02/07/2012

Lilleyman –v- Lilleyman [2012] EWHC 821 (Ch)

The recently reported cases of Lilleyman v Lilleyman [2012] and Lilleyman -v- Lilleyman (Costs) [2012] concerned a widow’s application for reasonable financial provision under the Inheritance (Provision for Family and Dependants) Act 1975 (“the Act”). What makes the two judgments of the Vice-Chancellor Mr Justice Briggs in this case of particular interest is that:

  • It is the first “big money – short marriage” reported since Cunliffe -v- Fielden [2006];and
  • It considers the treatment of matrimonial and non-matrimonial property in the context of an application under the Act; and
  • It demonstrates the risks of a no holds barred approach to litigation; and
  • Highlights the difficulties faced by the trial judge in making awards under the Act under the current costs regime.

THE FACTS

The claimant widow and the deceased met in 2004, both aged 58 years old. In December 2005, they became engaged and decided to sell their own properties and buy a new property to reside in together. Neither of them was aware that the deceased was in short time going to start suffering from problems with his heart. As a sale of the claimant’s property fell through, the property which was to become their matrimonial home was acquired in the deceased’s sole name. The claimant and the deceased co-habited at the claimant’s property whilst renovations to the matrimonial home were being carried out; they later moved into the property in June 2006.

To assist the claimant’s son, who had been living with the claimant following his divorce, the claimant and the deceased purchased a second property in their joint names as tenants in common for him to reside in. The deceased provided £125,000 towards the purchase of the second property and the claimant’s son provided £13,000. This property was rented to the claimant’s son for £200 per month and an arrangement was drawn up by the claimant and the deceased whereby the claimant’s son would, on or before 2014, repay the loan of £125,000. At the time this property was purchased, the deceased arranged for the matrimonial home to be transferred into the claimant’s and his joint names as tenants in common.

Upon the sale of the claimant’s property, the claimant provided the deceased with £100,000 as her contribution towards their matrimonial home and £75,000 by way of part-repayment of the deceased’s funding of the second property. The claimant subsequently made further payments to the deceased which were intended to reduce the remaining £50,000 owed to him in connection with the purchase of the second property. Although the deceased did not transfer his beneficial share of the second property to the claimant; it was agreed that nothing further was to be treated as owing by her to him in respect of either the matrimonial home or the second property.

In April 2007, the deceased purchased an apartment in Bournemouth as a second home. The apartment was registered in his sole name.

At the time of their marriage in September 2007, the deceased was a successful, hard-working businessman and the 100% shareholder in two steel stockholding companies and a 26% shareholder in a further steel stockholding company which had been formed as a joint venture with the defendants in 2004. The claimant had given up both of her part-time jobs at the deceased’s request; the first one in April 2005 so that they could spend more time together and the second one in 2007 when the deceased began experiencing problems with his health in mid-2007.

The deceased experienced further problems with his health in late 2008 and his health continued to decline from this point. However he continued to attend the companies’ offices each day for as long as he could. The second defendant, who had previously only worked part-time for the companies since 2004, increased his commitment. The first defendant, the eldest son of the deceased, was already working full-time for the family business after having started in 1990.

The deceased died, aged 64, in January 2010 after his earlier admission to hospital in November 2009. The claimant and the deceased had been married for only two and a quarter years at the time of his death. It is worth noting that the marriage was a strong, loving one between two similarly aged people that ended by way of death.

A LIFE INTEREST PLUS DINKY TOYS

In addition to a number of small bequests, the relevant provisions of the deceased’s last will (executed in May 2008), were:

  • limited rights of occupation in the matrimonial home to the claimant, subject to a liability to repair and insure the property, and similar rights in relation to the apartment (for both properties, the claimant’s rights would cease should she re-marry, co-habit or cease to reside); and
  • the remainder of his personal chattels, which included a dinky toy collection worth in the region of £17,000, to the claimant;
  • the residue (including the remainder after the life interests) to the defendants.

