UK: Family Law News - July 2011

HARMONY IN EUROPE? AN ENGLISH PERSPECTIVE

By Vanessa Mitchell and Victoria Nottage

On 18 June 2011, the EU Maintenance Regulation1 (EC No 4/2009) came into force, replacing what has colloquially been known as 'Brussels I' (Council Regulation No 44/2001) for all issues arising in the family context which relate to maintenance.

The primary aim of the Maintenance Regulation is to simplify the enforcement of maintenance orders between EU Member States by abolishing the requirement of a declaration of enforceability as between signatories to the Hague Protocol.2 However, the effects of this Regulation are not quite that simple, and it is worth noting that the Regulation contains provisions relating to jurisdiction and applicable law which are more wide reaching.

Jurisdiction

A Member State will have jurisdiction to make a maintenance order if the maintenance creditor and debtor are both 'habitually resident' in that country or in the event that they have related proceedings for divorce or parental responsibility in that country already. It is also possible for spouses/parents to elect the country which should have jurisdiction to deal with maintenance issues, in writing (even by email), as long as there is a connecting link (set out in the Regulation) with the country chosen, whether at the time the pre-nuptial agreement was signed (if they have one) or at the time the proceedings are brought.

Hague Protocol and Applicable Law

In addition to the choice of court, by adopting the Hague Protocol, which has been signed by all the Member States apart from the UK and Denmark, the Maintenance Regulation also contains rules which will determine the law that will be applied when maintenance is sought pursuant to the Regulation. Again, it is possible for parties to elect the applicable law in a similar way to jurisdiction, as outlined previously. However, it is important to note that, as the UK is not a signatory, the English Court will continue to apply its own law to any dispute before it.

Recognition and Enforcement

A key feature of the new Regulation is the automatic recognition and enforcement of maintenance orders in EU Member States which, in theory at least, should make it easier to enforce orders against a reluctant payer. There is no longer a requirement for a party with the benefit of a maintenance order to obtain a declaration of enforceability, nor is it possible for another signatory State to oppose recognition. However, because the UK decided not to opt into the Hague Protocol (which has far-reaching effects concerning the introduction of rules of applicable law), maintenance orders of the English Court will not be directly enforceable elsewhere. The practical application is that Member States will be able to refuse to recognise an English order, for example, in circumstances where it is seen to be contrary to their public policy or where the maintenance order has been made in default of appearance by the paying party.

What the Regulation does not address

Regrettably, the Regulation misses the opportunity to address the vexed question of what 'maintenance' encapsulates. As a general principle, the English Court adopts a holistic approach to the resolution of financial issues relating to a divorce; considering the assets, income and all other circumstances of the case in the round. This is very different to the approach taken in other Member States of the EU who are bound by strict codes that determine the division of a marital property regime without the room for manoeuvre afforded by the world famous discretionary jurisdiction of the English judiciary. Although there is significant European case law on the subject of 'maintenance' (eg Van den Boogaard v Laumen ECJ C-220/95), the approach to the division of assets on a family breakdown is likely to continue to vary significantly and one perhaps unintended and unfortunate consequence of the 'choice of law and choice of jurisdiction clauses' in this Maintenance Regulation is that parties continue to be faced with the risk that their maintenance claims will be dealt with in one jurisdiction, and all other financial claims dealt with in another.

Also left open is how to address the situation where a maintenance award has been made in one jurisdiction, but the receiving party issues a further application in England under Part III of the Matrimonial and Family Proceedings Act 1984 for a financial award following a foreign divorce. It is not clear from the Regulation whether that party is barred from pursuing any aspect of maintenance under the 1984 Act and that issue will have to be determined in the due course by case law.

In short, whilst our EU counterparts can rest assured that their maintenance orders should be directly recognised and enforceable in England, English practitioners will have to keep an eye on the possibility that English orders will not be so readily enforced overseas, in particular where the awards in so called 'big money' cases are clearly contrary to foreign policy.

