconvenient forum, it will stay the proceedings so long as another state promptly commences a custody proceeding.

Hogan v. McAndrew

Is a marital settlement agreement’s negotiated forum-selection clause enough to select jurisdiction?

A forum-selection clause was considered by the Rhode Island Supreme Court in the matter of Hogan v. McAndrew, 2016 WL 556297 (Feb. 12, 2016)  In Hogan, Father and Mother were dual citizens of the United States and the Republic of Ireland. The parties divorced in 2008. In accordance with their property settlement agreement, they share joint custody of three children, and Mother has physical placement. The parties agreed that Mother could return to Ireland with the children.  They stipulated that any future custody disputes would “remain under the jurisdiction of the [Parental Kidnapping Prevention Act, 28 U.S.C. § 1738A], [the Uniform Child Custody Jurisdiction and Enforcement Act (UCCJEA), G.L. 1956 chapter 14.1 of title 15,] and the Rhode Island Family Court.” (Hogan at *p. 2)

The children stayed with Mother in Ireland and visited Father in Rhode Island each summer. Father continued to reside in Rhode Island and, in 2014, filed motions in the Rhode Island Family Court, including an ex parte emergency motion to modify custody and placement. The Court granted the ex parte order. Mother moved to vacate the order and sought to dismiss the action asserting Rhode Island lacked subject matter jurisdiction as the children had resided in Ireland continuously for more than five years.

The Rhode Island Family Court heard the parties on the issue of jurisdiction.  Excepting yearly visits with their father, the children resided in Ireland continuously with Mother from January 2009 to July 2014 while Father resided in Rhode Island.  Father spent multiple weeks with the children each year, with most of this time spent in Ireland.

Father testified that the parties’ agreement that Rhode Island maintain jurisdiction was “vital” to his decision to assent to the children’s relocation to Ireland.  He further testified that “without it” he would “never have agreed to let them go.

After hearing, the Court issued a bench decision declaring that although Rhode Island retained exclusive, continuing jurisdiction pursuant to the UCCJEA, it declined to exercise jurisdiction on the ground of forum non conveniens, noting that Ireland was a more appropriate forum for the dispute to be heard.  The Court noted that a forum- selection clause is one of eight factors and reasoned that its inclusion in the property settlement agreement did not absolutely bind the Court, which must consider all of the factors set forth in the statute.

Father appealed and argued that the hearing justice abused her discretion by failing to afford proper weight to (1) the mutually agreed upon forum-selection clause set forth in the property settlement agreement and in the final judgment of divorce, and, (2) additional factors enumerated under the UCCJEA.

Rhode Island’s highest court vacated the lower court’s decision, holding that the hearing justice abused her discretion by declining jurisdiction on the ground of forum non conveniens.  The Rhode Island Supreme Court explained that before the Family Court, vested with exclusive, continuing jurisdiction over the child-custody dispute, declines jurisdiction on the grounds of inconvenient forum, it must engage in a two-part inquiry.  The Family Court justice must conclude both that the court “is an inconvenient forum under the circumstances and that a court of another state [or a foreign tribunal] is a more appropriate forum.” R.I. Gen. Laws §15-14.1-19(a); See UCCJEA §207.  Before the Family Court can decide that Rhode Island is an inconvenient forum, it must address whether it would be “appropriate for a court of another state to exercise jurisdiction.”  This determination is made by considering all relevant factors, including the eight factors enumerated in the UCCJEA.  Then, if the court concludes based on the evidence that a more appropriate forum exists, the court proceeds to the second step of the analysis and considers whether it would be an inconvenient forum under the circumstances.

The Rhode Island Supreme Court previously addressed the role of forum-selection clauses under the UCCJEA in the case of Sidell v. Sidell, 18 A.3d 499, 504-08 (R.I. 2011).  In Sidell, the defendant father and former resident of Rhode Island filed post-divorce motions regarding child-custody and support orders issued by the Rhode Island Family Court.  At the time he filed his motions neither the parents nor the child resided in Rhode Island.  Defendant father argued that the Rhode Island Family Court was vested with jurisdiction because the parties had stipulated in their marital settlement agreement that Rhode Island would retain exclusive jurisdiction over the matter.  However since none of the parties resided in Rhode Island, the Court determined that Rhode Island courts lacked exclusive continuing jurisdiction under R.I. Gen. Laws § 15-14.1-14(a)(2).  Sidell at 508.The Sidell Court concluded a forum-selection clause does not confer a court with subject matter jurisdiction when such jurisdiction is otherwise absent. Id.

However, in Hogan, the Rhode Island Supreme Court noted there are situations where a court is vested with subject matter jurisdiction and “an enforceable forum-selection clause…settles the proper venue for the cause and prevents ‘a party that has agreed to be bound… [from…assert[ing] forum non conveniens as a ground for dismissing a suit brought in the chosen forum.’” Id at 507 (quoting American Biophysics Corp. v. Dubois Marine Specialties, 411 F.Supp. 2d 61, 62 (D.R.I. 2006)).

In vacating the Family Court’s decision in Hogan, the Supreme Court, noted that the trial justice overlooked Father’s testimony that the forum-selection clause had been a predominant factor in his agreement to allow his children to move to Ireland with their mother and that the parties had entered into the agreement in anticipation of the relocation.  The Supreme Court also noted that the trial justice failed to address the high value that is conferred on judgments by consent.  Further, based on the dearth of information available, the Supreme Court concluded that the hearing justice improperly determined that the seventh factor – “the ability of the court of each state to decide the issue expeditiously and the procedures necessary to present the evidence” weighed equally in favour of Ireland and Rhode Island. R.I. Gen. Laws §15-14.1-19(b)(7); UCCJEEA §207(b).

The Rhode Island Supreme Court remanded the matter back to the trial court, with the unstated implication that the trial court will retain jurisdiction.

OTHER CASES –FORUM-SELECTION CLAUSE

In Friedman v. Eighth Judicial Dist. Court of State, ex. Rel, 127 Nev. 842, 844 (2011), the Nevada Supreme Court declined to exercise jurisdiction over an interstate custody dispute in favour of California.  In Friedman, the parties had stipulated in their divorce decree that Nevada would have exclusive jurisdiction over future child custody disputes.  When the dispute arose, both parties and their children had moved to California.  The Court concluded the parties’ agreement to confer jurisdiction on a court that otherwise would not have jurisdiction was ineffective. Id. at 850.

