Potential for conflict and marriage breakdown

An ‘amicable’ financial settlement

 

In ‘An amicable divorce and financial settlement’ I considered the decision of Mostyn J in JK v MK & Anor [2020] EWFC 2 (20 January 2020). I concluded my post:

 

The question remains: does this apply to mediators and lawyers who act for both parties in seeking for them a consent order or other agreed disposal of an issue in family proceedings? This must be considered in a separate post.

 

There is a prior question to this: was Mostyn J’s assessment of the ‘position of conflict’ in which amicable (lower case title) found itself sustainable; for he declared that: ‘[21] … a declaration should be made that amicable is not placed in a position of conflict of interest by acting for both parties under the terms of its business model’. He gave as his reasons for this view as follows:

 

• Solicitors commonly act where, for example, they are instructed by divorcing parties to deal with sale of a jointly owned property (at [17]);
• That like solicitors amicable was likely to be in a fiduciary relationship with its clients; but Mostyn J specifically said he did not need to ‘decide the point’ ([18]-[19]); and finally
• Amicable had a system of warnings or ‘red flags’ which indicated there might be a conflict.

 

The Queen’s Proctor took the view there was no conflict. There was therefore no real adversarial issue on this point. But surely the question is not as simple as the approach of the Queen’s Proctor. The example Mostyn J took of conveyancing for a divorced husband and wife has no conflict if the parties agree the price; just as both parties to damages proceedings could be jointly represented on the issue of a consent order for settlement of the claim. Few lawyers would safely act on that settlement unless they knew the lay claimant had independent advice on the amount of damages.

 

Potential for conflict

 

The point which was not considered by Mostyn J was the inherent conflict in any given piece of litigation. Because of the terms of Matrimonial Causes Act 1973 (MCA 1973) s 25 – which Mostyn J does not mention – there is a conflict inherent in any marriage breakdown. The court must consider ‘all the circumstances’ of the case. It must consider and balance the various aspects of each parties’ finances and the welfare of any children (there were none in JK v MK), especially assets available to them (none again, it was said), income and pensions (of which there is no mention). And it must do all this, whether or not a couple agree their settlement (Livesey (formerly Jenkins) v Jenkins [1985] AC 424, [1985] FLR 813; Harris v Manahan [1997] 1 FLR 205, CA).

 

A sense of proportionality must be retained. Where childless couples have been married for only two years and have equivalent finances, a consent clean break application may often be uncontentious. But to cite this case as authority for other than the most rudimentary finances and to say there is no need then for independent advice, risks real potential for disaster for a couple; and perhaps a negligence claim against a joint adviser (whether a solicitor, mediator or ‘amicable’ itself).

 

The question is not whether there is any conflict. Where couples agree (as here) there is – in fact – none. The test is, is there potential for conflict; and here, by definition, and as a result of MCA 1973 s 25, there is always potential for conflict when a marriage – indeed when most couples’ relationship (though s 25 does not come in where couples are unmarried) – breaks down.

 

Mostyn J cites, but does not quote, para 6.2 of the Solicitors’ Regulation Authority Code 2019. In full this says (SRA Code is written in its irritating Kitchener style: ‘you’ means a solicitor):

 

You do not act in relation to a matter or particular aspect of it if you have a conflict of interest or a significant risk of such a conflict in relation to that matter or aspect of it, unless:

the clients have a substantially common interest in relation to the matter or the aspect of it, as appropriate; or

the clients are competing for the same objective, and the conditions below are met, namely that:

• all the clients have given informed consent, given or evidenced in writing, to you acting;
• where appropriate, you put in place effective safeguards to protect your clients’ confidential information; and
• you are satisfied it is reasonable for you to act for all the clients.

 

The third of these conditions is covered by the amicable ‘red flags’ (explained in the earlier post); and the second is not applicable. But ‘informed’? Surely this must mean that someone independent – save in the most basic case – must have advised independently?

 

Mostyn J and the meaning of ‘conflict of interest’

 

‘Conflict of interest’ is defined as: ‘a situation where [a solicitor’s] separate duties to act in the best interests of two or more clients in relation to the same or a related matters conflict’.

