The practitioner
I V I
This update examines the High Court case of I v I [2008] EWHC 1167 (Fam), [2008] All ER (D) 303 (Jun) in which an applicant wife applied to set aside an order for ancillary relief made at a financial dispute resolution (FDR) hearing.
The facts
The husband (H) and the wife (W) met at university, lived together for four years and were then married for nine. When they married they were both employed but had no significant resources. They then had two children (aged eight and 10). H was a stockbroker and/or investment banker. In ancillary relief proceedings, H and W reached an agreement at the FDR (on 20 July 2006) and the court approved the terms of that agreement.
At the FDR, it was common ground that the relevant assets had been acquired during the relationship. W had no relevant income and had not been employed for some time. H’s remuneration package comprised a basic salary and bonus (a proportion of which was paid in shares/stock units, vesting over time). Most of the couple’s savings during the marriage had been invested in the former matrimonial home (FMH). A clean break was not achievable.
The financial order made included W retaining the FMH with a charge back (24% of gross sale proceeds) to H. W’s total interest was £507,000 (or 70.1% of its net value) and a total income package for W and the children of £75,000 per annum plus school fees and extras.
Eleven days after the making of the order, H resigned from his job having agreed the terms of a new employment contract with another employer.
In early August 2006, H told the children he had left his job. This led to W making enquiries of him. In September 2006, H took up his new job. In October 2006, W issued an application to set aside the financial order.
W’s application to set aside
The grounds relied on by W were non-disclosure and a supervening event. However, counsel for W did not pursue an argument based on supervening event. Counsel’s opening note for W asserted that at the time of the FDR H was “engaged in negotiations for a new position; had agreed terms of employment; and was in consequence materially financially better off (as to both capital and income) than under his old employment
contract”.
W made a sustained attacked on H’s credibility by asserting that this was suppressed by H and that it should have been disclosed. W’s statement in the application to set aside contended that she did not know that H was about to sign a new contract of employment and that, had she known about the terms of H’s new contract, she would not have agreed to settle the case on the terms that she did.
It was accepted by H that in the period leading up to the FDR he was in negotiations for a new job and he did not disclose the existence of the negotiations or the position reached in those talks. H accepted, when cross-examined about this, that he deliberately chose not to disclose these facts to W. H claimed that, given the preliminary stage of the negotiations, he was not under a duty to disclose and, even if he was, disclosure of the details would not have caused the court to make a substantially different order.
The question for Mr Justice Charles was whether or not there was a duty to disclose the job negotiations, and, if so, whether or not the non-disclosure was material.
Both H and W relied on Livesey (formerly Jenkins) v Jenkins [1985] AC 424, [1985] 1 All ER 106 which is the leading authority on the existence of the duty of full and frank disclosure and the consequences of its breach when a consent order has been approved.
H’s income package at his previous job included a basic salary of £100,000 and a yearly bonus in cash and restricted stock units (RSUs). In broad terms, in 2005, H was earning around £260,000 to £270,000 (net) and received RSUs that would vest in the future. He also received a pension contribution of £5,000. H’s remuneration had increased year on year in the lead up to the separation. At the time of the FDR, there was a real prospect that his overall remuneration for 2006 would significantly exceed that received in 2005. W had argued at the FDR that H’s earnings would rise “exponentially” over the years.
Judgment
Charles J heard detailed oral evidence concerning the state of H’s employment negotiations at the date of the FDR. He found that it could not be said at the time of the FDR that:
(i) H was about to sign a new contract;
(ii) H had agreed the terms of a new contract (and was, as a consequence, materially better off); or
(iii) H’s new job was a “done deal”.
There was no agreement or understanding in principle. Charles J found that there were still important points outstanding as to the package that H would accept and no offer had been made to H. Charles J held that it was obvious that H would not resign his old job until his new contract was agreed. Until that was done, there was uncertainty whether he would move jobs or not. That should have been obvious to W’s legal advisers.
However, Charles J did find that H’s expectations about the new position were significantly higher than he had asserted. For example, H knew that a formal offer was likely and imminent as the interview process had gone well. H had underplayed the advanced stage of the negotiations at the time of the FDR. H was hoping for and expecting to receive a formal offer (and a draft contract) on the day of the FDR or the next day. A draft employment contract was received by his employment solicitors later on the same day as the FDR. H had also played down his expectations and hopes for the new position. In Charles J’s words it was “make or break time” in the negotiations.
