Financial Remedies
May 2022

Overview

Peel J considers the law on the effect of pre-marital cohabitation and engagement on the sharing principle, conduct and the needs principle in a short marriage. The parties were married for no more than about 5 months, both in their fifties and had no children.

The Background

• H is a citizen of the United States, living in the USA. W is of Scandinavian origin, living in London. H’s career had been spent in the software industry. W is a classically trained musician and composer of considerable repute.
• On 12 August 2018, H was formally offered employment at AB Company and started working there on 4 September 2018. His base salary was $400,000pa gross. He was awarded the right to acquire 600,000 units in the company, subject to working at AB Company for a period of 1 year, and vesting over 4 years.
• On 22 March 2019, H and W became engaged.
• After approximately a year at AB Company, it was decided that H would leave. On 22 October 2019, a separation agreement for H's departure was reached under which he was entitled to acquire 700,000 units.
• After unsuccessfully attempting to develop his own start-up venture with a partner, he joined another tech company as a senior director in August 2020, where he has remained ever since.
• In December 2019, the parties moved into a property in Kensington, London. H relinquished his tenancy in the USA. W moved out of her London flat.
• On 25 January 2020, they married in London. The marriage became fraught almost immediately, although it did not finally end until June 2020. Thus, the total period of cohabitation and marriage was no more than about 7 months (December 2019 to June 2020), according to H, or 19 months (November 2018 to June 2020), according to W. The significance of the timespan is that during the period of cohabitation asserted by W, H was working at AB Company and earning the right to acquire units in the company. Thus, she says, some or all of the units became matrimonial in nature.
• The financial remedy proceedings started with H's Form A on 25 August 2020. In his Form E dated 29 November 2020, H asserted that the AB Company units were of nil value, with no real market, highly speculative and, in reality, notional paper value only.
• Having become aware of the existence of a pre-sales market, H decided to diversify risk by pre-selling some of his prospective entitlement. H wanted to keep the transactions secret from AB Company's founder. Over an 11-week period in early 2021, H pre-sold his prospective entitlement to receive 438,732 units. H did not disclose any of these transactions either to W or to the Court during that period. H was unable to sell any of the units upon listing because (i) W through solicitors had written directly to AB Company beforehand and (ii) W had communicated directly with the founder beforehand, the combination of which led to AB Company blocking the release of units to H.

The Law

Cohabitation: Peel J sets out that the origin of the cohabitation jurisprudence so far as relevant to the sharing principle lies in the decision of Deputy High Court Judge Nicholas Mostyn QC (as he then was) in GW v RW [2003] EWHC 611 at para 33 where he said: "Thus in my judgment where a relationship moves seamlessly from cohabitation to marriage without any major alteration in the way the couple live, it is unreal and artificial to treat the periods differently." Those dicta have stood the test of time. Of course, the purpose is to ensure that (i) there is no discrimination between the home maker and the earner during that period of cohabitation, just as there is no room for discrimination between the spousal roles during marriage and (ii) to avoid alighting upon an artificially short period of marriage”.

Peel J added that the court should also look at the parties' respective intentions when inquiring into cohabitation: “In the end, it is a fact specific inquiry. Human relationships are varied and complex; they do not easily lend themselves to pigeon holing. The essential inquiry is whether the pre-marital relationship is of such a nature as to be treated as akin to marriage”.

Engagement: In Miller; MacFarlane [2006] UKHL 24 Baroness Hale said this of marital acquest at para 149: "Is the 'matrimonial property' to consist of everything acquired during the marriage (which should probably include periods of pre-marital cohabitation and engagement), or might a distinction be drawn between 'family' and other assets? "

Peel J noted that the reference to "engagement" might suggest that everything acquired after engagement constitutes marital property, regardless of whether parties were cohabiting or not. However, he comments that:

“i) Baroness Hale was not laying down an immutable law, as W's counsel accepted. It must surely depend on the circumstances. It is unlikely, for example, that a lengthy period of engagement, with few or no indicators of cohabitation, would justify an entitlement to assets accrued pre-marriage. It is hard to see how engagement without mutual commitment and shared lives akin to a marital relationship would come close to justifying an equal share (or any share) of assets built up between the date of engagement and the date of marriage. In my view, engagement may be an indicator of the strength of the commitment and shared life, and may be an evidential factor pointing towards a period of cohabitation, but it should not ordinarily be seen as a separate event which by itself gives rise to a sharing entitlement.

