Financial agreements and reform of the rules

The architects of Civil Partnership Act 2004 (CPA 2004), when it came to civil partnership dissolution, intended to mirror Matrimonial Causes Act 1973 (MCA 1973). With some semantic modernisation, the later statute parallels the former. And so it is – as will be explained – with MCA 1973 s 7 and CPA 2004 s 43.

Alongside these parallel statutory provisions, the rule-makers of the Family Procedure Rule Committee (FPRC) have produced a set of rules – Family Procedure Rules 2010 (FPR 2010) Part 7 – which cover the totality of matrimonial and civil partnership dissolution. That remains the case with the rewriting and amendment of the primary statutes by Divorce, Dissolution and Separation Act 2020 (DDSA 2020). The 2020 Act is almost no more than an amending statute; though it performs what many regard as the valuable role of eliminating “fault” from family breakdown litigation. But once such a statute, or its amendments, are in place the separate job, delegated to rule-makers, comes into play.

And here, with will, the rule-makers can help the parties, and give a substantial boost to mediators. Couples may reach agreement; they may sign agreements prepared by lawyers; but till their deal is sealed and they have a conditional order (decree nisi) their agreement can come unravelled. All the work of mediators can be the subject of further litigation, even though, in the end, in most cases a judge will agree with what the parties had agreed.

Immediate help for mediated agreements

A section in both primary statutes is aimed – and has been so aimed from over 50 years – solely at the rule-makers (ie only they can make ‘rules of court’ so only they can activate either or both sections). Taking the more modern text, as between MCA 1973 and CPA 2004, for ease of reference, s 43 of the latter says:

“43     Consideration by the court of certain agreements or arrangements

(1)     This section applies in relation to cases where –

(a)     proceedings for a dissolution or separation order are contemplated or have begun, and

(b)     an agreement or arrangement is made or proposed to be made between the civil partners which relates to, arises out of, or is connected with, the proceedings.

(2)     Rules of court may make provision for enabling –

(a)     the civil partners, or either of them, to refer the agreement or arrangement to the court, and

(b)     the court –

(i)     to express an opinion, if it thinks it desirable to do so, as to the reasonableness of the agreement or arrangement, and

(ii)     to give such directions, if any, in the matter as it thinks fit.”

The editors of Family Court Practice describe this section as:

“This section is a curious perpetuation of MCA 1973 s 7 described in Brockwell v Brockwell (1975) 6 Fam Law 46, CA as ‘an almost vestigial provision, not unlike the human appendix’.”

This was said by Ormrod LJ who had a medical background. Ormrod LJ – author of the lead Edgar judgment (below) – continued from the passage cited above (at 9G of the transcript):

“The only function [of MCA 1973 s 7] seems to me to be that it does provide a means by which parties can take an agreement or a proposed agreement to the court at an early stage for approval and thus insure against a subsequent application [under MCA 1973 ss 23 or 24] in order to avoid or modify the agreement they have reached….”

Ormrod LJ backed the point which this post seeks to make. In support of the importance of MCA 1973 s 7 he continued the above passage as follows (transcript at 10A):

“… Clearly if the court before the hearing of the petition comes to the conclusion that the agreement proposed is a reasonable one it would be impossible to content under [MCA 1973 ss 23 and 24] that it should be varied unless in the meanwhile an entirely new situation had arisen.”

What family lawyer or mediator would not be in favour of that approach?

Brockwell and agreement cases

Brockwell features in a number of the better-known subsequent agreement cases, including:

When the editors of the Family Court Practice come to look at MCA 1973 s 7 they take a broader and more extensive view of this subject. This may be important in the present state of family breakdown law, since had the rule-makers taken the opportunity to make rules in accordance with MCA 1973 s 7 and CPA 2004 s 43 this time around, it might be that a number of couples with mediated agreements could have the peace of mind that the courts had expressed “an opinion as to the reasonableness of their agreement” which, in the fullness of time, would almost certainly have led to an order.