 

Mostyn J did not consider what ‘conflict of interest’ means in the context of MCA 1973 s 25. As I see it, he should have decided this case on its facts only, and said that for this couple there may have been no conflict. He should have mentioned – at least – MCA 1973 and have pointed out that in the vast majority of matrimonial financial relief cases there is, by definition, the potential for conflict. In consequence, ‘informed consent’ in the majority of cases must demand that there be advice that independent legal advice be obtained. Only a tiny minority of childless couples are likely to be able – fairly – to rely on services such as those provided by amicable (or the equivalent from mediators or lawyers) without a second opinion being urged strongly to be obtained.

 

This is not special pleading for matrimonial lawyers. It is what potential for conflict and MCA 1973 s 25 demand.

 

David Burrows

22 January 2020

An amicable divorce and financial settlement

Assistance with preparation of a consent order

 

The extent to which a non-lawyer (called ‘amicable’ – all lower case in this case) can help a couple jointly to prepare and file a consent order application has been explained and approved by Mostyn J in JK v MK & Anor [2020] EWFC 2 (20 January 2020). He concludes his judgement

 

[46] The declarations [to be explained further] made in this case relate only to amicable [lower case: the company which assisted JK and MK]. Other online divorce facilitators (and there are many) can only rely on them if their business models are virtually indistinguishable from amicable’s.

 

How apt this comment is and the extent to which what amicable did can be replicated by mediation services – where they help couples jointly to reach agreement – will be considered in a separate post.

 

JK and MK were married in 2015. They had no children and separated in December 2017. They had no capital assets. Each was earning. They wanted a clean-break financial relief order. They approached “amicable” (the trading name of E-Negotiation Ltd, and which is always written in lower case) who helped them prepare divorce papers. amicable did not need to help the parties with finance negotiations, already agreed by them. amicable drafted the order using the relevant Standard Family Orders precedent and Form A.

 

‘amicable (is this the first time a judge has used lower case letters to start a paragraph?) helped the couple to prepare the statement of information for a consent order in relation to a financial order and to prepare a joint statement regarding legal responsibilities and disclosure of assets which was signed by both parties. This latter document is not required by the rules, but ‘I can see that it would be extremely helpful in enabling the court to scrutinise and to understand the net effect of the proposed consent order’ (see [3]), said Mostyn J. amicable charged for all this.

 

The court raised the question that ‘amicable was placed in a position of conflict of interest in acting for both parties’ (see [6]); and that ‘amicable [was] doing things that are forbidden to non-lawyers under the terms of the Legal Services Act 2007’. These questions were listed before Mostyn J and the Queen’s Proctor invited to intervene (Matrimonial Causes Act 1973 s 8). On Mostyn J’s direction amicable was joined to seek a declaration (though it is not clear from where he derives his power in the family court to make a declaration: he refers to it as from Senior Courts Act 1981 s 19(2)(a)).

 

Conflict of interest?

 

At [13] Mostyn J records Kate Daly, the founder of amicable (set up in 2015 following her own expensive and acrimonious divorce), as saying in her witness statement:

 

The desire to help people navigate their divorce positively, to improve access to justice (for the many not the few), and to avoid the emotional pain I and my family had experienced, drove me to investigate an alternative way to sorting out divorce and separation.

 

But did this aim to help both parties and to avoid being engaged in the conduct of litigation, even so, raise any question of a conflict of interest? The Queen’s Proctor thought not:

 

[17] The first and main concern that has been raised is that there is a conflict of interest for amicable to act for both parties. This concern is agreed by all to be unfounded. Specifically, the Queen’s Proctor is fully satisfied that no such conflict of interest arises. Joint instruction of solicitors happens frequently in divorce cases. Consider a consent order which provides for a jointly owned property to be sold. The parties will routinely jointly instruct a firm of conveyancing solicitors to deal with the sale….

[18] It is trite, where a solicitor acts for a client, that a fiduciary relationship arises. Where a solicitor acts for two clients, then, as a fiduciary, she must not act with the intention of furthering the interests of one client to the prejudice of those of the other. Thus, rule 6.2 of the current Code of Conduct for individual solicitors specifically permits solicitors to act for clients jointly where they have a substantially common interest in relation to the matter or the aspect of it, or where they are competing for the same objective.

 

amicable had a system of warnings (‘red flags’) to alert them when to refer on to solicitors (eg domestic abuse, alcoholism, suggestions of non-disclosure). In the light of his findings Mostyn J was willing to make a declaration (at [21]): ‘that amicable is not placed in a position of conflict of interest by acting for both parties under the terms of its business model’.

