SA v PA, Court of Appeal - Family Division, February 21, 2014, [2014] EWHC 392 (Fam)

Resolution Date:February 21, 2014
Issuing Organization:Family Division
Actores:SA v PA
 
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This judgment was handed down in private on 21 February 2014. It consists of 88 paragraphs and has been signed and dated by the judge. The judge gives leave for it to be reported in this anonymised form as SA v PA (Pre-marital agreement: Compensation).

The judgment is being distributed on the strict understanding that in any report no person other than the advocates or the solicitors instructing them (and other persons identified by name in the judgment itself) may be identified by his or her true name or actual location and that in particular the anonymity of the children must be strictly preserved.

Neutral Citation Number: [2014] EWHC 392 (Fam)

IN THE HIGH COURT OF JUSTICE

FAMILY DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 21/02/2014

Before :

MR JUSTICE MOSTYN

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Between :

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Patrick Chamberlayne QC (instructed by Paris Smith) for the Applicant

Michele O'Leary (instructed by David Clark & Co) for the Respondent

Hearing dates: 17 - 21 February 2014

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JudgmentMr Justice Mostyn :

  1. This ought to have been a simple case to resolve. It was an 18 year marriage. The husband is Dutch and is now aged 50 and the wife is English and is aged 48. They have four children aged 19, 17, 15 and 13. The present divisible non-pension assets are, as I will explain below, about £3.8m of which the net value of the matrimonial home is £2.2m. The husband is a successful solicitor in a magic circle firm earning net £600,000 annually. I consider that he will have to retire in 5 years' time. The net value I will attribute to his pension arrangements is £1.14m.

  2. The reason why the case was not settled at the FDR, or tried swiftly and economically by a District Judge, but rather fought out over 3 days before me, is because it has been bedevilled by two legal complications. First, the husband lays considerable emphasis on a Dutch pre-marital agreement signed the day before the marriage (which took place in Amsterdam). Second, the wife claims that her periodical payments award should be significantly enhanced by reference to the principle of compensation as explained by the House of Lords in McFarlane v McFarlane [2006] UKHL 24 [2006] 2 AC 618.

  3. These two factors have driven up the costs. The husband has incurred costs of £163,880 and the wife of £203,430, a total of £367,310, or just under 10% of the divisible non-pension assets.

  4. The wife proposes that she should be awarded the matrimonial home outright, a lump sum of £110,000 to pay her debts, a joint lives periodical payments order of £200,000, together with child support on the basis that the husband pays school fees and university costs. As a quid pro quo for the undeniable fact that the husband is entitled to argue that some of the assets are non-matrimonial property she says that she will not seek a share of the husband's pensions, and would agree that the final order should contain a recital recording an agreement that those pensions should be ring-fenced and ignored if (or more likely when) periodical payments came to be varied.

  5. The husband, laying great weight on the Dutch pre-marital agreement, proposes that the matrimonial home should be subjected to a Mesher order whereby it is sold in 5 years time and the proceeds divided equally. He proposes a lump sum of £250,000 to clear the wife's debts and to give her a significant buffer. He proposes periodical payments for the wife of £150,000 annually for five years when the award would be extinguished. The term of maintenance would be non-extendable. In addition he offers child support, school fees and university costs.

  6. Neither of these proposals is reasonable.

  7. I will first address the legal principles referable to the two complicating factors.

    Pre-marital agreements

  8. Definitive guidance concerning the treatment to be afforded to marital (including pre-marital) agreements has given by the Supreme Court in the well known case of Granatino v Radmacher [2011] 1 AC 534. I myself attempted to summarise the principles in my decisions of Kremen v Agrest No. 11 [2012] EWHC 45 (Fam) [2012] 2 FLR 414 and B v S [2012] EWHC 265 (Fam) [2012] 2 FLR 5012.

  9. The Supreme Court emphasised that it was a complete irrelevance whether or not the marital agreement had the status of a contract: ``[it] does not matter anyway. It is a red herring'' (para 63).

