Financial Remedy Case Law update for 2024 by David Marusza

A host of interesting cases have been published over the last year to date in the world of financial remedies on divorce. Some of the more significant and useful to practitioners are considered below.

Division of assets: matrimonialisation
Standish v Standish [2024] EWCA Civ 567 (CA) – May
Moylan, King and Phillips LJJ

This was an appeal to the Court of Appeal by W and H’s cross appeal.

• The marriage, which was a second marriage for both parties, took place in 2004. H had accumulated substantial capital from work in the financial sector prior to the marriage with total assets being £132m, £112m of which were non-matrimonial and £20m of which were matrimonial assets.
• In 2017, £77m was transferred to W for tax reasons. Moore J found those assets had been matrimonialised.
• W appealed, contending there was no such thing as “matrimonialisation” and argued that a business “Ardenside Angus” was a matrimonial asset.
• H cross-appealed arguing that the assets were not matrimonial property and the judge’s distribution was excessive.

The Court of Appeal held that:

• Contrary to arguments run by W, for the purposes of the sharing principle, the source of the asset, not title to the asset, was the material factor [cf. para 149].
• Focus on legal or beneficial title would itself be discriminatory.
• The concept of matrimonialisation was a valid concept, which should continue to be applied.
• The wife’s award was reduced by £20m as a result.

Business Valuations
HO v TL [2023] EWHC 215 – December 2023

This judgment contains a masterly summary in relation to law surrounding company valuations and discounts for illiquidity by Mr Justice Peel. Peel J’s summary of the law in this area at paragraphs 22 to 27 should be required reading in cases involving business/company valuations:

21. First, it is for the court to determine the value, not the expert.
22. Second, valuations of private companies can be fragile and uncertain. In Versteegh v Versteegh [2018] EWCA Civ 1050 Lewison LJ said at para 185:
    “The valuation of private companies is a matter of no little difficulty. In H v H [2008] EWHC 935 (Fam), [2008] 2 FLR 2092 Moylan J said at [5] that “valuations of shares in private companies are among the most fragile valuations which can be obtained.” The reasons for this are many. In the first place there is likely to be no obvious market for a private company. Second, even where valuers use the same method of valuation they are likely to produce widely differing results. Third, the profitability of private companies may be volatile, such that a snap-shot valuation at a particular date may give an unfair picture. Fourth, the difference in quality between a value attributed to a private company on the basis of opinion evidence and a sum in hard cash is obvious. Fifth, the acid test of any valuation is exposure to the real market, which is simply not possible in the case of a private company where no one suggests that it should be sold. Moylan J is not a lone voice in this respect: see A v A [2004] EWHC 2818 (Fam), [2006] 2 FLR 115 at [61] – [62]; D v D [2007] EWHC 278 (Fam) (both decisions of Charles J).”
23. Third, I suggest that the reliability of a valuation will depend on a number of factors such as: (i) whether there are applicable comparables, (ii) how “niche” the business is, (iii) whether the business is to be valued on a net asset basis (for example a property company) or one of the recognised income approaches (such as EBITDA or DCF), (iv) the extent of the parties’ interests, and accordingly their level of control, (v) the extent of third party interests, (vi) the relevance of any shareholders’ agreements, (vii) whether there is a realistic market for sale, (viii) the volatility or otherwise of the figures, (ix) the reliability of forecasts, and (x) whether the assumptions underpinning the valuation are seriously in dispute.
24. Fourth, in practice the choices for the court will be, per Moylan LJ in Martin v Martin [2018] EWCA Civ 2866 at para 93: (i) “fix” a value; (ii) order the asset to be sold; and iii) divide the asset in specie. The latter option (divide the aspect in specie) is commonly referred to as Wells sharing (Wells v Wells [2002] EWCA Civ 476).
25. Fifth, whether a business should be retained by one party, or sold, or divided in specie will depend on the facts of each case. Relevant features will include whether the business was founded during the marriage or pre-owned, whether it has its origins in one party’s non-marital wealth, whether the parties were both involved in its strategy and operation, the ownership structure of the business, whether Wells sharing is practical or realistic given that it will usually continue to tie the parties together to some extent, and how to ensure a fair allocation of all the resources in any given case.
26. Sixth, as was pointed out in Wells (supra), Versteegh (supra) and Martin (supra), there is a difference in quality between copper-bottomed assets and illiquid/risk-laden assets. As Moylan said LJ at para 93 of Martin (supra):
    “The court has to assess the weight which can be placed on the value even when using a fixed value for the purpose of determining the award to make. This applies both to the amount and to the structure of the award, issues which are interconnected, so that the overall allocation of the parties’ assets by application of the sharing principle also effects a fair balance of risk and illiquidity between the parties. Again, I emphasise, this is not to mandate a particular structure but to draw attention to the need to address this issue when the court is deciding how to exercise its discretionary powers so as to achieve an outcome that is fair to both parties. I would also add that the assessment of the weight which can be placed on a valuation is not a mathematical exercise but a broad evaluative exercise to be undertaken by the judge”.
27. Seventh, when deciding how to reflect the illiquidity or risk in a private company, the court has three choices:
    i) The business valuation may incorporate a discount for factors such as lack of control, lack of marketability, and lack of risk. This is particularly common where a party has a minority holding, or otherwise does not have overall control, and there are relevant third-party interests. In such circumstances, the court may simply adopt the business valuation as reflecting these matters. This I term an “accountancy discount”.
    ii) To step back when conducting the s25 exercise and, in the exercise of its discretion, to allocate the resources in such a way as to reflect illiquidity and risk. Conventionally, that would be to allocate to the party retaining the business a greater share of the overall assets to provide a fair balance. As Bodey J said in Chai v Peng and Others [2017] EWHC 792 (Fam) at para 140:
    “It is a familiar approach to depart from equality of outcome where one party (usually the wife) is to receive cash, while the other party (usually the husband) is to retain the illiquid business assets with all the risks (and possible advantages) involved”.
    It will be for the court to determine whether, and to what extent, to reflect this aspect in what might be a termed a “court discount”. Of particular relevance, it seems to me, is whether the illiquid (or less liquid) business represents the principal asset in the case, in which event the distinction between liquid/illiquid assets may be sharper and require particular attention, or whether it is a relatively modest part of the overall assets.
    iii) The court might, in the right case, take both the valuation, which includes an accountancy discount, and apply a further court discount i.e. an amalgam of (i) and (ii). Moylan LJ in Martin (supra) at para 94 considered that this would not be double counting: “…this is not…to take realisation difficulties into account twice”. It will all depend on the case. If, for example, the accountancy valuation includes a discount for a minority holding, but it is clear that there is no possibility of realisation of interest in the future by sale or otherwise, it seems to me that it would not be unfair to further take that factor into account when allocating assets.

Conduct
N v J [2024] EWFC 184 – July

• This was a first instance judgment of Peel J concerning an application between male civil partners for financial relief on dissolution.
• The Court was invited to determine the impact of domestic abuse (there was a conduct claim).
• The Court held that N’s allegations of conduct should be excluded from the issues under consideration because:
  • i) The high bar to conduct claims established in the jurisprudence (cases referred to in this judgment are examples) is undisturbed by the recent focus on domestic abuse in society and the family justice system.
  • ii) I accept that the statute does not specifically refer to a financial consequence, and it is therefore wise not to rule out completely the theoretical possibility of conduct being taken into account absent such a financial impact. Nevertheless, as the review of authorities above suggests, such cases will be vanishingly rare.
  • iii) The preponderance of authority clearly militates firmly in favour of financial consequences being a necessary ingredient of a conduct claim. This applies as much to domestic abuse allegations as to other types of personal misconduct.
  • iv) The alleged conduct (even if it reaches the threshold and has a financial consequence) must be material to the outcome. In the vast majority of cases, a fair outcome is ascertained by reference to the other s25 criteria (including needs and impact on earning capacity) without requiring the court to examine conduct.
  • v) To inquire into conduct must be proportionate to the case as a whole.
  • In short, the dicta in both OG v AG (supra) and Tsvetkov v Khayrova (supra) which attempt to distil the learning on both the law and procedure, remain, in my judgment, sound. Courts should continue to case manage conduct allegations robustly at the earliest possible opportunity.
• Peel J’s remarks are likely to bear quotation in full in position statements of parties responding to the allegations of conduct claimed and are in keeping with the Court’s generally highly reticent approach toward conduct arguments within the majority of cases.