 

No violation of Legal Services Act 2007

 

But what of any violation of Legal Services Act 2007 s 12? Was what amicable were doing a ‘reserved legal activity’. Literally interpreted the Act might be said to apply to any legal document; but such ‘literalism’ must be avoided (see eg Lord Steyn at [19] in Sirius International Insurance Co v FAI General Insurance Ltd & Ors [2004] UKHL 54, [2004] 1 WLR 3251). Mostyn J held that the documents did not ‘violate’ the 2007 Act and declared accordingly. He suggested that the Family Procedure Rules Committee might want to consider an amendment to Form D8 accordingly.

 

The question remains: does this apply to mediators and lawyers who act for both parties in seeking for them a consent order or other agreed disposal of an issue in family proceedings? This must be considered in a separate post.

 

David Burrows

21 January 2020

On how to pay and indemnify your ex-spouse for mortgage repayments

A tale of a Southampton consent order

Under the title CH v WH [2017] EWHC 2379 (Fam), Mostyn J’s of the approval of a consent order appears as a form of judgment with neutral citation and in the BAILII reports. (CH v WH emerges also as an example of use of the High Court’s inherent powers in President’s guidance: jurisdiction of the Family Court: allocation of cases within the family court to High Court judge level and transfer of cases from the Family Court to the High Court 28 February 2018:  at para 15). It is not a judgment. Mostyn J was doing the administrative job which district judges do up and down the country every day. It is an administrative task, without any judicial disposal involved (nor argument to be heard). Add to which: one of the parties chose their judge (‘[2] The matter has been referred to me by the wife’s solicitors…] – against all the normal rules of law; and with Mostyn J telling the parties to accept the form of order he had, himself, drafted (no conventional self-denying ordinance there).

 

The question concerned whether an agreement by one spouse to discharge mortgage payments on a former matrimonial home covenanted to be paid by both spouses should be dealt with by undertaking given to the court. This has generally been regarded as the appropriate course. Or, as the omnibus orders decree, should the payments be by order? Mostyn J does not recite the approved ‘orders’ but I take them to be those set out at the end of this post.

 

In considering which course should be followed, Mostyn J seems to take no account of statutory imperative, Supreme Court/House of Lords and Court of Appeal jurisprudence, but relied on the drafting of his own committee. The district judges’ who had considered the original draft order maintained that it should be based on conventional wording  and an undertaking.

 

Mostyn J rewrote their decisions (it was not an appeal) with the words:

 

[10] In my judgment, these sterile, technical objections to orders in these terms must cease. They have caused needless delay and have no doubt increased costs and caused other inconvenience.

[11] That concludes this judgment, which the President has seen and which he approves.

 

Professional negligence and a non-release or variation order

 

All this may appear Jesuitical, a pointless semantic exercise beloved of idle lawyers; and so it may be – until….

 

What happens when a person with a Mostyn J ‘order’ – as in the draft below – wants to vary it? Variation or an order can only be done under Matrimonial Causes Act 1973 (MCA 1973) s 31; but orders requiring payment of a mortgage are not covered – as far as I can see – under s 31(2) (as I explain below). If Mrs Birch (of Birch v Birch (below)) had agreed to a Mostyn J omnibus order she would have been stuck if she then wanted to vary it (if my reading of s 31(2) is correct); as against seeking release from it as the Supreme Court permitted her. And perhaps another Mrs Birch’s lawyers, who had been taken in by the omnibus orders, might have to refer the matter to their insurers.

 

Of the need to follow statutory provisions (ie MCA 1973) Mostyn J says:

 

[8] It is elementary that the court cannot make orders outside its powers: see Livesey v Jenkins [1985] AC 424 at 444G, where Lord Brandon stated that there was nothing in section 23 or 24 of the Matrimonial Causes Act 1973 which directly empowered the court to make the order requiring the wife, following the transfer of the matrimonial home to her by the husband, to be solely responsible for the mortgage and all other outgoings on it. Such a provision, he said, should have been incorporated in undertakings….

