Margaret Hatwood
Family Law Journal - November 2007
It was once said that the sex you pay for is less expensive than the sex you do not pay for. With increasingly large awards being made by the divorce courts in England and Wales, many wealthy clients are now asking about pre-nuptial agreements. This is an area where practitioners have to be careful. Pre-nuptial agreements are a high-risk area for negligence claims. With the increasing internationalisation of family law, many couples owning assets abroad and the possibility of forum shopping, practitioners need to be mindful that in many jurisdictions across European and US states a pre-nuptial agreement is binding. Moreover, Art 17 of Brussels I (Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968) provides that if one or more parties to a marriage live in a Contracting State they can enter into an agreement which is binding as to jurisdiction, ie it can bind the forum for subsequent divorce proceedings. Twenty years ago if a family lawyer had been asked if a pre-nuptial agreement was binding the reply would have been an emphatic ‘No’. In 2007 a family lawyer will give a much longer response which can be neatly encapsulated by the word ‘maybe’.
This article aims to review the movement towards a situation where agreements are increasingly regarded as binding and hopes to draw practitioners’ attention to possible danger areas as well as the difficulties of ancillary relief litigation where one party is seeking to uphold an agreement. The article will also review the decision of Baron J in NA v MA [2006] EWHC 2900 (Fam), [2007] 1 FLR 1760, a good read both in terms of its insights into the lives of the very wealthy and, more significantly, for lawyers it contains an excellent analysis of some of the relevant cases. Indeed, Baron J neatly summarises the position towards the start of her judgment as follows (at para [12]):
‘It is an accepted fact that an agreement entered into between husband and wife does not oust the jurisdiction of this court. For many years, agreements between spouses were considered void for public policy reasons but this is no longer the case. In fact, over the years, pre nuptial contracts” have become increasingly commonplace and are, I accept, much more likely to be accepted by these courts as governing what should occur between the parties when the prospective marriage comes to an end.’
Although decided over 20 years ago, Edgar v Edgar (1981) 2 FLR 19 still contains helpful guidance. The husband sought to hold his wife to a separation agreement which she had signed with the benefit of competent legal advice. Mrs Edgar later tried to renege from that agreement. It was held that she was bound by the agreement, Ormrod LJ saying (at 25):
‘To decide what weight should be given in order to reach a just result, to a prior agreement not to claim a lump sum, regard must be had to the conduct of both parties, leading up to the prior agreement, and to their subsequent conduct, in consequence of it. It is not necessary in this connection to think in formal legal terms, such as misrepresentation or estoppel; all the circumstances as they affect each of two human beings must be considered in the complex relationship of marriage. So, the circumstances surrounding the making of the agreement are relevant. Undue pressure by one side, exploitation of a dominant position to secure an unreasonable advantage, inadequate knowledge, possibly bad legal advice, an important change of circumstances, unforeseen or overlooked at the time of making the agreement, are all relevant to the question of justice between the parties. Important too is the general proposition that, formal agreements, properly and fairly arrived at with competent legal advice, should not be displaced unless there are good and substantial grounds for concluding that an injustice will be done by holding the parties to the terms of their agreement.’
Following Edgar there were many agreements which were not upheld by the courts.
In 1999 a Government Green Paper Supporting Families dealt with pre-marriage agreements, although it was made clear that there would be no question of written agreements being made mandatory and that the economically weaker party would still be protected. The paper envisaged a situation where pre-nuptial agreements would be more frequently used and where such agreements could be binding. However, the paper set out to make it clear that, if any one of the following circumstances applied, the written agreement would not be legally binding:
(1) where there is a child of the family, whether or not that child was alive at the time the agreement was made;
(2) where under the general law of contract the agreement is unenforceable;
(3) where one or both of the couple did not receive independent legal advice before entering into the agreement;
(4) where the court considers that the enforcement of the agreement would cause significant injustice;
(5) where one or both of the couple have failed to give full disclosure of assets and property before the agreement was made; or
(6) where the agreement is made fewer than 21 days prior to the marriage.
Practitioners wishing to ensure a pre-nuptial agreement is binding would do well to use these principles as a helpful checklist.
Needless to say, no parliamentary reform followed, so judges have had to do their best to fill the lacunae and achieve fairness between the parties. In the Court of Appeal decision in Xydhias v Xydhias [1999] 1 FLR 683, a consent order was agreed by counsel. The final hearing was vacated. However, following an unsuccessful attempt by the husband to vary the timetable for payment the husband withdrew all offers. At the ancillary relief hearing the wife argued as a preliminary issue that an agreement had been reached between the parties upon which an ancillary relief order should be based. The district judge found that an agreement had been reached. The husband appealed unsuccessfully. The court found as follows:
(1) Ordinary contractual principles did not apply because an agreement for the compromise of ancillary relief proceedings did not give rise to a contract enforceable in law. An ancillary relief award was always fixed by the court after exercise of its independent discretionary review, applying the s 25 criteria to the facts and could not be fixed by agreement. If there was a dispute about whether the negotiations had led to an accord the court had discretion in determining whether an accord had been reached.
(2) An agreement to compromise ancillary relief proceedings was not one for the disposition of land but an agreement as to terms which the parties considered fair with the aim of avoiding the expense of a contested hearing. Such an agreement did not need to comply with s 2 of the Law of property (Miscellaneous Provisions) Act 1989.
