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International Family Law

The leading authority on international family law

30 JAN 2017

Unfair marital agreements, chaos of EU law and unusual routes to fairness: DB v PB [2016] EWHC 3431 (Fam)

David Hodson OBE

Family lawyer

@DMHodson

Unfair marital agreements, chaos of EU law and unusual routes to fairness: DB v PB [2016] EWHC 3431 (Fam)

An  English High Court decision, reported late last week, has highlighted several  real jurisdictional obstacles to producing a straightforward and obvious fair  outcome.  The judge had to overcome the  'technical' obstacles presented by the EU Maintenance Regulation.  He used a statutory device, described as an  'unusual' route, normally used only by nonmarried cohabitants.  En route he also covered the jurisprudential  issue of needs and sharing in present English family law and how a court should  deal with a marital agreement it has found is unfair.  

 After a long relationship with assets of about £11  million, the husband argued the wife should have about £650,000.  The court was satisfied a fair outcome was a  starting point of one half.  How could it  produce as close to a fair outcome as possible despite the various obstacles?

Introduction

Ever since the EU Maintenance Regulation was introduced in June 2011, there has been the prospect of different aspects of the affairs of a family on relationship breakdown being dealt with in different countries.  The divorce pursuant to the jurisdiction under Brussels II.  Maintenance, needs, pursuant to the jurisdiction under the EU Maintenance Regulation.  Child maintenance in the country where the child is habitually resident pursuant to a CJEU decision.  Sharing in a yet different jurisdiction if the UK had signed up to the EU Marital Property Regulation last year.  It is fully set out in my chapter 9 of Jordan Publishing The International Family Law Practice book.

Those of us undertaking international finance cases on a regular basis see the impact frequently.  But it has not often appeared in reported decisions where High Court judges have had to grapple with these issues with which lawyers have been dealing with since 2011.  The judgement of Mr Justice Francis, probably his first reported decision since his appointment and an excellent exposition of jurisdiction and jurisprudence, in DB v PB [201] EWHC 3431 (Fam) systematically goes through these issues as they present in the fairly stark circumstances of the case.

The outcome was easy, for English family law eyes.  Long relationship.  Assets entirely or mostly marital acquired.  About £11 million.  Why would it be anything other than half subject to her greater needs, eg if the primary carer?  But the obstacles were a premarital agreement in which she would not share any of the assets of the relationship, apart from half the family home, and the agreement for any maintenance, needs, to be decided in Sweden.  Even if the agreement made unfair provision, should the judge simply ignore it?  The case raises a number of important issues for international family lawyers

Brief summary of the facts

The husband and the wife are both Swedish.  They cohabited from 1994 and married in 2000 with two children aged 8 and 12.  The husband was a leading sports star, working in the USA but during the early years of the marriage had a very serious accident which ended his career. 

The parties commenced divorce proceedings in England and Sweden on the same day.  Under the EU Brussels Regulation, jurisdiction was joint residence in England and joint nationality in Sweden.  How is it determined where the proceedings go ahead?  As the judgement says, the wife 'issued' first in time in England before the husband issued in Sweden, obviously therefore only by a matter of minutes or hours, so the divorce proceeded in England.  The race to issue divorce proceedings is going on frequently around Europe as a result of this EU law, won in often a random way because of the circumstances of the breakdown, of the legal system and arrangements of court buildings, and the situation of the individual parties.  It invariably produces arbitrary outcomes.  If the husband had been a few minutes quicker in issuing the proceedings in Sweden, there would have been a very different outcome for this wife and children.  As the UK considers what should be its appropriate forum law after Brexit, it is hard to understand those who argue that this arbitrary and unfair race to court should form our English law in the future.

The wealth of the parties was approximately £11 million of which about £1.8 million was equity in the family home in Berkshire.  The bulk, about £9 million, was in an equity portfolio and in the bank, ie available for distribution.