Costs
HO v TL (Costs) [2024] EWFC 216 – December

This was the sequel to the substantive case above. Judgment was handed down in December 2023. In a judgment on the costs of the case, Peel J held that:

• The starting point when considering costs in financial remedy proceedings is that each party pays their own costs. The Court may depart from his rule under rule 28.3(6).
• The factors under rule 28.3(7) may justify a departure from the general rule of no orders as to costs. These are:
  • Any failure by a party to comply with the rules, any practice direction or orders of the court.
  • Any failure of a party, without good reason, to attend mediation or non-court dispute resolution (“NCDR”).
  • Any open offer to settle made by a party.
  • Whether it was reasonable for a party to pursue or contest a particular allegation of issue.
  • The manner in which a party has pursued or responded o the application or a particular issue.
  • Any aspect of a party’s conduct in relation to the proceedings.
  • The financial effect on the parties of any costs order.
• In particular, the judge noted that paragraph 4.4 of Practice Direction 28A sets out then duty to negotiate reasonably and responsibly. Referring to WC v NC [2022] EWFC 40, Peel J noted it was not unfair for a party guilty of litigation misconduct to “receive a sum less than equal to the needs principle” and noted that an unreasonable failure to settle the case or make attempts to do so would usually be a powerful factor when considering making orders for costs; a matter it is incumbent on legal advisers to explain [cf. 10-12].

Costs – Litigants in Person
Mainwaring v Bailey [2024] EWHC 2614 Fam – September

• Henke J ordered H (a litigant in person) to pay W’s costs after he had pursued a “hopeless appeal”.
• H wanted to be treated more leniently as a Litigant in Person (“LIP”) and said he did not understand the Family Procedure Rules
• Henke J held that LIPs needed to comply with procedural rules just as much as represented parties and made a costs order against H.
• In dismissing the appeal, Henke J relied on Piglowska v Piglowski [1999] WLR 1360 and McGraddie v McGraddie [2013] UKSC 38 concerning an appellate courts’ necessary deference to the trial judge’s discretion and evaluation of the facts at trial.

Costs and Legal Services Funding Orders
Xanthopoulos v Rakshina [2024] EWCA Civ 84 – February

• Again, an authority by Peel J who is taking on the mantle of Mostyn J by providing succinct and clear summaries of the law of particular areas for the practitioner. In proceedings at first instance under Part III of the Matrimonial and Family Proceedings Act 1984, a judge ordered W to purchase a property for H’s use during his lifetime. H did not attend the final hearing on medical grounds and an adjournment which he sought was refused. As a result, H’s solicitor and counsel withdrew H was subsequently granted permission to appeal on the ground the award made by the first instance judge was too low.
• H applied for a LSPO legal service funding order to cover his costs of appeal. Peel J considered the application and awarded £175,000 to cover the costs of H’s husband’s appeal payable by W. Noting that Rubin v Rubin [2014] EWHV 611 (Fam) continued to govern this area of law. Peel J noted that H had insufficient assets to fund the appeal while W had £7.7 million in bank accounts.
• The case is a useful example of a successful example of a legal services funding order being used to cover the costs of an appeal.