  10. The test propounded by the Supreme Court in para 75 was to apply irrespective of whether the agreement in question, did, or did not, have contractual status, and was as follows:-

    The court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement.

  11. In Kremen v Agrest (No.11) I tried to elucidate this seemingly simple test by reference to the many paragraphs of explanation and reasoning in the judgment of Lord Phillips PSC. At para 72 I stated:-

    In Granatino v Radmacher [2011] AC 534 the Supreme Court gave definitive guidance as to the treatment of a nuptial contract in proceedings for ancillary relief following a domestic divorce. The guidance contained in the judgment of the majority delivered by Lord Phillips of Worth Maltravers PSC can be summarised as follows:

    i) The court should give effect to a nuptial agreement which is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement (para 75).

    ii) In determining whether an agreement has been "freely entered into by each party with a full appreciation of its implications" there is no absolute black and white rule for full disclosure or independent legal advice. Rather, the question is whether in the individual case there is a material lack of disclosure, information or advice. Each party must have all the information that is material to his or her decision that the agreement should govern the financial consequences of the marriage coming to an end. An absolute rule would only be necessary if the agreement were to be contractually binding, but this is not the case as there is a safety-net of (un)fairness (para 69).

    iii) The presence of any of the standard vitiating factors of duress, fraud or misrepresentation will negate any effect the agreement might otherwise have (para 71). Further, unconscionable conduct such as undue pressure (falling short of duress) will likely eliminate the weight to be attached to the agreement (ibid). Other unworthy conduct, such as exploitation of a dominant position to secure an unfair advantage, will reduce or eliminate the weight to be attached to the agreement (ibid). The court may take into account a party's emotional state, and what pressures he or she was under to agree, as well as their age and maturity, and whether either or both had been married or been in long-term relationships before (para 72). The court may take into account foreign elements to determine whether or not the parties intended their agreement to be effective (para 74).

    iv) In determining whether "in the circumstances prevailing it would not be fair to hold the parties to their agreement":

    a) The agreement cannot be allowed to prejudice the reasonable requirements of any children of the family (para 77).

    b) Respect should be accorded to the decision of a married couple as to the manner in which their financial affairs should be regulated particularly where the agreement addresses existing circumstances and not merely the contingencies of an uncertain future (para 78). This is likely to be so where the agreement seeks to protect pre-marital property (para 79). By contrast it is less likely to be so where the agreement leaves in the hands of one spouse rather than the other the most part of a fortune which each spouse has played an equal role in their different ways in creating (para 80). If the devotion of one partner to looking after the family and the home has left the other free to accumulate wealth, it is likely to be unfair to hold the parties to an agreement that entitles the latter to retain all that he or she has earned (para 81).

    c) Is likely to be unfair to hold the parties to an agreement which leaves one spouse in a predicament of real need, while the other enjoys a sufficiency or more (para 81). However, need may be interpreted as being that minimum amount required to keep a spouse from destitution. For example, if the claimant spouse had been incapacitated in the course of the marriage, so that he or she was incapable of earning a living, this might well justify, in the interests of fairness, not holding him or her to the full rigours of the ante-nuptial agreement (para 119).

  12. In B v S at para 20 I stated:-

    In my judgment the requirement of "a full appreciation of its implications" does not carry with it a requirement to have received specific advice as to the operation of English law on the agreement in question. Otherwise every agreement made at a time when England and Wales was not on the horizon would be discarded. But in order to have influence here it must mean more than having a mere understanding that the agreement would just govern in the country in which it was made the distribution of property in the event of death, bankruptcy or divorce. It must surely mean that the parties intended the agreement to have effect wherever they might be divorced and most particularly were they to be divorced in a jurisdiction that operated a system of discretionary equitable distribution. I have respectfully suggested in Kremen v Agrest No. 11 that usually the parties will need to have received legal advice to this effect, and will usually need to have made mutual disclosure.

  13. In AH v PH [2013] EWHC 3873 (Fam) Moor J specifically approved this at...

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