Although it was held that H had been less than candid in his evidence and that the true position of the negotiations was relevant to the question of what he would or might earn (and was something W would or might be interested to know), it was held that H had not been consciously suppressing information that he thought he had a duty to disclose.
H had taken a commercial decision not to tell W about the job negotiations for three reasons:
(i) the move was far from being a done deal;
(ii) negotiations were confidential and disclosure of them, if a move did not result, could be damaging; and
(iii) the job negotiations did not affect what H was offering/thought was fair and the agreement that he would accept.
Charles J examined the manner in which periodical payments negotiations
had progressed at the FDR. H had made a percentage offer to W (34% of his net cash element of his salary up to a maximum of £350,000 plus 10% of the net cash element of his salary over £350,000). Charles J surmised that the percentage offer recognised that H’s salary was likely to increase and that the actual amounts of the increases in his salary for 2006 and beyond were less relevant. W had argued for a fixed sum and did not want her maintenance capped or her chances in a future variation application hampered.
Findings on the duty to disclose Charles J found that the duty includes a duty to provide information that would set the other side on a line of enquiry or a thought process on matters to which the court must have regard under Matrimonial Causes Act 1973, s 25. Section 25(2)(a) refers to income and financial resources which a party is likely to have in the foreseeable future which was relevant. He went on to say that the continuing duty of full and frank disclosure of all material facts in ancillary relief proceedings included a duty to inform the other party of information that might result in a removal of uncertainty as to the value of assets or the level of future income or inform the assessment of a party’s income, earning capacity or assets. Offers of employment and negotiations of employment that would or might impact on income should generally be disclosed. If a party was in doubt about whether or not they should disclose something, then it should be disclosed. Charles J held that H had breached the duty of full and frank disclosure.
Findings on the materiality of the breach Charles J applied Jenkins v Livesey and reiterated the views of Lord Scarman and Lord Brandon in that case saying that to set aside an order on the basis of a breach of the duty to disclose it has to be shown that the absence of full and frank disclosure (and thus the breach of duty) has led the court to make an order that is substantially different from the order that it would have made if such disclosure had taken place. Therefore, there is a two stage process: (i) has
there been a breach of the duty? If yes; (ii) is it a material breach of duty?
Having found that H had breached the duty to give full and frank disclosure, Charles J carried out the second stage of the exercise, examining whether or not the order made (based on the information disclosed to W and the court) would have been made had H disclosed the job negotiations.
He found that, even if H had disclosed the true position relating to his negotiations with his new employer, the outcome would not have been different. The uncertainties regarding H’s employment would have remained as at the date of the FDR. Had H made proper disclosure regarding his job negotiations, the court (and W) could not have proceeded on the presumption that H would be successful in achieving all that he was asking for from his new employer in terms of remuneration and so could not have concluded an order on this basis.
Furthermore, if H had stayed at his old job, he would have been likely to achieve a significantly higher bonus at the end of 2006 compared to 2005 which fact was acknowledged by W. The possible differences in the amount and a guarantee for 2006 and 2007 income (at his new job) were not found to be of sufficient size or weight to alter the court’s thinking when considering the fairness of the agreement it was asked to approve.
Stop press
It was announced in Parliament on 1 July 2008 that the new powers contained in Pt 1 of the Children and Adoption Act 2006 will come into force this autumn. The new powers mean that the court can order “contact activities” and will have new enforcement powers.
In brief, the contact activity directions will require a party to proceedings to take part in an activity that promotes contact with a child. The direction will specify the activity to be undertaken and the person providing the activity. The activities will include programmes, classes, counselling or guidance sessions that may assist a person in establishing, maintaining or improving contact and activities that may, by addressing violent behaviour, enable/facilitate contact. Another activity that may be directed is for the party to attend sessions which inform or advise as to making or operating arrangements for contact with a child (including making arrangements via mediation).
As for enforcement, if the court is satisfied beyond reasonable doubt that a party has failed to comply with a contact order, it may make an enforcement order imposing on that party an unpaid work requirement. However, the court cannot make such an order if the party who does not comply has a reasonable excuse.
There are also detailed provisions for financial assistance in complying with the orders, monitoring contact activities and enforcement orders and for the issuing of warning notices alerting the persons subject to the orders to the consequences of failure to comply.