INCONSISTENCY REIGNS OVER PRE-ACQUIRED ASSETS

By Katharine Landells

The recent decision of the Court of Appeal in Robson was discussed in the last newsletter. Just before we went to press, another key judgment of the Court of Appeal was handed down: Jones v Jones [2011] EWCA Civ 41. This article expands on the short 'stop press' that appeared at the end of the last newsletter.

Both Robson and Jones shared a central similarity: the existence of wealth, external to the marriage but in some way treated as a resource during it, which had to be divided on divorce having regard to its nature and quality. Whereas in Robson the entirety of the husband's wealth had been accumulated before the marriage and inherited from the husband's father, in Jones the husband's business was the only significant asset in the case. It had been in existence since around 1986, approximately 10 years before the marriage. The parties married in 1996 when the husband was 44 and the wife was almost 30. They separated in January 2006. Although at the start of the financial proceedings the husband valued his business at approximately £3m, it was sold in May 2007 producing a net profit of £25m at that time.

Approaching the division of the available assets, Lord Justice Wilson in the Court of Appeal began by saying that the total assets of £25m should first be divided into non-matrimonial and matrimonial constituent pots. These pots were to be divided between the parties in a fair manner, taking account of all the circumstances of the case.

Lord Justice Wilson concluded that there was no reason for the wife to share the non-matrimonial assets and, by contrast, there was no reason why the matrimonial assets should not be shared equally.

The question then was the value of the non-matrimonial assets – ie the value of the Company as at the date of the marriage.

Lord Justice Wilson identified two adjustments that had to be made to a standard valuation of the company as at the date of the marriage. (The parties' accountants had agreed that, prior to the adjustments referred to below, the company was worth £2m). The first adjustment was to accommodate the concept of 'latent potential' or 'springboard', which was the potential the company had developed by the time of the marriage to generate the increase in value in later years. Lord Justice Wilson's view was that the figure of £4 million better reflected the value of the company at the date of the marriage, taking account of any 'latent value'.

Secondly, an allowance had to be made for 'passive economic growth' between the date of the marriage and the date of the sale. The increase in the value of an asset due to passive growth was as much non-matrimonial as its value at the date of the marriage and so, to be fair to the husband in this case, Lord Justice Wilson indexed the £4m upwards, producing a figure of £9 million as the value of the non-matrimonial part of the company.

Dividing the figure of £16m equally (being the difference between the attributed value of the company at the beginning of the marriage (£9m) and at the end (£25m)) gave the wife £8m.

Finally, Lord Justice Wilson concluded that, having taken a 'mathematical' route, the figure produced by the calculation had to be cross-checked against what the judge felt was instinctively fair. In this case the award satisfied that 'crosscheck', being 32% of the total assets in the case.

A brief 'compare and contrast' analysis of Robson and Jones is useful in highlighting the very different approaches to pre-acquired wealth. Whilst the two cases, on a broad overview, might seem similar, the cases have resulted in different outcomes. A distinction was drawn between an inherited family estate in Robson, where the wife's award was confined to that which would meet her needs, and a pre-owned company, where the increase in the value of that company during the marriage was shared equally between the parties.

The conclusion? The nature and source of the assets in question, and any increase in value during the marriage, are important considerations when approaching the question of how pre-acquired assets are treated for the purpose of the division on divorce.

HOME AND AWAY

By Gemma Crabtree

As family life becomes more international, the movement of children between different countries becomes a more common problem for separating parents and for the courts to grapple with. The Hague Convention on the Civil Aspects of International Child Abduction 1980 (the 'Hague Convention') is an international convention under which children wrongfully removed from a signatory country or wrongfully retained in a signatory country are returned to their country of habitual residence.

Family law practitioners were given some much-needed guidance this month on the application of the Hague Convention in the case of E (Children) [2011] UKSC 84. The case considered an appeal by a mother who refused to return her two daughters to their father in Norway, having removed them to England from Norway against the wishes of the father.