In Horgan v. Romans, 366 Ill.App.3d 180 (2006), the Appellate Court of Illinois, First District, Fourth Division, declined jurisdiction despite the parties’ forum-selection agreement and reasoned to allow such an agreement to trump the other factors to be balanced under  the UCCJEA would contradict the statutory language of section 207 of the Act. Id at 185.

In S.K.C. v. J.L.C., 94 A.3d 401, 418 (Pa. 2014), a Pennsylvania Superior Court held that a forum-selection clause may not be considered when determining whether a court retains exclusive, continuing subject matter jurisdiction. Id.

CONCLUSION

A forum-selection clause and the circumstances surrounding its inclusion in a marital settlement agreement are among the factors to be considered when determining which of two competing forums is more appropriate and whether one is inconvenient relative to a child custody determination.  Although some courts have afforded what appears to be greater weight to such agreements, forum-selection agreements alone are not dispositive and must be weighed against  other factors and circumstances when the dispute arises.

 

[1] Section 105(a) of the UCCJEA provides that a foreign country will be treated as if it is a state of the United States for the purposes of applying Articles I (cooperation principles) and II (jurisdiction provisions) of the UCCJEA.

[2] Exceptions in emergency situations apply and provide for temporary custody orders.

 

Shared Parental Leave

Articles, Family and Matrimonial, Latest News

Shared parental leave and pay is available to parents of babies due, or children placed for adoption, on or after 5 April 2015 and allows eligible women to share their right to maternity/adoption leave with their partner.  It provides both parents with the opportunity to consider the best arrangement to care for their child during the child’s first year and was considered a huge step forwards in the quest for gender equality.

The amount of leave available is calculated using the mother’s entitlement to maternity/adoption leave, which allows them to take up to 52 weeks’ leave. If they reduce their maternity/adoption leave entitlement then they and/or their partner may opt-in to the shared parental leave system and take any remaining weeks as shared parental leave. This means their partner could begin to take shared parental leave while the mother is still on maternity/adoption leave.

Take up has however been far lower than envisaged and here, we speak to Sarah Nolan, Head of Commercial and Employment Law at QualitySolicitors Jackson Canter on why fathers are applying in such small numbers.

‘At Jackson Canter, we are finding that there is still a real awareness gap amongst new and expectant fathers that they qualify for shared parental leave. The change in legislation was brought about to enable families to decide how best to care for their children based on their individual personal and financial circumstances.

In spite of this change in the law, it’s clear that it’s going to be quite some time before take up reaches the level originally expected.  There was a blaze of publicity last year when the law came into effect but it seems that the expected rush of fathers looking to spend more time at home hasn’t quite come to pass and there are a number of reasons for this.

Within many families the man will still be the highest earner and due to the pay provisions associated with shared parental leave, it simply isn’t economically viable for the father to take shared leave. As much as we have seen the roles of mothers and fathers evolve in recent years, the fact remains that in the majority of families the man will be the highest paid and families will obviously need to take this into account.  Shared parental leave is paid at just £139.50 per week or 90% of average weekly earnings, whichever is lowest, and so for many families the possibility of the father taking such leave is unfortunately not an option.  Rather than take the hit on their pay, I find that very often fathers will simply take extended annual leave rather than shared parental leave in order to ensure that they continue to receive their full pay.

Industry also has a role to play in encouraging more fathers to view extended leave as a realistic option for them.  Enhanced maternity pay has been available to women for some time with lots of employers offering enhanced pay to their female employees.  However, whilst this is established practice for women, employers have been slow to react to the change in legislation by offering the same privileges to fathers. It’s also saddening that many new fathers feel they need to return to work at the earliest opportunity through fear of missing out on pay rises and promotion. A combination of these factors has almost certainly limited the take-up by fathers of shared leave.

Aside from the economic factors affecting take up, it’s true to say that sharing leave simply isn’t attractive to every family.  I find that mothers very often like to take their full maternity leave and often don’t want to share leave and be separated from their child.  The preference for families is often that the mother will take her maternity leave and the father will take annual leave, for a variety of reasons.

A combination of economic realities, lack of awareness and family preferences is almost certainly responsible for the low numbers of fathers taking up shared parental leave.  There is certainly a long way to go until take up reaches anywhere near the level it was expected to reach but with raised awareness and enhanced pay on offer it seems very likely that the numbers of fathers opting to take shared leave will undoubtedly increase.

How The Probate Fee Consultation Will Impact Estates

Articles, Family and Matrimonial, Latest News

The forthcoming hike in probate fees, particularly on more valuable estates, breaks the tacit principle that the fee charged for such a service should in some way be linked to the amount it costs to render. The simple fact of the matter is that it costs no more in administrative terms to issue probate for an estate which is worth £3m than it does to issue it for one worth £55,000, meaning that any increase in the fees respectively charged is punitive in nature and would, at any other time and under any other set of circumstances, be described as a ‘tax’.

In simple terms, the new system will replace the current flat fee on all estates worth more than £5,000 –  £155 if the application is made via a solicitor and £215 if is made personally –  with a banded set of charges. Those estates valued at up to £50,000 will pay no fees, those valued between £50,000 and £300,000 will pay £300, with the fees charged then rising progressively through £1,000, £4,000, £8,000 and £12,000 up to the top rate, charged on estates valued in excess of £2m, of £20,000. This means that the probate fee for the most valuable estates will rise by a factor of an eye-watering 129%. It should also be borne in mind that the figure used to calculate the probate fee charged will be the value of the estate before IHT is paid, and not the actual value which will be passed on to any beneficiaries.

Given that, in the vast majority of cases, the bulk of the value of an estate will be made up of the value of a main property (particularly in areas of the UK, such as the South East, which have seen huge rises in property values) the rise in probate fees will place those representing an estate – generally, let it not be forgotten, a grieving family member – in what is an almost perfect representation of a legal catch 22; the assets of an estate cannot be accessed or realised until probate has been granted, but the fees required to fund probate cannot be raised until the estate can be accessed.