It is on the broader Family Court Practice view of s 7 that this post is based; but now in the context of the new matrimonial and civil partnership dissolution amendments in DDSA 2020. In this context it must be recalled that mostly, till their proceedings have been under way for at least 20 weeks, an applicant, or both partners, who have filed a matrimonial and civil partnership application (formerly a divorce petition) cannot apply for a conditional order. And it is that conditional order which enables the court then to make a final financial consent order, which becomes enforceable on final decree or order.

Imagine a couple who reach agreement on all financial issues with the help of mediators (and lawyers as applicable). They agree they will apply together for a divorce. They must wait nearly five months before their agreement can be made a court order. In that five-month period one of them changes their mind. Whilst their agreement may eventually be upheld, it leaves an uncomfortable amount of scope for yet further wrangling – and considerable expense – between them both.

Towards a court consent order

What follows, by definition, refers only to mediated or otherwise settled agreements between parties. If FPR 2010 Part 9 financial order proceedings are issued in matrimonial and civil partnership proceedings, parties can still reach agreement, but till then different common law and procedural principles apply. Only a small proportion of the cases can be set out here.

Pounds v Pounds [1994] 1 WLR 1535, [1994] 1 FLR 775, CA remains relevant under the new law; and whether or not financial order proceedings have been issued by a party.  In Pounds, when the solicitors for the petitioner in the case submitted the petitioner’s statement in support of the application for approval for a decree nisi (now conditional order: see modern FPR 2010 r 7.10), they submitted a consent financial order application. The district judge approved the conditional order (ie decree nisi) application and the consent order, but told the court staff not to seal the order till after what was then a decree nisi hearing. The order was sealed.

The wife decided she wished to go behind her agreement, and objected to the order on grounds that it had been dated before decree nisi. Singer J allowed her application to set aside the order. The husband appealed. Giving judgment in the Court of Appeal, Waite LJ allowed his appeal with the words (at [1994] 1 WLR 1535, 1549):

“I consider that the consent order was validly made; that the attribution to it of the date of the appointment before the registrar instead of the date of sealing was a pure clerical error; and that the judge ought to have ordered the consent order to be amended under the slip rule by inserting the sealing date as its true date….”

FPR 2010 r 7.10(2)(a) is taken word-for-word from the former r 7.20(2)(a) so that the former rule which required the court to be ‘satisfied’ on application for a conditional order, is reproduced exactly. (What can possibly be meant by ‘satisfied’ in this context, where divorce is intended to be on demand, we do not know; but that is a subject for another day.) At this stage in the modern process a Pounds application could be submitted with the r 7.9 conditional order application; and as such it could be – in effect – approved pending conditional order (however long that is going to take under the new, mostly digital, procedures).

Agreement between the parties: a preliminary issue

Unsurprisingly, judges are keen to support agreements between parties if they are fair. For example, in Smith v McInerney [1994] 2 FLR 1077, Thorpe J (following Edgar v Edgar (below)) held that parties should be required to adhere to any ‘contract’ as it was termed by Thorpe J, entered into by them at the time of separation. He commented (at 1081A):

“As a matter of general policy I think it is very important that what the parties themselves agree at the time of separation should be upheld by the courts unless there are overwhelmingly strong considerations for interference.”

Where agreement is reached at financial dispute resolution appointment in terms agreed by the judge, but not incorporated immediately into a fully drafted consent order, the court will uphold that approved agreement reduced to a consent: Rose v Rose [2002] EWCA Civ 208, [2002] 1 FLR 978 (CA).

In Xydhias v Xydhias [1999] 1 FLR 683 Thorpe LJ suggested that where one party thought there was an agreement (eg in a draft consent application) but the other party denied it, then the question of whether or not an agreement had been reached should be tried as a separate and preliminary issue. Below is a procedure for dealing with this question which avoids the full ancillary relief procedure until the agreement issue is resolved:

  1. One party files an application in Form A (FPR 2010 Part 9) in the matrimonial or civil partnership proceedings.
  2. That party immediately seeks immediate case management directions:
    • to stay requirements of FPR 2010 r 9.14 that Form E etc be filed;
    • to vacate first appointment for trial of a preliminary issue: ‘whether there is an agreement on the face of any documents produced which settles financial issues between the parties’ subject to the subsequent consideration of the agreement in the light of MCA 1973 s 25;
  3. List the preliminary issue as to whether there is agreement before a district judge (who, if he finds no agreement, cannot hear any final application if he has seen ‘without prejudice’ correspondence which is privileged from disclosure).