In addition, the deceased had also set up a fund from which the claimant was entitled to receive a fixed annuity amounting to £378.72 per month.

The deceased’s net estate was worth circa £6m net which mainly consisted of the deceased’s interests in the companies. The provisions of the deceased’s will were patently unreasonable and the claimant sought reasonable financial provision from the deceased’s estate under the Act.

It is worth noting that the Defendant’s position right up until closing submissions was that the deceased’s will did make reasonable financial provision for the Claimant and that the defendants asserted no financial need on their own part (prior to the deceased’s death, he made substantial provision for the Defendants and pension provision for the Defendants’ benefit of circa £1m was made from the companies shortly after the deceased’s death).

THE ESTATE – MATRIMONIAL AND NON-MATRIMONIAL PROPERTY

The parties were at odds as to what of the £6m estate should be taken into account when considering the Claimant’s claim and in addition whether or not reasonable provision should be determined solely by reference. The claimant maintained that reasonable financial provision meant a substantial share of the matrimonial property, not limited to her reasonable needs. In support of her claim, the Claimant relied upon Miller v Miller [2006]. The Defendant asserted that the Claimant was entitled to an award determined solely by reference to the claimant’s reasonable needs only, including a need for financial security for the rest of her life.

The estate was made up of business shareholdings worth £5.085m and non-business assets worth just under £1m. The Claimant asserted that her claim under the Act was against the full £6m net estate and that how the business assets should be dealt with was a matter for the judge to determine in his consideration of the section 3 factors under the Act. The Defendants asserted that the business assets should be effectively ring-fenced and not considered as being available to the claim.

In his judgment, Briggs J dealt with the question of to what extent the value of any part of the value of the family businesses should be included within the notional matrimonial property for the purposes of the claim. The conclusion reached was that a sum of £250,000 would be added to the matrimonial property assets representing the notional increase in value in those businesses during the period of the marriage that could be attributed to the deceased’s activities during that period rather than mere passive economic growth (the steel markets rose during the same period).

The effect of this approach of course is that the longer the marriage, the more likely the non-passive growth will be higher and the greater the share of the business assets that will fall into the matrimonial assets for the purposes of a claim under the Act.

THE NEED FOR A CLEAN BREAK

From an early stage in the trial it was clear that Briggs J was not inclined to continue any form of life interest for the widow in his award stating that it “is an inherently unattractive means of dealing with Mrs Lilleyman’s reasonable housing needs, because it would prevent a clean break between the parties who have unfortunately fallen out, and it would impose a real fetter on Mrs Lileyman’s ability to provide, for example, private care for herself in a residential home, either by selling or obtaining a substantial equity release from” the matrimonial home. A clean break was therefore essential and was ultimately awarded.

This illustrates in the writer’s view the clear preference by the courts for a clean break and the danger of trying, in the face of a reasonable claim under the Act, to “enforce” or maintain a life interest provision in a will. Particularly, as here, where the widow already has an absolute half share in the property and the life interest relates to the remaining half.

It is also worth noting that under the terms of the deceased’s will, the Claimant was given a life interest in two properties – the matrimonial home in Worksop and the apartment in Bournemouth.

SO WHAT IS REASONABLE FINANCIAL PROVISION? THE APPLICATION OF THE DIVORCE CROSS-CHECK

In determining the amount of the award, Briggs J undertook a substantial review of the divorce approach to big money – short marriage cases and the treatment of matrimonial and non-matrimonial property before analysing how these applied to claims under the Act and why a different result to a divorce may be produced.

Briggs J agreed with the conclusion reached by Black J in P v P [2006] that, the cross-check is neither a floor nor ceiling on any award; nor is it something that must tally with provision which would be made on a divorce. He added “The divorce cross-check is just that, a cross-check, no more and no less. It is, like all the other matters to be taken into account under Section 3, of infinitely variable weight on the facts of each particular case” (paragraph 60).

