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Family Law

The leading authority on all aspects of family law

16 OCT 2015

Recitals, indemnities and third-party orders: overturning old orthodoxies of orders

David Hodson OBE

Family lawyer

@DMHodson

Recitals, indemnities and third-party orders: overturning old orthodoxies of orders
In financial proceedings, can the family court order one party to indemnify the other for various debts and liabilities? Can it order one party to make payments to a third party? If it can’t, such indemnities and third-party orders have to be in recitals, agreements or undertakings. They cannot be in the substantive part of the financial order.

This issue has very probably resulted in more draft consent orders being returned by the family court for amending than any other drafting issues.

The reason invariably given was that the court can only order, in a conventional financial remedies order, those matters set out in MCA 1973, ss 22-24: primarily periodical payments, lump sum and property transfer to spouse or child, together with the relative newcomers of pension sharing, pension attachment, legal services orders etc and the rare 'exotics' of secured provision and variation of certain settlements. Indemnities between the parties was not found there and so it should go in the recitals. The statutory provision only permits payments from one spouse to another and therefore payments to a third party had to be in the recitals. Typewriter ink, followed by printer cartridges, was expended on repositioning various clauses.

Moreover, this was not the idiosyncrasies of a few family court judges who insisted that their own style of drafting was to be preferred to the remainder of the profession. It was mainstream understanding of solicitors, barristers and judges.

But no longer?

From late 2013 onwards, gathering momentum, it is seemingly now that indemnities and third-party payments can be fully within the substantive orders. No more need for consent orders to be returned by the court. No more relatively artificial placing of some provisions in the early parts of an order and the remaining in the substantive tail.

This article does not seek to argue the merits or demerits for the change. However, it does strongly argue that as a family justice profession we should be all working from the same precedent documents and the same understanding of what is possible in a court order. Haphazard and diverse practice either in different parts of the country or even within the same family court is of no help to clients and litigants.

In July 2013 the President of the Family Division, Sir James Munby, expressed his concern at the amount of time and money wasted in the process of drafting orders which could be standardised. Bravo, and as some lawyers had been urging the years (OK, decades). He appointed Mr Justice Mostyn to lead a drafting group with the aim of providing a comprehensive set of orders, the use of which would become mandatory in the family courts and the Family Division. It was the most obvious of steps to have been taken; the solicitors’ family law profession had endeavoured to do as much as possible in this regard many years earlier in publishing their own forms of consent orders. But having the authority from the most senior judicial level gives such forms significantly greater weight.

In November 2013 the  first tranche of orders were produced including an omnibus financial remedies order. There, at the tail end amongst the substantive orders, were requirements for one party to discharge debts or make payments to third parties such as mortgage companies, utility companies, tax authorities and others and to indemnify the other party. There was comment at the time about whether this was possible in law.

These comments reached the ears of the Financial Remedies Working Group, which produced a  report on 31 July 2014, and was chaired by Nicholas Mostyn J and Stephen Cobb J. They strongly encouraged the adoption of standardised court orders including financial remedy orders. At clause 84 they tackled this particular issue. They openly stated, as many lawyers including judges had always understood, that indemnities and third-party payments were traditionally included as undertakings. However, they felt the court had the ability to make these orders. It then quoted the view of Mostyn J as follows:

'Under the new s31E(1)(a) MFPA 1984 in any proceedings in the family court, the court may make any order which could be made by the High Court if the proceedings were in the High Court. The High Court has power to order or decree an indemnity. This is an equitable remedy originally vested in the Court of Chancery which was subsumed into the High Court by the Supreme Court of Judicature Act 1873. It was the very relief initially ordered in Salomon v A Salomon and Co Ltd [1897] AC 22 (but which was later set aside by the House of Lords as offending the rule about the separate legal personality of companies). As to mortgage and other outgoings in my view the power to order A to make payment to B plainly includes the power to order A to make payments on behalf of B. The greater includes the lesser. It was necessary to spell out the power to order the payment of mortgage and other outgoings in Part IV FLA 1996 proceedings (see s40(1)(a)) because the wider direct power does not exist in those proceedings. It would be anomalous if the power to order payment of outgoings only existed in Part IV but not FR proceedings. It is necessary in my view for the court to have these powers if only to cover the position if someone is not prepared to give the necessary undertakings or is not participating in the proceedings.'
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Section 31E(1)(a) MFPA 1984 provides that the family court can make any order that could have been made by the High Court if the proceedings had been in the High Court. The High Court has power to order indemnities. So the family court can include indemnities in the substantive orders. Regarding payments to third parties, it is in effect a payment to the third party as agent or representative of the other spouse. This power already exists in FLA 1996, Pt IV  and it would be perverse if it was not also available under MCA.

The judge could also have referred to the practice over two decades of the requirement to pay school fees disguised as substantive child maintenance orders, ie one parent pays the bursar of the school who is taken as receiving on behalf of the other parent with the artificiality that the receipt by the bursar is good receipt for child maintenance.

There is an argument that the third-party orders can only be to those third parties named in FLA 1996, s 40.1(a). But this takes the reference to that statute too literally. The point is that it represents giving payments to third parties as agents for, and relieving the debt of, the other spouse and should not therefore be specifically limited to the particular situations which Part IV of the FLA is addressing. Spousal and child maintenance orders can now be part paid direct and part paid to third parties or entirely one or entirely the other. 

Old habits die hard. The Supreme Court decision of White in 2000 finally killed off altogether the early 1980s one-third rule, even if the 1989 Budget hadn’t done so but it’s remarkable for still making occasional appearances. So there will continue to be resistance in places and inconsistencies in practice.

But family law practice, perhaps more than any other area of law in our community, needs certainty, clarity, predictability and consistency. This article does not argue whether the technical justification is correct. But it comes with substantial authority. It makes sense. It is consistent with other areas of family law and practice.

Use of these clauses along with the use of the standardised court orders should be embraced without any more need for financial remedy consent orders to be endlessly sent back for re-drafting for these reasons. The beneficiaries will be the parties to family court proceedings without unnecessary costs and delays. It will speed up the making of final orders, improve the overall standard of their drafting, reduce judicial and court service time and resources and should produce a better family justice process

David Hodson is grateful to the contribution of Marina Faggionato, barrister, of QEB, although is solely responsible for opinions and errors.

This article was originally published on The International Family Law Group LLP's website and has been reproduced here with kind permission.
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