There is, of course, no guarantee, or even expectation, that the person executing a will should automatically have easy access to the kind of funds required to break such a logjam, meaning that, in many cases, it will be necessary to take out a loan.

In the past – when probate fees formed a fairly small aspect of the administering of an estate – many law firms would be happy to advance this money, whilst banks might provide bridging loans. The rising fees, however, will result in both of these scenarios becoming less frequent, and even when a loan is made available there may well be a significant delay between probate being granted and the fees required to pay the loan back being released or realised, particularly if this involves the sale of a property. No matter how the process unfolds, the higher probate fees will result in extra pressure – financial, emotional and administrative – being placed upon the shoulders of the executor of the will.

The argument put forward by the government, that the rise in probate fees will be offset by the increase in IHT allowance thresholds, fails to stand up to inspection on several counts, the main issue being the fact that IHT thresholds and exemptions are finely calibrated, whilst the probate fee is charged across the board on a flat calculation of the worth of an estate. Thus, IHT exemptions only apply to a main residence being passed to a direct descendent, and IHT exemptions are only granted to spouses. Probate fees make no such distinctions; a grieving spouse, deemed fit to be spared the financial hit of IHT, will still be expected to find as much as £20,000 before they can begin to put their affairs in order, as will any other beneficiary, whether that’s a child, charity or larger number of loved ones.

Another alteration to the system – less headline grabbing than the vertiginous increase in fees for obvious reasons – is the fact that there will no longer be a lower fee charged in those cases where probate is administered by a solicitor.  According to paragraph 20 of the consultation document released by the government, probate applications made by non-solicitors generally require more administration than those made by solicitors, so the flat fee in both cases further diminishes any link between the fee being charged and the service being provided, as well as encouraging people to embark upon what can be a fairly complex process without the benefit of professional advice.

The necessity of seeking professional advice when preparing an estate has always been present but has been underlined further by the increase in probate fees, particularly at the top end of the scale, and the fact that these fees – thanks to their across the board nature and fairly crude delineation – seem set to persuade more people to adopt ‘asset depletion’ tactics aimed at lowering the value of their estate below the level at which the higher fees would be charged.  This is a tactic which is particularly likely to be adopted in those cases in which a pound less in overall assets could result in thousands of pounds less having to be paid in probate fees, or in which a matrimonial home, passed from spouse to another, could result in fees of £20,000 having to be paid by a surviving spouse who, whilst inheriting a sufficiently valuable property, might be in no position to pay such a fee up front.

One tactic designed to remove the need for probate is the placing of assets in joint ownership. Whilst this may prove effective, however, it does place people in a particularly vulnerable position. In the first instance, they may be pressured into sharing the ownership of their assets and thus reducing the amount of control they have over them both during their life and when disposing of them after death. Secondly, the issue of varying the particular ownership of assets opens up a wider vista of possible exploitation.

Whilst signing a main residence over to joint tenancy may seem like a fairly simple step to take, more complex estates might require more complex measures, such as transferring assets such as property, investments or business interests, into trusts, thus maintaining control whilst, in legal terms, relinquishing ownership.

In recent years the laws around trusts – as well as those pertaining to the transference of assets to overseas territories – have become much more complex, not least as a reflection of the widespread perception that such financial tools were being used as means of aggressive tax avoidance.

Over all of this looms the shadow of mis-selling, and the fact that the greater the motivation to plan estates in order to avoid higher probate fees becomes, the greater the risk there is of unregulated providers selling products ostensibly designed to achieve this aim, whilst actually being simple money making devices.

A body such as the Solicitors for the Elderly (SFE) is ideally placed to offer advice on the issue of probate fees and all other aspects of estate planning.  Made up of legal professionals from across the UK, such as solicitors, chartered legal executives and barristers, it specialises in offering advice to older people faced with exactly the kind of issues which the increase in probate fees has thrown into stark relief. Not only will the members who make up the SFE have the legal expertise needed to examine the technical intricacies of the situation, they have amassed the experience to understand that issues around estate planning and passing on assets are, for the individuals involved, often as much emotional as they are legal.

Whilst careful estate planning is always to be welcomed, the extreme nature of the rise in probate fees, particular at the top end of the scale, allied to the arbitrary placing of the various cut off points, means that too much focus will be placed upon dragging the net worth of a person’s assets down below a certain level. It must always be remembered that an estate only becomes ‘an estate’ upon the death of the person to whom it belongs. Until that moment it is simply their assets and, in later life, often the source of any income.

The greatest shame of a move such as the increase in probate fees will force people, especially in London and the South-East, to think of their assets in terms of estate planning from an earlier stage and in much more detail. This will result in many people’s day to day finances being altered, to their material disadvantage for a perceived long term aim.

The Bahamas – Protecting the Confidentiality of Trusts

Articles, Family and Matrimonial, Latest News, Litigation Mediation & Arbitration

Section 83 of the Trustee Act is an enactment unique to the Bahamian jurisdiction which attempts to codify the rights and obligations of trustees in relation to disclosure. The disclosure of trust information by trustees has been the subject of judicial debate for centuries; and as trusts have developed so too has the jurisprudence on the rights of beneficiaries and third parties to trust information and documentation. Recently, the trust has come under intense scrutiny from regulators and tax agencies alike, so the clarity Section 83 provides not only assists the appointed trustee and designated beneficiaries, but provides comfort to settlors who wish to keep their wishes private and desire to shield his/her trustee from unwanted interference.

Subsections (1) and (2) simply require the trustee to take reasonable steps to inform a beneficiary with a vested interest under the trust of its existence and general nature of their interest or in the event there is no beneficiary with a vested interest, a person who is capable of enforcing the trust and the general nature of the interest entitling him/her to enforce. This formalizes the long settled duty of a trustee to notify the objects of the trust of its existence, first discussed in Lloyd v Attwood (1859) 3 De G. & J. 614 at 649. The subsections clearly limit the notification to the existence of the trust and the general nature of that interest, which settles any doubt as to the scope of the duty to notify.

However, the trustee may escape the aforesaid duty of notification in the event it deems, in its absolute discretion, that such notification would not be in the best interest of the beneficiary(s). Obviously the exercise of this discretion would need to be exercised properly and in accordance with the fiduciary obligation the trustee owes the beneficiaries under the settlement.

