February Case Law Update 1

This months case summary comes from Lexis PSL.

DP v EP (conduct: economic abuse: needs) [2023] EWFC 6


A financial case, heard by HHJ Reardon, which considers whether a party’s conduct amounted to economic abuse, as defined by the Domestic Abuse Act 2021

The case concerned financial remedy proceedings arising out of the divorce between the applicant wife (W) and the respondent husband (H), who had both met in the early 1990s. From 1992 they had cohabited and then in 1994 they married. Between them they had 3 children, H’s daughter from a previous marriage, W’s daughter from another marriage in her home country, and a daughter born to both parties. All were treated as children of the marriage, and they were independent adults. At the outset of the marriage, neither had much in the way of assets and, therefore, the entire asset base had been accrued during the relationship.

H was functionally illiterate for most of his adult life and, therefore, during their relationship he had been dependant on W to support him with many aspects of day-to-day life. However, he had still managed to build a successful career and financially support his family.

In 2017, following a breakdown of the marriage, the couple separated. H continued to live in the former family home and W continued to live in a property jointly owned by the parties that was previously their family home. Both parties held between them (and continued to hold) four properties in their joint names and they operated several joint bank accounts. In 2019, a petition for divorce was filed, following which a decree nisi was granted.

iIn June 2022, it was determined by consent that the marriage was void ab initio as W had already been married to another man at the time that she had married H. W’s first marriage had taken place in her home country to a man significantly older than her, when she had been 16 years old. She had separated from her first husband over a year of the marriage, and she had later moved with her family to the UK. In 2021, the first marriage had been annulled in her home country.

Following the second marriage (to H) being determined as void, H had applied for an order to rescind the decree.

The judgment concerned the final hearing in the financial remedy proceedings.

Issues and decisions

(1) Whether the present case was a straightforward ‘needs’ case and there should be an equal division of assets, as W submitted.

The identified capital assets totalled approximately £1.46m which would be used to re-house both parties.

W contended that, as both parties were working and the children were independent adults, it would be a case where the ‘needs’ and ‘sharing’ principles were aligned and towards an equal division of capital and a ‘clean break’.

In determining where fairness lay in a particular case, the court would have regard to the principles of needs, sharing and (more rarely, and not applicable in the present case) compensation. Most cases would be resolved by a focus on each party’s needs. If there was a surplus of resources over needs, the sharing principle would be engaged. In cases such as the present one, where the entirety of the asset base had accumulated as a result of the parties’ efforts during the marriage, it was likely that an application of the sharing principle would result in an equal division of the assets (see [26] of the judgment).

H disagreed and submitted that W had been leading a ‘double life’, she had knowingly entered a bigamous marriage with him, and had set out with a plan to defraud him and eventually leave him after enriching herself at his expense. H alleged that throughout the marriage W was siphoning off joint accounts and using them to accrue assets which he had not been aware of, and that she had exploited his vulnerability due to his illiteracy. H submitted that: (i) certain funds that W had either recklessly or deliberately dissipated from the parties’ resources should be added back into the matrimonial pot before distribution (the add-back case); (ii) W had undisclosed assets, derived from the funds which she had diverted and hidden over the course of the relationship; and (iii) it would be inequitable to disregard her conduct under s 25(2)(g) of the Matrimonial Causes Act 1973 (MCA 1973), and that her conduct amounted to economic abuse within the definition contained in s 1(4) of the Domestic Abuse Act 2021 (DAA 2021) .

On that basis, H proposed that, out of the available and identifiable assets, he should receive (on his figures) £919,898, and W £528,885, resulting in a capital division in his favour of 63%:37%.

W denied the allegations and argued that she had suffered emotional abuse from H during the marriage and that, due to his behaviour, she had considered the marriage had been over many years before the separation. She further contended that, given those reasons, finances had been managed independently and, therefore, there had been times that H had not been informed about her financial transactions. H also had engaged in financial ventures without informing her.

W claimed that the matrimonial pot should be divided equally. She agreed that the parties should each retain their business assets and she would bear some of her own debt, which would result in a 55%:45% division of the assets in H’s favour and on her figures, she would leave the marriage with £663,920 and H with £795,330.