Financial provision after overseas divorce
Potanina v Potanin [2024] UKSC 3 – January 2024

• The Supreme Court considered the relevant for leave to apply for financial provision after overseas divorce pursuant to Part III of the Matrimonial and Family Proceedings Act 1984.
• The parties were Russian. H had amassed $20 billion before the marriage. Most of the assets were in a Russian mining company. In England and Wales W would have had as a starting point an award of half the beneficially owned assets, but upon divorce in Russia her claim was confined to 50% of the assets in the parties’ legal names.
• After the divorce, W moved immediately from Russia to England. She subsequently obtained leave to apply for financial provision after overseas divorce under s. 13 of the MFPA 1984. H then applied to set aside the grant of leave. Then judge set aside leave, because he considered W had materially misled him as to her connection with England.
• W appealed to the Court of Appeal who held that the husband had failed to deliver a “knock out blow” or compelling reason why leave should be set aside as required by Agbaje v Agbaje [2010] UKSC 13
• H appealed to the Supreme Court. The Supreme Court held that:
  • The existing procedure was violating procedural fairness. Requiring a “knock out blow” to set aside was wrong in law. Upon an application under s.13 for leave ex parte there was an “unfettered right” to apply to set aside under r. 18.11 of the Family Procedure Rules. Setting aside leave did not require a “knock out blow” or compelling reason.
  • The whole Court held that the test to be applied before the court could grant leave under s. 13 was whether the applicant’s claim was “substantial or solid”, i.e. whether the claim had a real prospect of success. This threshold was higher than merely satisfying the court that the application was not totally without merit or abusive. Some qualification about what Lord Collins had said in Agbaje about the claim having to be “substantial or solid” was necessary. It was neither necessary nor helpful to explain the text by comparison to other procedural tests. References to the test being higher than a good arguable case and the need to demonstrate a “knockout blow” were inapposite.

Schedule 1 to the Children Act 1989
SP v QR [2024] EWHC 57 (B) – February

• This was a first instance judgment of HHJ Hess considering an application under Schedule 1 to the Children Act 1989 concerning relatively modest assets.
• The Mother was 37, the Father was 36. M worked in the media. Father was chairman of a “well known trading company” in the manufacturing sector.
• The parties met in and cohabited for 6 years in a flat in London which belonged to H. On separation, the Mother sought a settlement of the property order for the benefit of the parties’ child during minority under Schedule 1. Father’s offer in response was £24,000 for rent for a year and statutory child maintenance.
• In his judgment, HHJ Hess settled the flat on M (subject to the existing mortgage) until the child completed their education. Father was ordered to pay £17,000 in specific expenses for capital items.
• The Court held that it could settle mortgaged property but had no jurisdiction to compel fresh borrowing. The Court also held it had no jurisdiction to order interest only mortgage payments over a decade.
• The Court made a costs order in favour of W.

Stay for Mediation
NA v LA [2024] EWFC 113 – May

• A judgment of Nicholas Allen KC sitting as Deputy High Court Judge. He heard the return date of an ex parte non-molestation and occupation orders under the Family Law Act on 25th May 2024 alongside an application for an interim order under FPR. 20.2(1)(c)for the detention, custody, or preservation of relevant property made by Peel J. On the same date, W issued an application for divorce and filed an application for MPS and a LSPO, which were yet to be listed.
• At 4.50pm, the Court was presented with agreed draft orders for non-molestation and occupation orders to be replaced by undertakings to the like effect and, at 5pm, a draft consent order for the transfer of the FMH to W and an order for the compromise of W’s LSPO application.
• The Court noted in answer to submissions from counsel that there “is no need for disclosure prior to NCDR. NCDR will almost invariably provide for disclosure to be given as part of the process.”, noting ss. 42(1) and s. 44 of the Arbitration Act 1996.
• The Court noted its duty to consider NCDR under r. 3.3(2) and its duties to actively manage cases.
• The Court noted that commencing 29th April 2024 FPR 3.10(1) provides the Court will inquire into whether the exemption has been “validly claimed or was validly claimed but is no longer applicable.
• The Court decided that this was a “paradigm case” for the court to use its power under FPR 3.4 to stay the matter for NCDR and made directions for the stay of the financial remedy proceedings with immediate effect, “that form C was not to be processed and no first appointment was to be listed at the present time and for “the parties to tell the court by way of joint letter by email to the judge by 4pm on 4th July 2014 what engagement there had been with NCDR, whether any of then issues had been resolved, and their respective proposals as to the way forward” whereupon the court would “decide the way forward”.
• The Court was alive to the figure of the parties’ combined costs of £185,000 at the interim stage and the need for costs to be kept proportionate (to the issues and assets). The issues in the case were not held to be “unusual” notwithstanding it was a “big money” case including extensive “Non-UK” non-business assets .
• The judgment is a strong steer toward NCDR in appropriate cases.