Subsection (3) expressly prohibits disclosure of the existence of the trust to (a) any beneficiaries who are interested only contingently; (b) any persons who are only objects of discretionary powers; or (c) any other persons who are not entitled to vested interests under the trust. This does not prohibit disclosure to the class of persons aforesaid if it is necessary or convenient in connection with distributions or in the interest of the trust as a whole. The trustee retains the absolute discretion to disclose the existence of the trust in subsection (4); but the decision to make such disclosures should be made thoughtfully.

Subsection (5) deals specifically with the disclosure of the trust instrument, financial statements of the trust and all financial statements of companies wholly owned by the trustees of the trust. This is helpful as there has been both judicial and academic discussion as to the scope of the term ‘trust documents’. With the burgeoning use of trusts for increasingly diverse purposes, so too has the type of documents attributed to trusts and their management.

The disclosure of trust documentation to beneficiaries often causes trustees angst, as they must balance their duty to protect the confidentiality of trust information against the interests of the beneficiary and their desire to be informed. While beneficiaries who hold a vested interest in the trust are entitled to trust documents, all other persons are specifically excluded from access unless the trustee deems disclosure necessary for the proper administration of the trust and is for the trusts overall benefit. In the event a trustee wishes to disclose documentation, it must consider any request from a beneficiary which has requested confidentiality and determine if confidentiality is in the best interest of other beneficiaries.

Notwithstanding the trustee’s ability to disclose trust documents to vested beneficiaries, subsection (8) prohibits the production of (i) any document revealing the wishes of the settlor; (ii) documents relating to the exercise of any discretion of the trustee; or (iii) any documents disclosing deliberations or reasons for the exercise of the trustee’s discretion. This prohibition extends to any process of discovery or inspection within litigation. One can understand Parliament’s sacrosanct treatment of a trustee’s exercise of its discretion but the provision severely limits the ability of a beneficiary trying to sustain a claim against a trustee for the wrongful exercise of a its discretion.

Section 83 clarifies the common law principle established in In re Londonberry’s Trusts: Peat v. Walsh [1965] Ch. 918 which recognizes a beneficiaries’ entitlement to access trust documents, save for information or documents evidencing the deliberations of trustees when exercising his/her discretionary powers. The Act sets clear parameters as to the scope of the disclosures, the class of persons entitled to disclosure and the type of documents which are accessible.

While the trust instrument can always prescribe additional entitlements of disclosure upon a beneficiary(s), the enactment of Section 83 displays a Parliamentary intention to protect trustees from unwarranted disclosures, preserve the sanctity of the trustee’s discretion and to afford privacy to the settlor’s wishes. Although the Trustee Act was enacted in 1998, section 83 has remained largely untested in the Bahamian Courts. There are no published Bahamian cases which consider the ambit of section 83.

Recently, the English High Court considered the extent of Section 83 in the case of Dawson Damer & Others v. Taylor Wessing [2015] EWHC 2366 (Ch). Here, the beneficiaries of a Bahamian trust sought the disclosure of legal advice provided to the trustee by its English solicitors. Judge Behrens found that the Bahamian Trustee Act differed from the English common law rules and the beneficiaries were not entitled to information that the Trustee was not required to disclose under Section 83. He concluded:

“I have great difficulty in following the concept that the principles of disclosure in relation to trustees and beneficiaries can in some way be separated from legal professional privilege…If and in so far as the exception in paragraph 10 of Schedule 7 is restricted to the English law of disclosure and if and in so far as the documents discoverable under English law are more extensive than those under Bahamian law it does not seem to me a proper use of the 1998 Act to enable the Claimants to obtain documents that they could not obtain in the Bahamian proceedings.”

Judge Behrens’ decision is currently under appeal in England, but his affirmation of the protection afforded to trustees under section 83 and his comparison to the English common law position is noteworthy.

Historically principles of disclosure by trustees were established by the common law. The clarification provided by Section 83 is sure to be challenged in the near future but there is little doubt that its enactment provides the settlor and trustee with a higher level of confidentiality and protection. Its exclusivity to the Bahamian jurisdiction continues to provide the Bahamas with an advantage over other jurisdictions as to the level of protection afforded to trustees of Bahamian trusts.

Remain or ‘Brexit’? The Family Lawyer’s Viewpoint

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What would be the implications for a family law practice of a vote to leave or a vote to remain? First we need to be clear where we are at the moment.

The EU parliament has no power to initiate legislation. EU laws evolve from the workings of the European Commission, refined by its civil servants and the civil servants of member countries. From this derive specific regulations. Where the United Kingdom is obliged to follow a council ruling it is usually turned into UK law through the medium of becoming a statutory instrument. In fact the “vast majority” of EC legislation is enacted by statutory instrument (SI) under Section 2(2) of the European Community Act 1972 . An EU regulation is directly applicable in member states so there is no requirement to otherwise implement it through UK legislation, and an EU regulation prevails over domestic law.

Whether by SI or without, treaty provisions and directly applicable secondary legislation automatically have effect in the UK by reason of Section 2(1) of the European Community Act 1972 which says that such rules “are without further enactment to be given legal effect… and be enforced, allowed and followed accordingly” . Thus the EU regulations are law and as such they can only cease to be law when repealed. If the UK decides to remain, the power to change a regulation will continue to rest solely with the commission entities. If the UK votes to leave, the power to repeal or amend a regulation will in due course vest in the UK parliament exclusively. That will not happen by reason of the vote; it will happen upon the UK ceasing to be a member of the European Union, a process which the treaty envisages will take place with two years’ notice. Naturally by agreement it could terminate earlier; but the date at this point has to remain uncertain.

So we can look at the some of the questions posed. “What would happen to our laws after the withdrawal date, when EC regulations cease to operate by direct effect?”  The simple answer is – nothing unless and until parliament changes it. The regulations are part of EU law and they remain so until parliament changes the law. The implication that the UK will somehow revert to pre-EU law is nonsensical.