ii) I am not aware of any reported case where the mere fact of engagement generated a sharing entitlement, regardless of cohabitation. In McCartney v Mills McCartney [2008] EWHC 401 Bennett J did not so find. And in Miller itself, where the parties did not cohabit but became engaged some time before marriage, there is no suggestion in the House of Lords judgment that their ratio decidendi took into account the period between engagement and marriage as giving rise to a sharing entitlement. On the contrary, Lord Nicholls expressly referred to the increase in the husband's wealth "during the marriage" at para 71, and did not refer to any increase in value post-engagement”.

Conclusion: Peel J took the view that cohabitation in this case did not start until December 2019, when H left the USA for good, and the parties moved into a new rented home in London together. Peel J did not regard the fact of engagement, although a relevant factor when considering the extent of the mutual commitment and shared life in the circumstances of this case, as by itself giving rise to a sharing claim.

Sharing: On Peel J’s findings, the parties did not live together until after (i) H started employment with AB Company, (ii) H completed the requisite 1 year of service with AB Company to become entitled to a right to acquire units, (iii) H ceased his employment with AB Company and (iv) the compromise agreement between H and AB Company following his departure. Thus, the units, or proceeds of units were not, and are not, marital assets and W is not entitled to a share in them.

Conduct: In OG v AG [2020] EWFC 52 Mostyn J identified 4 situations where conduct is relevant:

(i) Very rarely, personal misconduct during or after the marriage

(ii) The add back jurisprudence where there has been wanton dissipation by a party

(iii) Litigation misconduct which is usually penalised in costs but can in rare cases sound in the award

(iv) Lack of full and frank disclosure leading to adverse inferences

H's alleged conduct: H sold part of his entitlement to units prior to release day and H failed to disclose this to W or the court. Peel J regarded his failure to disclose these matters to W or the court as litigation misconduct, which would ordinarily sound in costs. However, he was satisfied that this was not done to defeat W's claims.

W's alleged conduct: Peel J concluded that W's behaviour in communicating with the founder behind H's back, was gross and obvious conduct which the court is entitled to take into account. Overall, in his judgment, Peel J concluded that W directly caused H financial loss running into tens of millions of dollars.

Needs: Peel J referred to the applicable law summarised by Mostyn J in FF v KF [2017] EWHC 1093 at [18]; "The main drivers in the discretionary exercise are the scale of the payer's wealth, the length of the marriage, the applicant's age and health, and the standard of living, although the latter factor cannot be allowed to dominate the exercise". Peel J concluded that W's reasonable needs payable by H are:

i) £60,000 to redeem her mortgage.

ii) £237,000 to clear her net liabilities.

iii) £450,000 which is £150,000pa for 3 years by way of rehabilitative maintenance.

Costs

In VV v VV [2022] EWFC 46 on 17 May 2022 Peel J considered H’s application for a costs order against W in the sum of £450,000.

Peel J set out the starting point for costs in financial remedy proceedings which is that each party should bear their own costs. By FPR 2010 28.3(6) the court may depart from the starting point and make a costs order against one, or other, or both parties. Factors to be taken into account are listed at 28.3(7).

Rule 4.4 of Practice Direction 28A states that: "The court will take a broad view of conduct for the purposes of this rule and will generally conclude that to refuse openly to negotiate reasonably and responsibly will amount to conduct in respect of which the court will consider making an order for costs. This includes in a 'needs' case where the applicant litigates unreasonably resulting in the costs incurred by each party becoming disproportionate to the award made by the court".

Peel J referred to Rothschild v de Souza [2020] EWCA Civ 1215 where the Court of Appeal held it was not unfair for the party who is guilty of misconduct to receive ultimately a sum less than his/her needs would otherwise demand.

In his judgment, Peel J was highly critical of H's failure to comply with his obligation to give full and frank disclosure, describing it as "deplorable". He concluded that a significant proportion of the costs incurred related to disclosure issues, for which H must bear considerable responsibility. On the other hand, W failed on two critical evidential issues which lay at the heart of the case. First, she did not succeed in establishing a significant period of pre-marital cohabitation, such as to entitle her to a sharing claim against H's units. Second, H established to Peel J’s satisfaction that W was guilty of misconduct in that she caused him financial losses, probably running into tens of millions of dollars, by reason of having prevented H from selling part of his units following AB Company listing. Had those issues not been so hotly contested, the case would have been a relatively straightforward needs based claim, and the costs on both sides would have been vastly reduced. The fact of those disputes probably rendered the case impossible to settle.