After several years of cohabitation the parties agreed to marry.  Unexpectedly as far as the wife was concerned, the husband insisted the wife signed a premarital agreement.  In fact there were three agreements on different occasions but the terms were effectively the same.  They said no sharing of any marital assets.  Jurisdiction of any disputes in Sweden.  The outcome from the agreement when the marriage broke down 14 years later, at a time of very different circumstances than the time of the marriage, was that the wife would have about £350,000 net of her debts and the husband would have all the rest.  She would have maintenance claims for herself in Sweden although anecdotally the Scandinavian countries are not often very generous with spousal maintenance, putting a priority on autonomy after relationship breakdown.

The  marital agreement

In this case summary I am not setting out the full background to the formation of the agreement nor the analysis by the judge.  But it is important to read.

Marital agreements can be very unfair.  They are not yet part of the culture of a number of countries.  The wife said she was completely un-used to them from her Swedish culture.  They are not part of English culture across most of our society. They can be particularly unfair on women as often the financially more vulnerable spouse and, in some instances, the one keenest to marry.  In this case, the husband was quite content to continue to cohabit.  The wife was keen to marry.  She said she had developed a faith in God.  The husband presented the wife with the pre-marriage agreement when they were having a romantic, lovey-dovey, 'cosied-up' weekend at Niagara Falls.  They were lying on the bed when the husband got up and gave her the document which he said she would have to sign on the following Monday.  Paragraphs 25 and 38 of the judgement show the stark personal circumstances in which some fiancées are forced to enter into thoroughly prejudicial marital agreements.

The judge went through the Radmacher criteria [2010] UKSC 42, having heard evidence including from the lawyers in the US who prepared the agreement and oversaw its execution.  The judge was satisfied that the wife was advised not to sign.  She knew it was disadvantageous to her.  She was the one most keen to be married.  She had understood from what the husband had said that it was a piece of paper and that it would not change things.  But at trial her claims fell short of misrepresentation or undue pressure.  Nevertheless it did not satisfy the Radmacher criteria of a fair agreement.  It was an unfair agreement, as clearly stated in the judgement.  It would put the wife and children in a predicament of real need.  The judge described the husband as mean spirited and mean. 

But what should one do with an unfair marital agreement?  Simply ignore it as the wife contended?  No, said the judge including on the facts of Radmacher itself.  He differentiated and distinguished Kreman v Agrest (No1) [2012] EWHC 45 (Fam).  If there is no vitiating factors such as fraud, duress, undue influence, material misrepresentation, then the court could not simply ignore the agreement and instead make whatever order it wanted.  The judge said that it was the duty of the court to step in to alleviate the unfairness.  Not to restore the parties as if there had been no agreement.  In this matter they had agreed a regime of separate property so that apart from the family home the husband owned everything.  In these circumstances and to alleviate the unfairness, the English court would invade the assets of the husband to meet the needs of the wife if the marital agreement did not do so.  This followed Moor J in Z v Z [2011] EWHC 2878 and Holman J in Luckwell v Limata in 2014.

This is what has happened in a number of cases decided in chambers and in many cases resolved by lawyers between the parties themselves without going anywhere close to court.

But the judge had a monumental problem in this case.  In the marital agreement, the parties had agreed to give Sweden exclusive jurisdiction over disputes arising.  The judge had to look at the international effect of this choice of law clause in the agreement

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Impact  of the EU Maintenance Regulation

This EU law was introduced in June 2011.  Its intention is utterly praiseworthy.  Orders regarding maintenance, interpreted as needs, should be automatically recognised and enforceable around the EU including enforceable as if made by a local court.  An excellent idea.  But very flawed in its execution within the legislation.  There are major problems with the limitation on needs based claims with sole domicile jurisdiction.  A two track enforcement process around the EU with the UK and Denmark having a slower process because they refuse to bow the knee to the EU keenness for every country to use applicable law.  Many other problems in practice.