Agreements and Edgar: ‘to reach a just result’

The modern law on matrimonial and civil partnership agreements remains as asserted in Edgar v Edgar [1980] 1 WLR 1410, (1981) 2 FLR 19, in the Court of Appeal over 40 years ago. For example, in Traharne v Limb [2022] EWFC 27 (31 March 2022), Sir Jonathan Cohen, the judge said:

“[24] The starting point of the law on agreements is the well-known case of Edgar [(above)] where at FLR 25 Ormrod LJ said: “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. There may well be other considerations which affect the justice of this case; the above list is not intended to be an exclusive catalogue.”

He continued on the approval of Edgar in the Supreme Court:

“[25] The Edgar approach was approved by the Supreme Court in Radmacher (formerly Granatino) v Granatino [2010] UKSC 42, [2011] AC 534, [2010] 2 FLR 1900 where Lord Phillips said at paragraph 71: “In relation to the circumstances attending the making of the nuptial agreement, this comment of Ormrod LJ in Edgar at p 1417, although made about a separation agreement, is pertinent: ‘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.’”

A FPR 2010 Part 19 application to approve an agreement

FPR 2010 PD19A para 1.5 tantalisingly slips in reference to a particular use of FPR 2010 Part 19 (alternative applications: how “alternative” might this be). Under a heading which refers to the various types of application for which Part 19 may be used, para 1.5 continues:

“The types of application for which the Part 19 procedure may be used include an application for an order or direction which is unopposed by each respondent before the commencement of the proceedings and the sole purpose of the application is to obtain the approval of the court to the agreement.”

It is well known that a practice direction is not law (see eg Where have all the practice directions gone?). It is not clear on what legal principle this practice direction is made. But what is the difference – if any – between this and the effect intended by ss 7 and 43? If this is what the rule-makers think, then why not male proper “rules of court” in line with MCA 1973 s 7  and CPA 2004 s 43?

It would be a very short step from this practice direction to a real FPR 2010 rule which echoes the Xydhias preliminary issue and enables people like Mr and Mrs Pounds and others who have debated whether their agreements – fruitless in most cases; but where, at great expense to both parties, they have changed their minds.

The last word in all this, and a massive impetus to those who see a help in ss 7 and 43 comes from Hoffman LJ in Pounds. Speaking of the grounds on which Singer J had refused the order in Pounds, Hoffman LJ said (at 1550):

“It does seem to me that the law is in an unsatisfactory state [and nothing has changed since he said this]. There are in theory various possible answers to the problem. One might be that an agreement between the parties, at least where each has independent legal advice, is binding upon them subject only to the normal contractual remedies based on fraud, misrepresentation, undue influence, etc. At present… the court retains its supervisory role and only its order gives finality…. The result of the decision of this court in [Edgar] and the cases which have followed it is that we have, as it seems to me, the worst of both worlds. The agreement may be held to be binding, but whether it will be, can be determined only after litigation and may involve, as in this case, examining the quality of the advice which was given to the party who wishes to resile. It is then understandably a matter for surprise and resentment on the part of the other party that one should be able to repudiate an agreement on account of the inadequacy of one’s own legal advisers, over whom the other party had no control and of whose advice he had no knowledge.”

Once agreement has been reached with sound mediation and (where need be) legal advice, surely the sooner the court can sanction the deal the sooner “the worst [of Hoffman LJ’s] both worlds” may be partly avoided. And if the Xydhias preliminary issue idea can be built into any rules amendment, so much the better.

Featured image: Photo by cottonbro, via Pexels.