Peel J was satisfied that it is appropriate for W to make a contribution towards H's costs and concluded that it does not seem to be unfair to invade her needs based award to an extent. Peel J made a costs order against W of £100,000, to be set off against the lump sum payment of £750,000 as a consequence of her litigation conduct. Peel J warned that the figure for costs might well have been higher had it not been for H's litigation misconduct.

Overview

Mostyn J considers an application by H for a RRO in advance of a final hearing concerning W’s application for financial remedies and made an interim blanket RRO to endure until H's application is considered substantively during final submissions.

Mostyn J referred to his judgment in Xanthopoulos v Rakshina [2022] EWFC 30 at [125], where he sought to make clear: "the law, when properly understood, permits information about financial remedy proceedings and judgments (in cases which are not mainly about child maintenance) to be published unless the court has made a specific order preventing publication".

Legal framework for the application

Mostyn J concluded in Xanthopoulos (supra), in a financial remedy case [at para 8 and 9]:

"121. … anonymisation can only be imposed by the court making a specific anonymity order in the individual case. Such an order can only lawfully be made following the carrying out of the ultimate balancing test referred to by Lord Steyn in Re S. It cannot be made casually or off-the-cuff, and it certainly cannot be made systematically by a rubric. On the contrary, the default condition or starting point should be open justice, and open justice means that litigants should be named in any judgment, even if it is painful and humiliating for them, as Lord Atkinson recognised in Scott v Scott."

The "ultimate balancing test" referred to by Lord Steyn in Re S (A Child) (Identification: Restrictions on Publication) [2005] 1 AC 593, HL, in turn, refers to the balance to be struck between various rights in the ECHR, namely the privacy right in Article 8 on one hand, and the principle of open justice in Article 6 and the general Article 10 rights of the public at large (see also my judgment in Aylward-Davies v Chesterman [2022] EWFC 4 at [28]).

Decision

Mostyn J conducted the balancing exercise envisaged in Re S. He concluded that there was “at least some merit in the submissions made on behalf of H”, but highlighted two unknowns in respect of the balancing exercise:

(1) The first is to what extent, if at all, the oral evidence and/or submissions will actually disclose matters which could adversely prejudice H and related third parties in the overseas company proceedings or otherwise. This can only be answered having heard the evidence itself.

(2) Second and noting that the RRO application was to be served on Brian Farmer of the Press Association, to what extent, if at all, do the press oppose the RRO in the name of open justice and the Article 10 rights of the public at large. This can only be answered once any journalists attending the hearing have had the opportunity to hear the evidence and submissions, and consider whether they wish to address me on this application.

Mostyn J made an interim blanket RRO to endure until H's application is considered substantively during final submissions. He did so in order to preserve the tenability of H's arguments so that, the unknowns having become known, he can decide what weight is to be attributed to the Article 8 ECHR arguments and can conduct the full balancing exercise required by Re S. In his judgment, Mostyn J concluded that it is impossible to say at this stage whether the outcome of the Re S balancing exercise will be anonymity or redaction or both.

Having revisited the decision in Re S, Mostyn J was of the view that it is implicit in Lord Steyn's speech that the court can make a temporary or interim RRO without full evidence and without performing the complete balancing exercise to endure only until the parties and the court are ready to deal with the matter substantively, justly and fairly [para 13].

Mostyn J noted that he was acutely aware that the press will be denied the opportunity to 'live' report the proceedings as they happen, but this prejudice was minor compared to the prejudice that might be suffered by H and by the media if an incorrect RRO was made at this stage. He concluded that – “The balance, at least on an interim basis, therefore favours the making of the order”.

Mostyn J advised that “It seems to me that the steps I have taken, namely to impose a short-term reporting restriction order at the beginning of the case to endure only until the implementation of the full Re S balancing exercise in the light of all of the evidence at the end of the case, would be a useful procedure in many cases. It would avoid a wastage of time at the beginning of the case and would ensure that the balancing exercise is done on the best available evidence” [para 17].