Specifically there is priority of jurisdiction for needs-based claims if the parties have entered into a written agreement on choice of law.  They had in this case.  The judge went through the legislation, specifically Art 4, and found he had no choice and no discretion and the English court had no power to make orders to provide for the needs, maintenance, of the wife.  It had notionally to transfer them to Sweden for orders to be made there in separate litigation.  So even though the husband lost the divorce race to court, he was able to get the needs-based claim back into Sweden through another EU law.

The judge was very clear.  This outcome was very unfair.

He described this as 'technicalities' of the EU law.  On another occasion he referred to it as 'unintended or accidental consequences' of the EU law.  It is an excellent judgement but on this I disagree.  This outcome is no accident.  It is the intent and heart of this EU law that parties may agree, even without any legal representation and disclosure, that a country should deal with their needs based claims.  Years, maybe decades, later with dramatic changes in circumstances, that choice still prevails.  It binds the court with which the couple have the closest connection, a concept irrelevant in EU law.  It binds the court dealing with the divorce.

So the wife in this case has to pursue her needs-based claims in Sweden with the anticipation they will be quite probably fairly meagre, in contrast to the outcome in England where they would be generously interpreted with this level of wealth and standard of living.

An unusual route to produce some fairness

So with his hands tied, the judge had to let needs-based claims proceed in Sweden.  He would not make a sharing order in circumstances where the wife had freely entered into a marital agreement in which she had disavowed any sharing entitlement.  Nevertheless the judge was satisfied he had a duty under English law to endeavour to produce a fair outcome as far as possible.

He used the device of Sch 1 to the Children Act 1989.  This is within England’s primary children law statute.  It is in a self-contained schedule at the end.  It provides the court with power to make a financial order for the benefit of a child.  After a modest start in life, it has grown in its usage in circumstances where England has no real entitlements in law by cohabitants.  The courts will now make very substantial provision for a child including provision of a very good standard of accommodation for the child and for the primary carer to live with the child in the accommodation.  But it is only for the minority of the child and often held on a form of trust to go back to the parent who made the provision.  Child periodical payments can be ordered and can include a generous carers allowance for the primary residential parent looking after the child.  Some very substantial orders have been made involving many millions in provision of accommodation and hundreds of thousands of pounds per annum in periodical payments.  Nevertheless it is not as much as would be awarded on a divorce to a spouse in her own right.  It is not spouse maintenance.  It is not long-term accommodation needs.

In this case, the judge used this statutory device to produce as fair an outcome as possible in the obstacles and restrictions placed before him.  He ordered the husband to make £2 million available for a home for the children until the end of tertiary education and global maintenance of £95,000 per annum, index linked.  The housing fund met her needs but of course it is not available to her long term.  The wife had one half of the proceeds of the family home and the judge was adamant that she should not have to use this for her housing need but for her other needs.  It was clear from the judgement that it was anticipated there would be yet more substantial litigation to come.

Schedule 1 cases are invariably used by cohabitants, without access to the financial remedies of the divorce court.  But this statutory remedy is not limited.  It is available on divorce and has been used in exceptional cases.  It was used here.  The judge described it as an unusual route.  Unusual but not unused on previous occasions.  Where the English court dealing with the affairs of a family are prevented by a combination of an unfair marital agreement and an EU law from producing a fair outcome then unusual devices and routes need to be taken.  This is the supreme flexibility of the English common law, shown in action in this case.

Is there a separate concept in English law of sharing and needs?

A fascinating exchange is recorded in the judgement and which may yet have importance in other cases in the future.  In essence, has English law since the House of Lords decision in White in 2000 created separate concepts of sharing and needs?  Leading counsel for the husband argued that there was no such differential.  It is all what used to be known as ancillary relief.  There is no distinguishing in ss 23 and 24 of the Matrimonial Causes Act 1973.  Even if the EU distinguishes between needs and sharing, in EU terminology between maintenance and marital property, England does not.  A lump sum order is made which can combine needs and sharing.  In a conventional case, a judge doesn’t distinguish.  The consequence, according to the argument on behalf of the husband, was that the judge should not simply say that maintenance claims should be dealt with in Sweden in accordance with the marital agreement but that all financial matters should be comprehensively covered by that provision.

