Neil v Neil [2019] EWHC 3330 (Fam)

Mr Justice Moor recently gave judgment in Neil v Neil [2019] EWHC 3330 (Fam), concerning the applicant husband’s (‘H’) application to set aside part of a final order in financial remedies proceedings on the grounds of the respondent wife’s (‘W’) alleged fraud. In an extensive judgment, Moor J made numerous serious findings of fact against W, concluding ultimately that ‘Her conduct has been egregious. The court cannot and will not ignore it… This is one of those very rare cases where I must take into account W’s conduct. I am clear that, if I allowed her to proceed with a claim for maintenance, I would be allowing her to benefit from her fraud. Whilst I accept that this was a long marriage with a child, W’s conduct, in my view, is the magnetic factor that, in effect, trumps everything else.” Moor J ordered a set aside of part of the final order, disposed of the case finally, and ordered W to pay H’s indemnity costs.

The parties were married in 2007, although they had cohabited since 1992. They separated in 2014. H and W had one child together, aged 22, as well as one child each from previous relationships. H’s background was in providing security staff to clubs and restaurants in London’s West End, and in 2002, H and W set up a company together along with others called Manage Security Services Ltd (‘MSS’.) Both H and W worked full time for the company, with H being the Managing Director and W the main administrator.

After the parties separated, they engaged in mediation, and after three sessions, a document was created entitled a ‘Memorandum of Understanding.’ The Memorandum, which was headed ‘without prejudice’, set out terms of settlement but stated that it did not ‘record or create a legally binding agreement between the parties. [The parties] understand that they may take this document to their legal advisors to be used as the basis for a legally binding agreement subject to the advice they receive.’

The Memorandum provided that the former matrimonial home (‘FMH’) would be sold and the proceeds divided equally between them, but with W to receive the first £1m in order her to enable her to purchase a new property for herself and the parties’ daughter. If this amounted to more than 50% of the equity in the FMH (the equity was anticipated at the time to be £1.77m net), the difference would be reflected in a charge on W’s new property in H’s favour, to be realised only if or when W sold the property or remarried. Importantly, the Memorandum also recorded that the parties wished to have a clean break as they had ‘sufficient assets between them to achieve this.’ The Memorandum went on to state that ‘spousal maintenance was not considered necessary, due to the parties’ professional careers, substantial and equal incomes and assets.’ Shortly after drafting the Memorandum, H and W further agreed that H would pay £5,500 per month to W for the expenses of the FMH (which he had vacated, but where W remained living) until the property was sold.

Following the drafting of the Memorandum of Understanding, W instructed solicitors referred to as ‘XYZ’ in the judgment. W informed XYZ that she had reached a verbal agreement with H, and needed them to draft a consent order. W stated that she was not seeking maintenance, but needed to keep the option open should her circumstances change. W’s instructions were that the parties had agreed that she would receive the first £1m from the sale of the FMH, and H the balance. XYZ drafted an order in these terms, including a provision for nominal periodical payments for W until her 65^th birthday, or earlier death or remarriage, and reciting that W would undertake to place a charge on her new property in favour of H to the extent that the £1m she was to receive from the sale of the FMH exceeded her half share. XYZ indicated that they believed that the draft consent order reflected W’s instructions, but they also made many requests for clarification.

After receiving the draft order, W instructed XYZ that she had reached an agreement with H removing her obligation to secure a charge against her next property in H’s favour. XYZ accordingly removed this recital. The amended draft order was then sent to H, with a covering letter which stated that it ‘reflected the terms of the agreement’ that the parties had reached at mediation – despite the removal of the charge, and the inclusion of a nominal maintenance order. H was unhappy to have been contacted by XYZ without prior warning, and initially did not engage, but finally signed the draft order which was then signed by W and returned to XYZ on 18 May 2015. H stated that he did not read the draft order properly before signing it, and did not take legal advice. He took at face value the statement by XYZ that the draft order reflected the agreement that the parties had reached at mediation.

Contemporaneously, W had been engaged in negotiations with Coutts to secure a mortgage to help her buy a new property. The day after the signed draft order was returned to XYZ, W contacted Coutts and asked for confirmation that everything was in place for her to purchase a property for £1.65m. She stated that she would like to borrow £150,000 more than she had originally requested. W sent to Coutts a draft order to demonstrate that she had the income necessary to borrow such a sum – this draft included a clause for substantive periodical payments of £66,000 per year (£5,500 per month), and was unsigned by either party. Coutts asked for a copy of the order that had been signed by both parties, and an email or written consent from H confirming that he was happy with the settlement, in order for W to rely on it as evidence of her ability to repay the mortgage. W agreed to provide these documents.

On 4 June 2015, XYZ sent the signed draft order – including a provision only for nominal maintenance – to the court for the order to be made and sealed. On 10 June 2015, W contacted XYZ and informed them that there had been a development, and the parties had agreed that H would pay maintenance to W of £5,500 per month until her remarriage. XYZ retrieved the order from the court and amended it so that H was to pay periodical payments of £5,500 per month to W, and to remove the recital that referred to the proceeds of sale of the FMH being split equally between the parties. On 12 June 2015, W emailed the latest version of the draft order – purportedly signed by both parties – to Coutts, before emailing H separately and asking him to confirm the agreement with the bank. On 15 June 2015, an email was sent from H’s email address to Coutts confirming that he agreed the draft order and would be paying ‘a monthly ongoing alimony payment of £5,500 pcm after declaration of the Decree Nisei [sic].’ The order was later sealed by the court, and Decree Absolute was pronounced in August 2015.