In the same way we can clear the ground of another piece of erroneous thinking that somehow immigration will be reversed, mass deportations of populations will follow and a thick fog curtain will descend across the English Channel. People’s personal existing rights and status cannot be retrospectively changed. However policy on future immigration will revert exclusively to the UK parliament. That would mean it would become a policy decision for the UK parliament as to whether it retains the present free movement of people within the EU and its corollary, very restrictive migration policies for people from the rest of the world or whether it adopts for example some form of Australian style points system which in fact could still give certain preferences to EU countries if that was parliament’s policy decision.

There is an acknowledged “democratic deficit” in EU decision making, and no amount of treaty changing and institutional change in Brussels has been able to get around the fundamental difficulty – if you value uniformity highly, you inevitably must take power away from national governments. The problem is that democratic national governments are directly answerable to their electorates whereas the EU by contrast has no electorate as such, it answers to the governments and institutions that make it up. The EU parliament has no power to initiate legislation and has a fairly peripheral role in EU law making and one can argue whether it carries much democratic legitimacy. Real power is expressed in the commission’s directives and regulations.

So the question is whether the priority should be uniformity notwithstanding the sacrifice of some national democracy to that end, or an inevitable loss of uniformity as the UK parliament reasserts powers in different areas.  It is right to say (as do Bailey-Harris and Wilson – see footnote 3) that uniformity will inevitably be lost if the UK leaves.

So what might the UK parliament do about changing things? It has to be said that family law reform has never been a popular political issue. EU regulations cover jurisdiction for divorce, recognition of divorces from other EU countries, recognition of children orders, expedited child abduction procedures etc. However almost all of these are also the subject of wider international treaties such as the Hague Convention on International Child Abduction, the treaty network for Reciprocal Enforcement of Maintenance Orders etc.   Many family lawyers would welcome an early demise of the “race to file” incentive contained in the Brussels II (Bis) Regulation. It was intended to produce a single rule to eliminate forum disputes. Instead it exacerbated power imbalances in domestic situations and greatly increased cost and conflict. Since its introduction and since the profession has seen its practical effects I have been unable to find a single considered argument in favour of it. Nonetheless it is now unchangeable within the EU. However whether the UK parliament will be interested enough to alter it has to be an open question.

If the UK voted to remain, that endorsement would certainly give support to further moves towards uniformity.  The commission makes no secret that it regards further measures which would bring more uniformity to personal law as desirable. Among these are extending individual’s rights to choose their own law, say, the law applicable to their marital property regime. The Rome III arrangements over inheritance rules would doubtless not be far behind. There are perfectly respectable arguments in favour of these rules but they have significant implications for people’s private lives. But we need to recognise that asking UK courts to import foreign law is a radical departure.

The European Arrest Warrant may well be the subject of early change. As is well known it has meant that fast track extradition to other EU member states will take place effectively upon request. Traditionally extradition could only take place if the crime alleged was also a crime in the United Kingdom, and there would be a fair trial in the country seeking extradition. Fair trial is meant to be guaranteed by the universal standards required of EU countries. However the very different criminal systems lead to different perceptions. For example plea bargaining is repugnant to English criminal law but a UK subject can be extradited to countries where high conviction rates are obtained because of draconian outcomes if the accused does not plead guilty. The same effect as the European Arrest Warrant is produced by the extradition treaty with the US, except notably it is not reciprocal – the US will not allow its citizens to face the same risk. Some countries have fewer safeguards in relation to evidence. The differences can be highly technical but very significant. Again it comes back to whether it is desirable to have full comity across the board as a desirable outcome at the perhaps small price of perceptions of injustice on the part of those caught between the mill stones.

The operation of a lawyer’s business may be affected. Value Added Tax is applied across the EU and is a bedrock of its revenue raising formula. When your client is located in the EU, you apply VAT at the UK rate. Some commercial users may apply the cross-border offsetting VAT arrangements. Legal services rendered to clients outside the EU are VAT free. If there is a Brexit, the chancellor will have to decide whether VAT will still be applied at all, and if so, how will it apply to legal services for non-residents? On the one hand abolition or applying it only to residents would provide a substantial competitive advantage; on the other hand it would be a significant loss of revenue.

Law firms are a knowledge based industry. They are not mass employers but they attach a high premium to talent. The UK legal profession is remarkable for its international reach and size, far more than any other country by proportion. How would Brexit affect that? That critically depends on immigration policy. The easy flow of French, German and Spanish students to get a taste of English law firms might shrink (although bearing in mind that the Erasmus programme is independent of the EU, not necessarily). On the other hand a points based system might bring in more highly qualified US, South African and Australian lawyers, depending on the priority a government puts on lawyers as against, say, doctors and computer engineers.

England has opened its profession to Regulated European Lawyers. Although this acquired its impetus from the Commission policy of opening up the services market, it was not imposed on the UK and is not reciprocal in many EU countries. In other words, we saw it as advantageous, and so again, it is unlikely to be restricted in the future. Trading in goods takes place around the world. Adam Smith demonstrated that protection is in effect a tax on citizens by making them buy goods (and services) at a higher price than otherwise. The EU is emphatically not a free-trade zone. Rather it is a large customs union applying internally uniform rules. It has taken only uncertain steps towards an internal market in services. UK law firms have been highly successful as exporters but they do it by establishing local offices to go “under the radar”, not by competing directly by exporting services to other EU member states. Therefore it seems that the profession’s success has been due to its own efforts rather than relying on EU regulation to open the door.

For the same reasons a family law firm may see a change in its client base. Family lawyers already have a highly international client base. Presently there are different rules for EU origin clients against clients from other parts of the world. If the vote is to leave, the same rules would apply equally to litigants from all countries.