The father applied under the Hague Convention for the children to be returned; the Judge at first instance decided that it was overwhelmingly in the children's best interests, for them to return to Norway for their futures to be decided there. The Court of Appeal rejected the mother's appeal against that decision, as did, subsequently, the Supreme Court, who concluded that:

'the whole of the Hague Convention is designed for the benefit of children, not of adults. The best interests, not only of children generally, but also of any individual child involved are a primary concern in the Hague Convention process. We agree with the Strasbourg court that in this connection their best interests have two aspects: to be reunited with their parents as soon as possible, so that one does not gain an unfair advantage over the other through the passage of time; and to be brought up in a 'sound environment', in which they are not at risk of harm. The Hague Convention is designed to strike a fair balance between those two interests. If it is correctly applied it is most unlikely that there will be any breach of Article 8 [of the European Convention on Human Rights] or other Convention rights unless other factors supervene.'

This helpful synopsis realigns the correct approach, which some feared would be impacted by the International Court of Human Rights' recent decision in Neulinger and Shuruk v Switzerland. In that case, the European Court held that to enforce the Swiss Federal Court's decision to return a child to Israel would be an unjustifiable interference with the right to respect for the private and family lives of the mother and the child under Article 8 of the European Convention on Human Rights.

JAW JAW NOT WAR WAR

By Suzanne Kingston

On 6 April 2011, a Pre-Action Protocol was launched together with the New Family Procedure Rules. In essence, now in every family case – whether financial or involving children – solicitors are obliged to consider whether or not they should refer their client for a Mediation Information Assessment Meeting (MIAM).

The new rules also require the court to consider, at every stage of the proceedings, whether mediation is appropriate and it has the power to adjourn proceedings of its own motion whilst mediation is explored. In V v V [2011] EWHC 1190 (which is a very recent case concerning a jurisdictional dispute), Mr Justice Peter Jackson reminded the parties and their lawyers of the Court's powers to adjourn the proceedings and the requirement to consider mediation. He said, 'he expected this option will be very much in the mind of judges concluding any future cases'.

Cost implications could arise in cases where mediation is not explored. However, not every case is suitable and it is possible for a solicitor to pre-screen to say that mediation should not take place. However, solicitors are encouraged to promote mediation at the earliest available opportunity and to set up a MIAM for the client to meet a mediator (whether on their own or jointly with their partner) to see if mediation is likely to be successful and to encourage the clients to continue in the mediation process. This signifies an increasing awareness of the importance of trying to settle family disputes early and constructively. We have mediators in the family team at Withers who are able to spend time with clients considering whether or not they are suitable for mediation and to deal with the MIAM process.

Although the Pre-Action Protocol refers exclusively to mediation, there is an argument that it should embrace all forms of Alternative Dispute Resolution to include Collaborative law. We also have a number of collaborative lawyers in the team.

Another exciting development in this area is Arbitration. This has never been used in the family law context before in this country and the first training course is being run in September 2011. Suzanne Kingston, a partner in our team, is teaching the course and it is anticipated that a number of partners in the family team will train. So, rather than waiting several months, if not years, in the court system, it will be possible to opt for Arbitration and have a fully binding and final adjudication provided by a senior family lawyer who has had years of practical experience.

We appreciate that although it is great to have aspirations towards settling cases, that is not always practicable or possible. There may be issues of law at stake or entrenched differing views that can only be resolved by a court. Alternative Dispute Resolution is not for everybody in every case. It is simply, what it says it is – an alternative way of resolving issues on relationship breakdown.

Footnotes

1) Council Regulation No 4/2009 of 18 December 2008 on jurisdiction, applicable law, recognition and enforcement of decisions and cooperation in matters relating to maintenance obligations.

2) The Protocol to the Hague Convention on the International Recovery of Child Support and other forms of Family Maintenance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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