 

However, Mostyn J continued (with no hint of irony: see his reference to ‘sterile, technical objections’ cited in [10] above and to ‘conveyancing counsel’ below):

 

[8] …. [MCA 1973 s 30] gives the court power when making a property adjustment order to direct that the matter be referred to one of the conveyancing counsel of the court for him to settle a proper instrument to be executed by all necessary parties. While this provision is now virtually obsolete it cannot be disputed that the instrument in question could contain terms which furnish all necessary indemnities and the obligations to pay instalments in relation to a mortgage secured on the property. So I do not agree that the provision in question is outside the “parameters” of [MCA 1973].

[9] But that is not my main reason for disagreeing with the approach taken by the district judges in Southampton. My main reason is set out in the report of the Financial Remedies Working Group, set out above, with which, unsurprisingly, I agree…

 

So, says Mostyn J the district judges in Southampton can go outside MCA 1973 by use of their ability to use the inherent jurisdiction of the High Court (he does not consider Wicks below) conferred by Matrimonial and Family Proceedings Act 1984 s 31e(1)(a). They could just go along with what the Working Group had recommended. Quoting his own view in the group Mostyn J said:

 

‘This [the court’s power to direct one party to make such payments and/or indemnify the other against non-payment] is an equitable remedy originally vested in the Court of Chancery which was subsumed into the High Court by the Supreme Court of Judicature Act 1873. It was the very relief initially ordered in Salomon v A Salomon and Co Ltd [1897] AC 22 (but which was later set aside by the House of Lords as offending the rule about the separate legal personality of companies). As to mortgage and other outgoings in my view the power to order A to make payment to B plainly includes the power to order A to make payments on behalf of B.  The greater includes the lesser. It was necessary to spell out the power to order the payment of mortgage and other outgoings in Part IV FLA 1996 proceedings (see s 40(1)(a)) because the wider direct power does not exist in those proceedings. It would be anomalous if the power to order payment of outgoings only existed in Part 4 but not FR proceedings. It is necessary in my view for the court to have these powers if only to cover the position if someone is not prepared to give the necessary undertakings or is not participating in the proceedings.’

 

Of course, what could be simpler and less sterile/technical than that? Don’t worry about what Lord Bridge says (quoted above) in Livesey v Jenkins:

 

[9] …. The basic mistake made by the judges in Southampton is to assume that their powers are confined to the four corners of the Matrimonial Causes Act. The Family Court has all the powers of the High Court. The High Court unquestionably has the power, as part of its equitable jurisdiction, to order an indemnity. If awarded, that represents a legal right in favour of the person so indemnified. The court can award an injunction in support of a legal right. To order someone who has been ordered to indemnify the other party in respect of a mortgage to use his or her best endeavours to keep up the payments on that mortgage is of the nature of an injunction in support of a legal right. In my opinion, this provision is squarely within the power of the High Court to order, and is therefore within the power of the Family Court.

 

And now this wheeze is incorporated as part – it is said – of the High Court’s inherent jurisdiction and mentioned specifically in 28 February’s PGJFC para 15(b).

 

Supreme Court and Birch

 

So what does statute and recent Supreme Court jurisprudence say (quite apart from the clear opinion of Lord Bridge in Livesey’s case (cited by Mostyn J above))? In Birch v Birch [2017] UKSC 53, [2017] 2 FLR 1031 the Supreme Court was concerned with whether or not a person could vary an undertaking which Mostyn J says can now be framed as an order. The Court said they could in the narrow circumstances described there and mostly on ground similar to those set out in MCA 1973 s 31 (not a section considered by Mostyn J).

 

MCA 1973 s 31 is critical to all this. It deals with variation of orders (ie not undertakings). So what orders can be varied? MCA 1973 31(2) – which I set out in full (other than pension orders) – defines which orders precisely can be varied:

 

(2) This section applies to the following orders, that is to say –

(a)any order for maintenance pending suit and any interim order for maintenance;

(b)any periodical payments order;

(c)any secured periodical payments order;

(d)any order made by virtue of section 23(3)(c) or 27(7)(b) above (provision for payment of a lump sum by instalments);

(dd) [pension orders];

(e)any order for a settlement of property under section 24(1)(b) or for a variation of settlement under section 24(1)(c) or (d) above, being an order made on or after the grant of a decree of judicial separation;

(f)any order made under section 24A(1) above for the sale of property.

(g) [pension sharing orders].

 

With the greatest respect to Mostyn J it is not clear to me which of these provisions would have enabled Mrs Birch to seek to vary an order made under his scheme; but from which the Supreme Court said she could seek release as an undertaking – and, probably, by seeking replacement as another undertaking.