References

[1] “Making EU Law into UK Law” – Vaughne Fuller House of Commons Standard Note SN/1A/7002
[2] “Making EU Law into UK Law” – Vaughne Fuller House of Commons Standard Note SN/1A/7002
[3] Brexit: “To Hell in a Handcart” – Bailey-Harris and Wilson May 2016 Fam Law 568
[4] Brexit: “England and Wales as a Global Family Law Leader or EU Emasculated?” – David Hodson OBE May 2016  Fam Law 572

The mediation of trust and estate disputes

Articles, Family and Matrimonial, Latest News, Litigation Mediation & Arbitration

Will and trust disputes take many forms. A person may bring a claim that a will was invalid, and should therefore not be admitted to probate. For example, the testator may have lacked mental capacity at the time the will was executed, or the will may not have been properly witnessed, or the circumstances in which the will was prepared may be so suspicious that the court should not allow it to be admitted to probate.[1] A person who has been left out of a will may bring a claim for reasonable financial provision under the Inheritance (provision for family and dependants) Act 1975. Problems can arise with a will even after probate. A beneficiary may complain that the trustees have not properly considered him or her when exercising their discretion. Or the claim may be that the trustees or a third party have caused the estate or trust loss through bad management or investment.

Mediation is a very useful and effective way to resolve such disputes, whether or not litigation has been started. This article sets out the matters to consider when preparing for a mediation of such a dispute.

Selection of the mediator

Many parties choose a solicitor or barrister with professional experience of will and trust disputes as a mediator. Others say that a good mediator does not need to be a trust lawyer to mediate a trust or will dispute. Because trust and will cases have many technical issues, I always recommend choosing a trust lawyer as the mediator.

Arrangements for the day

Most commercial cases can be resolved in a day or less. Trust and will cases are no exception. The only problem is the drafting of the settlement when the parties have reached agreement in principle. This drafting frequently takes over an hour, sometimes two hours, and starting drafting the settlement agreement at 7 pm or even later, when everyone is thinking of going home, is no joy.

Who should be at the mediation

If proceedings have been issued all parties need to be represented at the mediation, but if there are a number of defendants one solicitor or barrister may be able to represent several parties without an insurmountable conflict of interest occurring. The mediation runs best if there are only two or three main protagonists, but all parties need to be present or represented or agree to be bound by the outcome. In a will case you do not need every legatee to be at the mediation. It is usually sufficient in addition to the claimant to have the residuary beneficiaries and the trustees, executors or personal representatives. However if some of the beneficiaries or potential beneficiaries are minors or perhaps not even born you will need to make sure that they are represented even if they have not yet been formally made a party to the proceedings. Parties to a mediation sometimes think they should bring their full professional team to the mediation: their solicitors, counsel and experts. Having solicitors and counsel present may help the parties and the mediator better to understand the merits of the dispute, but there is really no need to have experts as well. If they are to give evidence at the trial experts need to prepare a written report of their opinion on the matter about which they were instructed. If expert reports have been prepared they may be useful for the mediator, but no-one is going to give evidence orally at the mediation.

Authority to settle

As with any mediation it is essential that the people present at the mediation are in a position to sign a deal without needing to get authority from another person. In some cases a person may authorised up to a known financial limit. That is fine so long as the limit does not need to be exceeded. If it may need to be exceeded, perhaps late in the day, contact by phone may need to be made as a matter of urgency.

Tax advice

Saving tax should always be high on the agenda when dealing with trust and will disputes. A particular settlement can frequently be effected in more than one way, and the parties will need tax advice as to the most tax-efficient way to proceed. It probably is not necessary for an accountant to be present at the mediation, but one should be available on the phone up until the evening. Inheritance Tax can often be saved by a variation of a will within two years of the testator’s death or by the settlement of a claim under the Inheritance (Provision for family and dependants) Act 1975.[2]

The documents for the mediator

Typically in a disputed will case the documentation to be supplied will include the disputed will, eceased’s last will, the deceased’s previous will, the solicitors’ will file, extracts from the parties’ correspondence, the Deceased’s medical records and any expert medical reports obtained for the parties. If proceedings have been issued, include also the statements of case and the main witness statements. An up-to-date valuation of the estate or trust fund is vital, so the parties and the mediator know how much is in dispute. It is helpful for the mediator to know whether any settlement offers have been made before the mediation. All parties should be ready to tell the mediator how much their legal costs amount to, and how much more will be spent if the action goes to a trial.

Position statements

In all commercial mediations, not just trust and will disputes, it is very helpful if all parties set out in writing the position they hold at the start of the mediation. These are usually prepared by the parties’ lawyers. There is nothing to be gained from a position statement which merely reiterates the points made in a party’s statement of case. That merely heightens any bad feelings between the parties. What is helpful is to indicate that the party hopes the mediation will achieve a settlement, perhaps how the party hopes that will be achieved, and possibly what form of settlement the party considers may be realistic.

The form of the settlement

If proceedings have been issued they must be ended. The usual way is for the parties to agree a form of court order known as a Tomlin order to be made by the court by consent. Or it may be appropriate for a will to be proved in solemn form. In cases where I have been the mediator I usually leave the drafting of the settlement to the parties’ counsel to finalise, though if the parties do not have counsel I have sometimes drafted the necessary documents myself.

Costs

Any settlement should deal with the legal costs that the parties have incurred. In some cases it may be appropriate for all parties’ costs to be paid out of the residuary estate. However in most cases settled at a mediation I have found that each party bears their own costs, usually out of their share of the estate. That way all parties leave with their head held high, and nobody has lost face.

[1] Wintle v Nye [1959] 1 All ER 552, [1959] 1 WLR 284.

[2] Inheritance Tax Act 1984 sections 142 and 146.

Confidentiality and openness in the Family Courts

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The debate about openness and transparency within the Family Courts has been reignited following a High Court’s ruling that the financial details of Liam Gallagher’s divorce to fellow singer Nicole Appleton could not be reported in the press.

Prior to the implementation of new Family Procedure Rules 2010 (“FPR”) in April 2009 , financial remedy proceedings between divorcing spouses were entirely confidential, subject only to matters of specific public interest where permission might have been granted to the media to report the proceedings. That has all changed.

The rules now provide that the proceedings will be held in private except where (a) the rules or any other enactment provide otherwise; or (b) the court directs otherwise (FPR 27.10). Although ‘in private’ prevents ordinary members of the public from attending, accredited members of the press are permitted to attend pursuant to FPR 27.11. There remain statutory prohibitions on the press attending certain hearings, such as Financial Dispute Resolution Hearings (at which parties try to negotiate a settlement with the assistance of a judge), but otherwise the question of whether the media can be admitted and, if so, the extent to which they can report what they hear is entirely at the discretion of the judge.