The husband’s leading counsel is right in that this is a caselaw development only, and indeed only since 2000.  Before then, we were in the realms of reasonable requirements.  Moreover it has significantly developed in case law since 2000 and was only generally expressed in White.  But it has most definitely developed and arguably English law now is very clear.  Marital acquired property will be shared equally unless required for fairness reasons and particularly needs and non-marital property will not be shared at all unless again required for fairness reasons and particularly needs.  English case law has set up sharing and needs.  The English Law Commission was invited to consider what was needs and what was non-marital property in order better to undertake this exercise but, regretfully, they declined.  So authority is only in case law.  But we are a common law jurisdiction and our family finance law is almost entirely from case law, and so we are entitled to look to case law.  And that case law is abundantly clear namely that needs and sharing are different exercises and are informative of a fair outcome in different ways dependent upon the categorisation of assets between marital and non-marital.

The judge said that previously in the case the husband had conceded there was separate heads of needs and sharing.  The judge referred to the leading European Court decision of Van der Boogaard v Laumen (1997) ECR I-1147 that a transfer of property order may be in the nature of maintenance or division of property rights.  He found that apart from needs-based claims, the wife was making a claim for a fair share of the assets of the marriage which were rights in property and therefore excluded by the EU Maintenance Regulation.  They were not matters to be dealt with by the Swedish court.

This argument was not explored further given these findings.  Unlike many countries around the world, England has the same criteria in statute law for needs and sharing claims.  But case law has pushed them in different directions and with different criteria.  They may once have been part of an overall genus or umbrella of ancillary relief.  But they are now quite distinctive creatures in the resolution of a fair outcome of financial matters on divorce.

Conclusion

It was only a matter of time before a case like this came before the higher courts for a public judgement.  Many of these issues have already been dealt with between lawyers outside of final court hearings.  The judgement publicly highlights the obstacles, hurdles and technical difficulties placed in the way of the reaching of what should be an obvious and fair outcome.  During a long marriage with the assets marital or almost marital in their acquisition, with different but similar equal contribution, why should there not be equality of division?

Unfair marital agreements are found across the world.  Indeed, a major reason to enter into one unless it is to produce for one party a different and better outcome than that of a court.  Baroness Hale in her dissenting judgement in Radmacher highlighted the potential gender disadvantages from these agreements.  However much lawyers advise clients against signing, invariably they sign.  They want to get married.  The courts in some countries will simply hold the parties to the agreement however bad, harsh and unfair it is at the time of divorce.  Other countries try to introduce some element of fairness.  In England that is found by making sure that reasonable needs are provided for, even if it is not sharing.

However here the EU law intervenes and stops England, and any other country dealing comprehensively with the financial affairs and divorce of a couple, from making fair provision for needs because of the jurisdiction choice within the marital agreement.  So the vulnerable party is hit twice over.  She loses out on sharing the joint marital acquired assets because of the agreement and then loses out on the courts of the country with the closest connection providing for her needs.  Even though it is patiently an unfair agreement, sharing is not possible because of the agreement and maintenance is not possible because it has to go to another country.  This other country may well be very meagre in its maintenance, needs-based provision.

Fortunately the English system is able to provide some remedy using an unusual route.

This couple have spent many hundreds of thousands of pounds on litigation.  Sadly it is far from over.  The wife will now have to pursue maintenance claims in Sweden.  If that produces inadequate provision, then there may yet be more litigation in England as contemplated by the judge in the judgement.

Ironically by then, the UK may have left the EU and the injustices of the race to the divorce court and of the EU Maintenance Regulation will hopefully be no more.  Except that some family law organisations want these EU law to remain part of English national law.  If there were any need for demonstrable reasons why this makes no sense whatsoever, this case is an additional one.

Like the entire country, there are different views held at iFLG, and other lawyers have different opinions about EU law after Brexit.

www.iflg.uk.com

The views expressed by contributing authors are not necessarily those of Family Law or Jordan Publishing.
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