Both parties agreed that neither should pay spousal maintenance to the other.

Factual disputes were resolved by the financial remedies court on the balance of probabilities. The burden of proving that an allegation was true lay with the party making the allegation.

Findings had to be based on evidence, including inferences that could properly be drawn from the evidence, and not on suspicion or speculation. The law operated a binary system and could only find either that something happened or that it did not happen (see [23] of the judgment).

Lies told by a party or witness could legitimately affect the view the court took of their credibility. However, in circumstances where a witness had lied, the court had to take care to consider how the witness’s lack of credibility should be factored in when determining an issue of fact. In particular, it should consider whether the lie was deliberate (i.e., it did not arise from confusion or mistake); whether it related to a significant issue; and whether there was anything else, for example shame, misplaced loyalty, fear or distress, which could explain the lie (see [24] of the judgment).

The court’s exercise of its discretion to make financial remedy orders was governed by the factors set out in MCA 1973 s 25 and by case law. The authorities had established that the ultimate aim of the court was to achieve an outcome which was fair (see [25] of the judgment).

With regards to conduct, one of the s 25 factors, to which the court had to have regard in an appropriate case, was s 25(g): ‘the conduct of each of the parties, if that conduct is such that it would in the opinion of the court be inequitable to disregard it’. Too narrow an interpretation of s 25(g) would render the provision nugatory. It was difficult to imagine a scenario in which consequences which were truly financially measurable had not already been taken into account under either s 25(a) (resources) or s 25(b) (needs). There had to be some scope for conduct which had had consequences to be reflected in the ultimate division of assets, even where those consequences were not financially measurable. In the present case, there had been a negative impact on H’s overall financial position, even if it was impossible to determine what that had been (see [27]-[29], [155], [156] of the judgment).

In OG v AG [2021] 1 FLR 1105 at paragraphs [24]-[39], Mostyn J had identified four scenarios in which conduct could be considered in financial remedy cases. In paragraph [72], the observation made by Mostyn J had been that ‘conduct should only be taken into account not only where it is inequitable to disregard but only where its impact is financially measurable …’ (see [30]-[33] of the judgment). Recent cases where it appeared that conduct without a financially measurable consequence had impacted on the distribution exercise were rare, but they existed (see [30]-[34] of the judgment).

DAA 2021 created statutory definitions of specific forms of abusive behaviour (see [35], [36] of the judgment).

Regarding ‘Add backs’, in limited circumstances, the court could add back into the asset schedule, funds that had been lost because of financial misconduct by one party, and to treat that party as though the funds were still available to them. The financial misconduct required for such an approach, would have to be something out of the ordinary and there had to be ‘clear evidence of dissipation (in which there is a wanton element)’. The threshold was high. Even if funds were notionally added back into the asset schedule on the dissipating party’s side, the court had to remember that the exercise did not re-create the money or bring assets back into the pot, and should, therefore, tread cautiously (see [37], [38] of the judgment).

In the present case, W’s competence and abilities had two consequences. First, they made it less likely that the inconsistencies in her evidence could be explained by confusion, misunderstanding or mistake. Second, it meant that within the parties’ relationship the balance of power, certainly as far as financial issues were concerned, was substantially in W’s favour (see [45] of the judgment).

Before turning to H’s five ‘sample’ allegations, based on the evidence of both parties and the documentary evidence, there was no clear financial separation between the parties at any time before their physical separation in 2018. They held (and continued to hold) four properties in their joint names, and they operated several joint bank accounts through some of which, they conducted a variety of household transactions. Whatever the state of their intimate or emotional relationship, they mingled their finances and remained a partnership throughout the 25 plus years of their cohabitation (see [52] of the judgment).

Concerning H’s allegations of financial misconduct, there had been deliberate diversion of funds by W to put them out of his reach (see [50]-[99] of the judgment).