There has been a significant divergence of judicial approach to the application of these rules since they came into effect. In one camp, occupied most notably by Mr Justice Holman, a senior High Court judge in the Family Division, there is the view that financial remedy proceedings should be held in open court with a starting point that there should be no reporting restrictions placed on the media. In the other camp sits Mr Justice Mostyn, who has openly disagreed with Holman J and has placed reporting restrictions on the press at final hearings.

Both judges have taken opportunities of late to articulate their differing interpretations of the rules. In February 2014, in the widely reported case of Luckwell v Limata [2014] EWHC 502 (Fam), [2014] 2 FLR, Holman J justified his decision to grant full public and media access (with no reporting restrictions save for an order not to name the three children of the marriage) to what he himself described as “an exceptionally bitter hearing”, by saying: “In my view FPR 27.10 does not contain any presumption that financial remedy proceedings should be heard in private – it is no more than a starting point – and the question whether a given case should or should not be is entirely in the discretion of the court”. Further, in his judgment following the more recent hearing of Fields v Fields [2015] EWHC 1670, another case which attracted considerable coverage in the national press, he said: “…the people must be allowed, so far as possible, to see their courts at work. There is considerable current, legitimate public interest in the way the family courts daily operate, and that cannot be shut out simply on an argument that the affairs of the parties are private or personal…”

Mostyn J, on the other hand, recently made a compelling argument for privacy in financial remedy proceedings in his judgment in DL v SL [2015] EWHC 2621 a case in which he ordered that the anonymity and privacy of the parties in respect of their personal and financial affairs be preserved. Whilst acknowledging that under FPR 27.11 the media can attend a hearing, in his view this was primarily for the purposes of enabling the press to be “the eyes and ears of the public”, to ensure that the case is “conducted fairly” and to enable the public “to be educated in an abstract way”. It did not, however, extend to breaching the privacy of the parties. Financial remedy proceedings were “quintessentially private business” and, in his view, the starting point is that they should be heard in private unless there are compelling reasons to the contrary.

Concluding his judgment, Mostyn J took the opportunity to ask the Court of Appeal to consider the present “unhelpful divergence of opinion” amongst the judiciary and to devise appropriate guidance.

Following hard on the heels of that judgment comes the case Appleton & Gallagher V News Group Newspapers and PA [2015] EWHC 2689 (Fam), in which the former Oasis singer Liam Gallagher and the television presenter and singer-songwriter Nicole Appleton made a joint application to exclude the press from hearings concerning the financial aspects of their divorce. Mostyn J relaxed two existing interim injunctions, thereby allowing the press to attend the hearings and to name the parties (and indeed photograph them arriving and leaving court) but prohibiting them from reporting details of the parties’ financial affairs. He said details of the parties’ children’s lives should also remain private.

Expressing approval of the decision of the Court of Appeal in Clibbery v Allan(No 2) [2002] EWCA Civ 45 which provided the rationale for the “long-accepted prohibition on publication of private ancillary relief proceedings (now referred to as financial remedy proceedings)“, he noted that financial remedy proceedings are subject to a “far wider” scope of disclosure than in a civil dispute: “you basically have to disclose everything about your economic life”. But “information compulsorily extracted by one party from the other is subject to an implied undertaking that it will not be used for any purpose other than the proceedings”. A party telling the press what the other party had said in the witness box would be in contempt of court, as would a third party who subsequently published what had been said.

Mostyn J said that following the introduction of FPR 27.11, which now permits the admission of the press, but not the public, Parliament had specifically maintained these proceedings as private: “It is inconceivable that Parliament could have intended to destroy the effect of the implied undertaking when it allowed the press to observe these private proceedings as a watchdog”. Mostyn J did, however, grant permission to NGN to appeal to the Court of Appeal and, in doing so, expressed the hope that the Court of Appeal would use the opportunity to provide clarification of the rules which he described as a mess. Watch this space!

MACKAY v MACKAY [2015] EWHC 2860 (Fam)

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Background

Caroline Mackay, (the Applicant wife) and Giles Patrick Cyril Mackay, (the Respondent husband) were married and there have been divorce and financial proceedings, resulting in a final Consent Order for financial provision for the wife in November 2014.

Mr Mackay is described as a “millionaire property tycoon” and the principal asset of the parties was Mr Mackay’s majority shareholding in a company. The Consent Order was entered into on the basis of there being a value of about £XM for the company as a whole and £YM for the husband’s shares in it.

Since the final Consent Order in November 2014, the wife had said that she had learned that in a period prior to the Order being made and whilst the proceedings were on-going, the husband had been, or may have been, in some communication or negotiation with a possible purchaser for his shares, or all the shares, in the company at a figure considerably greater than the figures that the Consent Order was built upon.

As a result of this, Mrs Mackay is of the opinion that she is entitled to a significantly higher award and considers that the existing Order should be set aside. Accordingly, she made an application for an Order setting aside the November 2014 Consent Order on the basis of material non-disclosure. Mr Mackay had been valued as having assets worth more than £20m however, Mrs Mackay claims his shares in the firm Hometrack were valued “at a figure very considerably greater” than covered by the settlement.

Procedure

The matter was listed for a two stage Court process, being an initial listing for several days in mid-October 2015 for consideration of whether or not the existing Order should be set aside, and a second hearing in February 2016 that in the event that the existing Order was set aside. The matter went before Mr Justice Holman for a pre-trial directions hearing on 18 September 2015. At that directions hearing, Mr Justice Holman said that there could not realistically be an effective hearing of the set aside application in as early as mid-October 2015, in circumstances where the Judgments to be handed down from the Supreme Court in relation to Sharland and Gohil, were awaited, and which involved consideration of the appropriate principles and approach on set aside applications of that very kind. Mr Holman said that it was “completely inappropriate that this Court should embark on any substantive consideration of set aside until the decision and Judgments of the Supreme Court in those cases are published and known, so, on any view, the set aside hearing could not take place on the dates affixed in mid-October.”