Nuptial agreements
AH v BH [2024] EWFC 125 – June

• This was a case in which Peel J gave consideration to the weight to be accorded to a Pre-matrimonial agreement (“PMA”).
• The marriage was of 5 and a half years’ duration and the assets approximately £5.3 million, £50m in the hands of the husband.
• At the final hearing H proposed W have 40% of the proceeds of the £5m family home to purchase a property on a Schedule 1 reversionary basis in addition to a lump sum of £841,000 in accordance with the PMA and an order for £30,000 pa maintenance per child stepping down to £18,000 per child in 2025.
• Peel J made an award of £20,000 pa per child in top-up child maintenance about £4.05m to W for housing provision.
• It is significant to note that W alleged no vitiating factor in respect of the PMA.
• The Court emphasised the flexibility of its approach under the s. 25 discretion and that although a valid prenup was a “constant influence” on the discretionary exercise it needed to be given appropriate weight. A pure Schedule 1 reversionary award was held to be unfair in all the circumstances, emphasising that while a properly negotiated prenuptial agreement is a significant factor, the s. 25 discretion may lead the judge in other directions having regard to fairness and need (echoing such cases as Luckwell v Limata [2014] Fam Law 962). While in accordance with the current law, this approach does diminish legal certainty in relation to the likely effect of nuptial agreements in contested financial remedy proceedings.

HJB v WPB [2024] EWFC 187 – July

• This was a judgment of HHJ Vincent concerning a separation agreement considered within the context of a notice to show cause application. This was an 8-year marriage of which there were 2 children. H was 46 and W was 43. The judgment describes them as “grown adults” when they executed the 2019 separation agreement (“post-nup”). The post-nup provided for W to retain the FMH and H to retain the business and some matrimonial properties. No vitiating factors were raised. The issue was whether the parties should be held to their agreement.
• HHJ Vincent concluded that the agreement was detailed and properly negotiated. In the circumstances the Court held it to be “presumptively dispositive” and that the court’s enquiry at final hearing would be “narrowed” as W had not succeeded in establishing that it should be disregarded or given reduced weight.

Hadkinson Orders
Williams v Williams EWHC [2024] 3098 – August

This is interesting final hearing judgment by Moor J, containing dicta as to the inappropriateness of Hadkinson applications prior to a final hearing, the Court noting that if a party cannot be heard how is it to “collect the financial data” to underpin its statutory duty to consider the s. 25 criteria?

GH v GH [2024] EWHC 2547 – October

This was an appeal against interim orders made in financial remedy proceedings heard by Peel J in which the case management judge had dispensed with an FDR and listed the matter for Final Hearing. H appealed this case management decision.

Peel J considered rule 9.15(4) (b) of the FPR and held that every case must be referred to FDR unless there were “exceptional reasons” to the contrary (r. 9.15(4)(b), stating that FDRs are a “key part” of the financial remedy process and “It is very hard to envisage a situation where an FDR should be dispensed with” and made directions listing the case to FDR.

David Marusza

Harcourt Chambers

Related areas

• Family Finance
• Appeals
• Financial Remedies
• Financial Provision for Children & Child Support
• Finances & Property