(3) In any dispute about whether or not an agreement had been reached the without prejudice correspondence had to be admitted to determine the issue.
For a while it became fashionable among some family lawyers to mark correspondence ‘Xydhias agreement’ to show one had read, or at least one knew how to spell, Xydhias.
THE FACTS OF NA v MA
So what is the position now? Has NA v MA added to practitioners’ knowledge of how to tackle this difficult area? The assets were found by the judge to be £40 million (interestingly, at the time of the post-nuptial agreement they were said by the husband to be £60 million). The husband’s solicitor wisely insisted that his client made a full and accurate disclosure of his assets. The wife’s parents separated before she married. The impact of that very acrimonious divorce was such that the wife had what was described as a fragile personality. The parties married in 1998. The husband’s father died the same year. The husband had no assets of his own. All were acquired from his father by inheritance. The wife had no assets. The relationship between the parties was of 12½ years’ duration; 7 years of which were marriage. There were two children aged 6 and 4. The wife had not worked, except for a short period of time prior to the marriage. She did not work after the marriage.
In 2001 the husband started his own businesses, including a restaurant corporation and a fine wine company. By the time of the divorce, the husband’s various businesses made a loss of either $500,000 or £500,000 per month (both figures were used) which the husband was funding. Notwithstanding this, the couple spent annually £18,000 on flowers, £337,000 on staff, £44,500 on food, apart from restaurants, and £36,800 on travel. As the judge said, in the context of their wealth of £60 million, this was ‘unbridled extravagance’. An incredible £11 million of assets were held in wine – some of the few liquid assets in this case.
The evidence was that the husband’s investment income could be as much as £1 million per annum, but the reality was that he was subsidising loss-making businesses to the extent of £5 million per annum.
After the arrival of the children the relationship deteriorated. The wife ultimately sought solace in the arms of another, namely Mr Y. The wife’s adultery was discovered when she gave the butler her mobile phone to charge. The butler noticed she was receiving a large number of texts from Mr Y – about 200 a day. The butler read the messages and noticed that they were of a compromising nature. The butler purchased a bugging device and recorded a number of compromising calls. The husband was given the information about his wife’s adultery on 9 December 2004. When later the husband confronted the wife she admitted the adultery and was anxious to save the marriage for the sake of the children. The husband said that he would only agree to reconciliation if the wife both gave up affair and entered into a post-nuptial agreement. The husband had his matrimonial solicitor draw up an agreement. The wife was ‘told’ to go to a particular experienced matrimonial lawyer – she was not given a choice of lawyers, as would have been best practice. Fortunately, the lawyers recommended were highly regarded. The wife was advised by her solicitor not to sign the agreement that was manifestly unfair to her, providing for her to receive only £3 million plus maintenance for the children.
Over a period of 3 months the wife was pressured by her husband to sign the agreement. On 8 March 2005 the husband phoned the wife from USA and said that if she did not sign the agreement by the time he came home on 9 March 2005 the marriage would be over. By this stage the wife was depressed and receiving treatment for this from a consultant psychiatrist. His notes reveal that she was suffering from mild to moderate depression. At around 7 pm, in a somewhat emotional state the wife contacted her solicitor; Mr Z. Mr Z was at a dinner. He gave the wife brief advice and then contacted his office and managed to speak to a trainee, M, who was not in the family team. M tracked down an assistant solicitor, G, in the family team and went back to the office with G to see the wife. The wife spent approximately 1½ hours with the solicitor and trainee. She was given strong advice not to sign the agreement but she did sign contrary to the solicitor’s advice. Detailed attendance notes were dictated the next morning by the trainee and were reviewed and amended by the assistant solicitor and later the partner, Mr Z.
What is interesting from a lawyer’s viewpoint is what happened at trial; especially the attack that was mounted against the wife’s very experienced legal team. The husband claimed that the wife’s team had orchestrated an exit strategy for the wife by creating the impression that the wife was more distressed than he was, thus enabling her to claim that she had been subjected to undue influence. The main justification for this line of approach was that a handwritten note by the trainee ‘make it bad’.
The husband’s team’s approach was criticised by the judge, who was concerned that these serious allegations had not been made in writing and insisted that this be done. From the judgment it appears that the evidence of an exit strategy was flimsy in the extreme. The judge accepted the wife’s legal team’s evidence in its entirety and decided that there had been undue influence. The ultimate award was £9.1million plus child maintenance.
WHAT LESSONS CAN BE LEARNED?
First, if you are seeking to ensure an agreement is binding, follow the guidelines in the green paper. Secondly, if there is a dispute about the validity of a pre-nuptial agreement, then the original legal teams should step aside in favour of new teams on both sides: this did not occur in NA v MA. Thirdly, ensure your attendance notes are full, accurate and do not include extraneous remarks. Finally, review the limit on your indemnity insurance.
Margaret Hatwood is an Associate in Anthony Gold's family law team. She specialises in medium to high value financial cases involving both married and unmarried couples.
This article was published by Family Law (a publishing imprint of Jordan Publishing Ltd) in the November 2007 issue of the journal Family Law, at [2007] Fam Law 1020.