The FMH was sold in November 2015, leaving net equity of £1,348,930: the entirety of this was transferred to W, who then went on to transfer £100,000 to H (rather than the £348,930 to which he was entitled under the consent order.) W purchased a new property and used £123,750 of the ‘surplus’ funds to pay the stamp duty. She refused to put a charge in H’s favour on her new property.

Some time later, MSS, the parties’ company, encountered difficulties. There were proceedings in the Chancery Division, and W was found to be in contempt of court in connection with allegations that she had misappropriated funds, and relied on forged documents during proceedings. She was sentenced to 8 months in prison, and ordered to pay indemnity costs of £320,000. In 2017, MSS went into administration. W sold her new property, and in 2018, had to file for bankruptcy. By the time of the family law proceedings before Moor J, she owed £551,705 in unsecured debts.

In September 2017 – the day after the making of the order in the Chancery proceedings - W wrote to H’s solicitors that H was in arrears of periodical payments of £150,000 and asking for the maintenance of £5,500 per month to start immediately. H’s solicitors responded by alleging that the July 2015 order had ben procured by forgery and fraud on the W’s part, and according, H would pursue an application to set the order aside and seeking enforcement of the sum of £574,465, namely half the equity in the FMH less the £100,000 already paid.

In his application to set aside, H claimed that the first draft of the order that had been lodged with the court was contrary to the Memorandum of Understanding that the parties had reached, although W represented to him that it reflected their agreement. The sealed order differed still further as it provided for spousal maintenance of £5,500 per month which he had not agreed to. H accepted that he had not taken legal advice before the consent order was made. He said that he did recall discussions with W in which she said she had to raise a loan of £150,000 and needed him to provide a guarantee for repayments of £5,000 per month for three years, but did not recall signing anything to this effect – if he had signed anything, it would have been without reading or understanding it.

In his judgment, before evaluating the evidence, Moor J considered the relevant legal principles. He stated that the burden of proof in relation to a disputed allegation is on the party who seeks to establish it. The standard of proof is the civil standard, namely the balance of probabilities. The seriousness of an allegation makes no difference to the standard of proof to be applied in determining the truth of the allegation. The inherent probabilities are simply something to be taken into account, where relevant, in deciding where the truth lies (see Re B (Children) (FC) [2008] UKHL 35.) If the evidence in respect of a particular finding sought by a party is equivocal, the court cannot make a finding on the balance of probabilities, as the party seeking the finding has not discharged either the burden or standard of proof (see Re B (Threshold Criteria: Fabricated Illness) [2002] EWHC 20.)

Upon considering the evidence of the parties and additional witnesses (including their child and the parties’ children from previous relationships), Moor J found that W had amended the Memorandum of Understanding without H’s knowledge – H’s failure to instruct lawyers meant that W’s deceit was not exposed. H accordingly signed the consent order believing (erroneously) that it was in accordance with the Memorandum. Thereafter, W realised that she could not get the loan of £900,000 from Coutts that she wanted without convincing Coutts that she had income from periodical payments of £5,500 per month. She sent Coutts a document which she had falsified by changing £1 per annum (the nominal maintenance) to £66,000 per annum. She later sent them another document, to which she added H’s signature from an earlier document he had signed, in order to make the falsification look convincing. She attempted to cover her tracks and make this fraud look more believable by accessing H’s email account and sending emails to Coutts purporting to be from him which supported her case. Finally, W retrieved the signed consent order from the court before it had been sealed and either forged H’s signature or persuaded him to sign it without him understanding what he was committing himself to. Taken together, this clearly amounted to ‘conduct of the most serious nature’ as provided for by s25(2)(g) of the MCA 1973.

Given these findings, Moor J held that H was entitled to set aside the portion of the order dealing with periodical payments to W. Rather than setting the issue of maintenance down for a rehearing – as he initially believed that he was compelled to do – Moor J relied on the case of Kingdon v Kingdon [2010] EWCA Civ 1251 to allow him to finally dispose of the matter. He relied on the Memorandum of Understanding, given that W had waived privilege when she instructed XYZ to write to H saying that the parties had been able to reach an agreement and they had therefore drafted a consent order reflecting the terms of the agreement. At this point, the Memorandum became an open agreement.

Moor J was satisfied that there was no realistic prospect that W would ever get a substantive maintenance order against H, due to a number of factors including her egregious conduct. He held that the paragraph of the order concerning maintenance should be replaced with a clean break provision. The rest of the order stood, but with a declaration that W owed H £248,930 from the sale of the FMH. Given the seriousness of the findings of fact against W, she was ordered to pay H’s costs on an indemnity basis, assessed at £250,000.

Kate Strange, Barrister, 1 Hare Court