 

In Birch Lord Wilson (with whom the majority in the Supreme Court agreed) said of an undertaking in an order:

 

[5] All three lower courts adopted without demur the wife’s description of her application as being to “vary” her undertaking. But her description betrays a conceptual confusion which it is as well to dispel as this early stage. An undertaking is a solemn promise which a litigant volunteers to the court. A court has no power to impose any variation of the terms of a voluntary promise. A litigant who wishes to cease to be bound by her (or his) undertaking should apply for “release” from it (or “discharge” of it); and often she will accompany her application for release with an offer of a further undertaking in different terms. The court may decide to accept the further undertaking and, in the light of it, to grant the application for release….

 

The Supreme Court held that the wife in Birch could apply to the court to seek release from her undertaking. Whether she should be permitted to do so was a matter with which the lower court must deal. Her application was to be dealt with as equivalent to a MCA 1973 s 24A(1) variation of sale order within the terms of MCA 1973 s 31(7). Undertakings can be dealt with in this way. Different statutory provisions apply for orders.

 

High Court’s inherent jurisdiction: Wicks

 

Finally, what of the Family Court’s powers outside the powers granted by MCA 1973? In Wicks v Wicks [1998] 1 FLR 470, [1998] 3 WLR 277 (a case very much still live: see eg Cobb J’s judgment in WS v HS (appeal – sale of matrimonial home) [2018] EWFC 11 (28 February 2018) a couple of days ago) Ward LJ (at 490) explained the inherent jurisdiction of the High Court as:

 

In 1970 Sir Jack Jacob described the inherent jurisdiction of the court as ‘a virile and viable doctrine which in the very nature of things is bound to be claimed by the superior courts of law as an indispensable adjunct to all their powers’ ((1970) 23 Current Legal Problems 52). But in my judgment the inherent jurisdiction, valuable and beneficial though it is in its proper procedural sphere in relation to litigation, cannot be invoked by the court to arrogate to itself the power to give substantive relief, particularly so in an area so much controlled by statute.

 

In Wicks Ward LJ (with whom Peter Gibson LJ and Sir John Vinelott agreed) distinguished between procedural steps, where the court retained inherent jurisdiction, and ‘the power to give substantive relief’. In an area so set about by statutory powers creation of further substantive relief – such as to order discharge of mortgage repayments by order not in MCA 1973 – was not available to the courts: ‘The reality here is that the wife is seeking the enforcement of rights which MCA 1973 does not grant her…. She wants the money to buy a new home in her name, under her control, for her sole enjoyment to the exclusion of the husband. If the substantive law laid down by the MCA 1973 does not permit that to happen, then the court has no inherent jurisdiction to do that which Parliament has not granted it power to do….’

 

Thus Ward LJ: the court has no inherent power to do that which Parliament has not granted. A route via ‘an equitable remedy originally vested in the Court of Chancery which was subsumed into the High Court by the Supreme Court of Judicature Act 1873’ is not, it is submitted, an obvious grant of such a power by Parliament.

 

Draft orders in question

 

50 Procure release from mortgage and to indemnify

The [applicant]/[respondent] shall use [his]/[her] best endeavours to procure the release of the [respondent]/[applicant] from any liability under the mortgage [as in definition above] [by [insert date]]/[on or before completion of the transfer provided for by paragraph [insert] / [within [insert] days of the date of this order], and shall in any event indemnify the [applicant]/[respondent] against all such liability.

 

51 Payment of mortgage and outgoings on property

The [applicant]/[respondent] shall discharge as and when each payment becomes due, be solely responsible for and in any event indemnify the [respondent]/[applicant] against:

1. all interest and capital repayments due in respect of the mortgage [as in definition above];
2. all [reasonable] sums due in respect of council tax, utilities (including but not limited to gas, electricity, water and telephone accounts), and buildings and contents insurance premiums in respect of [the family home] and/or [insert property/ies as in definition above]; and
3. etc

The payments shall start on [insert date] and shall end on the first to occur of:

1. [insert date];
2. the sale of the family home;

• the [respondent’s]/[applicant’s] remarriage;

1. the death of either party;
2. the retirement of the [applicant]/[respondent]; or
3. a court order discharging this obligation.

[as appropriate].