Concerning the parties’ earning capacity, it had been agreed that there should be a clean break in the present case. The assessment of each party’s realistic earning capacity remained relevant to their mortgage-raising capacity and therefore their ability to re-house. H was aged 60 and still working, however the physical nature of his work meant that he would need to wind down in the future. At present, he was earning £50,000 gross per annum (pa) (£33,000 net), but his recent earnings had been depressed by the demands of the present litigation and in the past, he had earned closer to £90,000 gross pa. Therefore, there would be scope for some increase in H’s current earnings, perhaps to £60,000 – £70,000 gross, although the period for which he could earn at that level would likely to be limited (see [137] of the judgment).

The court accepted the figure of £98,780 as H’s maximum mortgage capacity, on the basis that he was likely to need to repay it at a higher rate over a shorter term. W was aged 49, her earning capacity was agreed at £60,967 gross pa. As she was younger than H and her job less physically demanding, she was likely to be able to maintain her earnings at a similar level for longer. She had produced evidence of a mortgage capacity of £180,000. One of the assumptions underlying the illustration was that W’s substantial credit card and litigation loan debt would not be paid off; if the outcome of the proceedings were to be that those debts be paid, and hence there could be some scope for increase (see [136]-[139] of the judgment).

Each of the parties’ needs could be met with a minimum housing fund of £550,000 (plus stamp duty), which could purchase a one-bedroom flat in the area of former matrimonial home and in order to purchase a suitable two-bedroom flat in the same area, a minimum housing fund of £650,000 (plus stamp duty) would be required (see [142]-[143] of the judgment).

W’s conduct fell within the definition of economic abuse contained in DAA 2021. There were certain inconsistencies and discrepancies in her explanation of how finances had been handled and one of them was the missing funds in relation to the rent from the Dubai property. W, possibly with the assistance of her sister, had intentionally diverted funds to remove them from H’s reach (see [147]-[149] of the judgment).

There would be some scope for conduct which had consequences to be reflected in the ultimate division of assets, even where those consequences had not been financially measurable. In the present case, there had been a negative impact on H’s overall financial position, even if it was impossible to determine what it had been (see [156] of the judgment).

On the balance of probabilities, W’s sister was holding a minimum sum of £25,000 (from the Dubai rent) which was going to be made immediately available to W at the end of the hearing and W had agreed that she would pay 50% to H of whatever she recovered from her sister (see [131] of the judgment).

A balance of £75,000 needed to be added back into the matrimonial pot on W’s side pursuant to the principles set out in Vaughan v Vaughan [2008] 1 FLR 1108 and refined in MAP v MFP (Financial Remedies: Add-back) [2016] 1 FLR 70 and Rapp v Sarre (formerly Rapp) [2017] 1 FLR 782. W’s conduct, even if negligent rather than deliberate, had been so serious that the high threshold established by those cases had been met. The court also recognised that when it came to the distribution exercise it would take into account that the entire missing rental income might not be available to W and, therefore, those funds might not be available to meet W’s needs (see [130] to [132] of the judgment).

The parties’ assets total was £1,510,236. There would be a percentage split of 53:47 in H’s favour and, therefore, he would receive £801,823. W would receive £708,413 and as the ‘add back’ funds of £75,000 were no longer available, that would leave her with £633,413 (see [160]-[163] of the judgment).

In relation to H’s application for a nullity order, as a conditional order had still not been made, a financial remedies order (not the judgment) would not be issued until the conditional order had been granted, pursuant to MCA 1973, s 23 and the approach taken in McCartney v Mills McCartney[2008] 1 FLR 1508and JP v NP[2015] 1 FLR 659.

Consequently, the judgment would not take effect until that date (see [164]-[165] of the judgment). (2) Whether costs were to be assessed on indemnity or standard basis H had sought payment of his costs (totalling £93,416.50) in full, and to be assessed on the indemnity basis.

For the costs award, the court decided on an assessment on standard basis (see [175] of the judgment).

W would bear a substantial part of the costs burden considering her conduct overall and the economic abuse (see [176] of the judgment).

The court intended to order W to pay 75% of H’s costs incurred since that date and costs were to be assessed on the standard basis, if not agreed (see [178] of the judgment).

H’s total costs since the FDR (prior to June 2022) and up to the conclusion of the hearing were approximately £60,000 and it had been considered that W would have to make 75 % of the contribution after assessment, which would not exceed £40,000, and may well be considerably less (see [179] of the judgment).

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