Financial remedy cases: keeping things in proportion by barrister Andrew Wastall

Divorce|April 3rd 2014

‘Financial remedies’ is a term sometimes used to describe any family court claim relating to money.

Applications for financial remedies often necessitate a painstaking scrutiny of many lever arch files’ worth of documents and many days of court time. Whilst sometimes inevitable, lawyers still have a duty to keep their investigations in proportion, both in terms of the general issues within the case and in regard to costs, bearing in mind the scale of the assets under consideration.

In the recent case of B v B,  the High Court gave a salutary warning to lawyers that they must be proactive when considering the issue of proportionality, and it suggests that the courts themselves will take an active lead.

In a paragraph approved by Sir James Munby, President of the Family Division, Mr Justice Coleridge said:

“… proportionality is the name of the game when costs are so high and court time is more and more at a premium. A much more rigorous approach to case management (especially in the field of the employment of experts) is being introduced in other areas of the family justice system to save precious time and money. This type of high value litigation cannot expect to be immune and parties to it can expect to be confronted more and more by a refusal by the court to participate in these disputes over the lesser assets. …”

The greater importance now attached to proportionality is not limited to financial remedy applications. The Coalition Government has been trying to make the entire legal system more cost-efficient and proportionate. In his spending round speech of June 26, 2013, George Osborne announced that the cost of legal aid per head in the United Kingdom is double the European average. He announced plans which would save an extra £220 million a year from the legal aid budget. Meanwhile, the cost of courts will be cut by £200 million by 2015–2016, and the Ministry of Justice will see its budget reduced from £7.1 billion in 2014–2015 to £6.6 billion in 2015–2016, a reduction of around seven per cent.

Within individual areas of law, government funding has been much reduced. The Legal Aid, Sentencing and Punishment of Offenders Act 2012 has removed public funding for most cases involving housing, medical negligence, employment, debt and immigration. Within the family law sphere, funding for private law children cases is much reduced, and public law cases are now expected to conclude within 26 weeks unless there are exceptional circumstances.

The above examples concern publicly funded cases. It may be thought that financial remedy applications should be exempt because they are privately funded. The automatic assumption is that they will be entirely unaffected by cuts in other areas. But is this a safe assumption to make?

Of course, no cases should ever be allowed to steamroller forward, gleefully oblivious to the costs being incurred. Fortunately, there are few examples to rival the 18th century case of the estate of William Jennens (possibly the inspiration for Jarndyce v Jarndyce in the Charles Dickens novel Bleak House), who died in 1798, a bachelor and intestate. He left a fortune of £2 million but, perhaps apocryphally, failed to sign his will due to leaving his spectacles at home when he went to his solicitor for the purpose of signing it. The case was heard in the Court of Chancery and lasted for over a century, until all the estate was used up in legal costs.

Modern examples also exist, including a case involving financial remedy applications. In Kavanagh v Kavanagh,3 the husband and wife were both practising solicitors, and lived in a property valued at £3.2 million. The parties spent nearly £900,000 in costs in their various legal battles. The property was sold, and after discharging the mortgage, the wife received just £94,500.  Judge Million stated that “[t]he ship of marriage may founder, but this couple have driven theirs full tilt onto the rocks. They wrecked the ship, then turned their attention to the lifeboats.”.

From where does the court derive its power to draw the line in such cases in order to prevent the assets being swallowed up in costs? In civil cases, the answer is found in the Civil Procedure Rules, r.1.1, imposing a duty on the court to deal with cases justly. This duty was amended on April 1, 2013 so that now the court must also deal with cases “at proportionate cost.”

The Family Procedure Rules 2010 (FPR) r.1.1 do not contain a similar provision, but do state, under r.1.4(2)(i), that active case management includes “considering whether the likely benefits of taking a particular step justify the cost of taking it.” This may be a difficult assessment to make. For example, it may be that only by investigating the documents relating to a business does it become apparent that the business is worthless. By the time of this discovery, high costs could have been incurred.

A number of years before the FPR, Lord Justice Thorpe amplified the court’s duty in regard to the the issue of proportionality: “[T]he outcome of ancillary relief cases depends upon the exercise of a singularly broad judgment that obviates the need for the investigation of minute detail and equally the need to make findings on minor issues in dispute.”

In what ways may a practitioner use this guidance in context? There are five separate elements: the issues in the case; disclosure; evidence; use of experts; and—in rare circumstances—striking out all or part of a claim.

The parties are required to identify and limit the issues which are in dispute between them not less than 14 days before the first hearing. In Jones v Jones, Mr Justice Charles considered the essential and basic steps in establishing the issues in a case. He said that parties should identify: “(a) the findings the court is being invited to make and the reasons why they are relevant, (b) the facts and matters the court is being asked to find as the basis for those findings and (c) the evidence that is needed to achieve these goals.”

The parties in such cases have a duty to fully and frankly disclose financial information to each other. This includes any information which may be relevant to the outcome of the proceedings.8 But what one party considers to be relevant, the other may consider to be de minimis (unimportant) or wholly off track from the issues. In these circumstances, the initial judge will have to determine whether or not the document should be disclosed. Usually the judges themselves will not have seen the document in question. Often even the issues in the case will not yet have crystallized. The judge’s decisions on such issues must therefore be, to some extent, speculative.

If met with what appears to be an unreasonable application for disclosure, the disclosing party can invite the court to “reserve costs” on the issue. If it later transpires that the disclosure was not relevant or proportionate, the court can then award costs against the questioning party.

In very big money cases, the accepted practice used to be that a party could escape the need for full disclosure providing that they could satisfy the court that they had the financial means to pay whatever award was likely. This is known as the “millionaire’s” defence, or the “Thyssen” defence.

But since White v White, courts have adopted the position that it is difficult to consider the fairness of a case in the context of equality without knowing the full extent of the marital pot.

However, there remains some limited scope for this “defence” to disclosure. In J v V (Disclosure: Offshore Corporations), Judge Coleridge stated that “[e]specially where cases involve marriages of short/medium length and the wealth has largely come from sources other than the efforts of the respondent during the course of the marriage, Thyssen defences could still be usefully deployed.”

Whilst exercising its discretion, the court has powers to control or limit the evidence necessary to determine the case. Under FPR r.22.1(1), the court may control the evidence by giving directions on:

(a) the issues on which it requires evidence;

(b) the nature of the evidence which it requires to decide those issues; and

(c) the way in which the evidence is to be placed before the court.

In its exercise of this function, the court has the power to exclude evidence that would otherwise be admissible and it may limit cross-­examination.

 

Andrew Wastall is a barrister at Exchange Chambers, specializing in all areas of matrimonial finance. 

Author: Stowe Family Law

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