In addition, at this hearing, Mr Justice Holman in fact recused himself and explained his reasons within a short ex tempore judgment. Both the Judge and the husband were keen on sailing and it appeared that the Judge may have known, or had friendships, with certain sailing friends of the husband. Although there was no application by either party that the Judge should recuse himself as a result of the one friend they did have in common, the Judge decided that it did not seem appropriate for him to hear the case in circumstances where he may “feel personally embarrassed”, drawing on paragraph 25 of the leading authority on the circumstances in which a Judge should recuse himself Locabail (UK) Limited v Bayfield Properties Limited and others [1999] EWCA Civ 3004.

The trial will take place later this year and the parties and the legal representatives will be looking towards the Judgment of Sharland and Gohil of the Supreme Court anxiously.

Sharland and Gohil

Mrs Sharland and Mrs Gohil were both seeking to overturn their first divorce settlements in circumstances where their husbands deliberately and dishonestly provided incorrect information through the disclosure process, ultimately affecting their final divorce settlement. The duty of full and frank disclosure is owed to the court, and both appeals were allowed unanimously. Unless there is compliance with this duty, the Court cannot undertake its statutory duty under the Matrimonial Causes Act 1973.

The matters were heard on 8, 9 and 10 June 2015 in the Supreme Court and the Judgements were given on 14 October 2015. Although the cases were heard together, separate judgments were given dealing with each wife’s leave to appeal to the Court on the grounds that their husband’s fraudulent non-disclosure had allowed the husbands to benefit financially in the final settlement.

Sharland

Background

Alison Sharland brought a claim for financial provision against her husband, Charles Sharland, following their divorce. Mr Sharland’s accountants valued his shares in a company of which he owned a two-third share, at £7 million. However, Mrs Sharland’s team valued them at £32 million. During the course of the hearing, the parties were able to reach agreement and the terms of the draft order were agreed and approved by the Judge. Mrs Sharland made a compromise on the basis that the value of the shares was no more than £32 million, and that the company would not be floated on the stock market for several years. However, contrary to Mr Sharland’s evidence, it become apparent that he had been holding discussions with various investment bankers as part of active preparations for an initial public offering of the company. Reports around that time suggested the price could be around $750 million to $1 billion.

 

Judgment of the Supreme Court

The Supreme Court found that the Court has the power to set aside its own Order if there has been fraud, mistake or material non-disclosure. However, the Court has flexibility in its remedies and it does not automatically set aside the whole Order. The Court has the power to make a selective set aside, for example, by setting aside certain provisions. In Gohil, only the dismissal provisions were set aside.

The Court found that it was crucial to distinguish whether the non-disclosure was fraudulent, or innocent/negligent.

This was the first occasion since Livesey v Jenkins in 1985, that material non-disclosure had been considered at the highest appellate level. In fact, the Supreme Court found that Livesey v Jenkins continues to apply where non-disclosure is innocent or negligent. The Court may set aside an Order were a party is able to establish the following:

(a)      That there has been non-disclosure; and

(b)      Which, if known, would have resulted in the court making a substantially different order.

The Supreme Court has made it clear that not all forms of non-disclosure will result in the setting aside of a Consent Order. It will depend upon whether the non-disclosure is material to the Order made by the Court. If there is fraud, materiality is assumed (the material time is the date the Court made the Order), and the innocent party would be entitled to have the Order set aside unless the offender of the fraud can establish that at the time the Court made the Consent Order, (a) the fraud would not have influenced a reasonable person to agree to it, and (b) had it known then what it knows now, the Court would not have made a significantly different Order, whether or not the parties had agreed to it.

Gohil

Background

Varsha Gohil had reservations as to the validity of the disclosure provided by her husband, Bhadresh Gohil, during financial remedy proceedings. She highlighted the disparity between his alleged and his affluent lifestyle. However, owing to the fact that she had difficulty proving her case, she agreed a final settlement on the basis that the Order detailed her concerns by way of a Recital, recording that although she believed that Mr Gohil had not provided full and frank disclosure, she was prepared to compromise her claims despite this, in order to achieve finality.                                                                                                

Judgment of the Supreme Court

The Supreme Court held that there was material non-disclosure by the husband (that required a change in approach per Livesey), and despite parts of the evidence being inadmissible, the Judge had sufficient admissible evidence to support a finding of significant material non-disclosure.

It was however found that the recital in the original Order recording that Mrs Gohil believed that the husband had not given full and frank disclosure was of no legal effect, as the duty of full and frank disclosure is owed to the Court and one spouse cannot exonerate the other from complying with their duty.

How might these Supreme Court Judgments affect the decision in Mackay v Mackay?

In Mackay, since the final Consent Order in November 2014, the wife appears to have learned that whilst the financial proceedings were on-going, the husband had been, or may have been, in negotiations with a purchaser for shares in the company at a figure considerably greater than the figures that the Consent Order relied on.

Helpfully to Mrs Mackay, the two Judgments of the Supreme Court set a clear precedent for the way the Courts should deal with fraudulent non-disclosers, and the Court clearly identifies the issues involved with non-disclosure of material financial information. Fraudulent non-disclosure cannot be tolerated and the dishonest behaviour of the two husbands has been condemned.

The duty to provide full and frank financial disclosure to the Court is the foundation of financial remedy proceedings. Dishonesty in any legal proceedings, family or otherwise, should not be condoned. However, to date, nothing has been done in the family Courts to punish a deliberate breach of the duty of full and frank disclosure in order to try to secure or preserve a greater share of the ‘matrimonial pot’.

In the matter of Sarah Kimura Al-Baker v Abdul Amir Al-Baker [2015] EWHC 3229 (Fam), Mostyn J has imposed an immediate nine month custodial sentence for non-disclosure by a husband who systematically failed to comply with disclosure orders of the English court. Committal for breach of an order is the Family Court’s last line of defence against non-compliance. Mostyn J found that not only had the husband refused to comply with disclosure, he had been defiant in his refusal to do so. The Al-Baker case highlights the increasing hard line that the courts are taking towards non-disclosure.

If it becomes apparent that the husband was in fact in discussions with a potential purchaser prior to the Order being made, and that he fraudulently and dishonestly mislead the wife and the Court, then there are likely to be serious ramifications. The Supreme Court has clearly stated that dishonest behaviour of this nature will no longer be tolerated by the family courts, and it is possible that the Order of November 2014 may be set aside (or parts of it), to allow a re-opening of the financial settlement.