It was reasserted that the court must take account of the fundamental principle that a marriage was recognised to be essentially an equal partnership. The consequence of this was that “the division of the available property following a breakdown of a marriage should be conducted upon the basis of fairness and non-discrimination, arising from the basis concept of equality permeating a marriage as is now understood.” He went on to highlight however, that equality of treatment may not necessarily lead to equality of outcome. The duration of the marriage, for example, can constitute a reason to depart from equality and a reason that an applicant should not be entitled to a share of the other’s non-matrimonial property.

When applying his findings in relation to the clean break, the amount of business assets that should be treated as being attributable to the marriage, Briggs J concluded that on a full half sharing of the matrimonial property, the claimant would receive £737,500 (£800,000 if the second home for the son was included as matrimonial property). Briggs J then however went on state that a further deduction should be made as a result of the short duration of the marriage and he settled on an award figure of £500,000. This further deduction resulted in the Claimant being awarded less than 50% of the matrimonial assets and less than 8% of the entire net estate. Briggs J did note that the Claimant would likely receive an inheritance from her 90 year old mother and some further monies from her son in relation to a property which he believed provided her with further financial security.

To ensure a clean break was achieved, the make up of the award provided the Claimant with the estate’s share in the matrimonial property and the choice of either the Bournemouth property or £330,000. The reality of course is that the Claimant had an income shortfall and on both sides’ evidence needed income and so it is no surprise that the Claimant elected to take the £330,000.

THE EFFECT OF “NO HOLDS BARRED” LITIGATION

Throughout the proceedings both parties had made offers to settle under Part 36 of the Civil Procedure Rules. The claimant failed to beat the Defendant’s Part 36 offers and the usual cost consequences applied.

It is of note however that whilst Briggs J awarded the defendants their costs for a period of time, he went on to conclude that a combination of the defendants’ unrealistic refusal to concede the fact that the deceased’s will did not make reasonable financial provision for the Claimant and the litigation conduct of the defendants meant that he considered that “it would be unjust if the strict application of Part 36.14(2) were to prevent the court from signifying its disapprobation of a no holds barred approach to this claim by an appropriate proportionate disallowance of the costs to be recovered.” This was reflected in a 20% disallowance of the Defendant’s costs.

THE CURRENT COSTS REGIME – DOES IT WORK?

Within his judgment, Briggs J did however make clear his unease at the disparity between the costs regime enforced for, on the one hand, claims under the Act and, on the other hand, financial remedies proceedings. He summarises:

“In the latter, my understanding is that the emphasis is all on the making of open offers, and that there is limited scope for costs shifting, so that the court is enabled to make financial provision which properly takes into account the parties’ costs liabilities. In sharp contrast, the modern emphasis in Inheritance Act claims, like other ordinary civil litigation, is to encourage without prejudice negotiation and to provide for very substantial costs shifting in favour of the successful party. Yet at their root, both types of proceedings (at least where the claimant is a surviving spouse under the Inheritance Act) are directed towards the same fundamental goal, albeit that the relevant considerations are different, and that there is the important difference that one of the spouses has died, so that his estate stands in his (or her shoes).

I express no view on which of those fundamentally divergent approaches to costs is better calculated to serve the ends of justice, and in particular to promote compromise. I merely observe that the potential for undisclosed negotiations to undermine a judge’s attempt under the Inheritance Act to make appropriate provision for a surviving spouse is a possible disadvantage of the civil litigation costs regime currently applied to such claims, by comparison with the regime applicable to financial provision on divorce. I consider that those fundamental differences in approach to proceedings having the same underlying objective deserve careful and anxious thought.”

It is of interest that in Cunliffe –v- Fielden [2006] Wall LJ was made aware of the costs of the parties and the consequences of offers made. Indeed Wall LJ made it clear that the award he had given to the Claimant was the sum she should actually receive: “Whilst I am not suggesting that the executors have behaved in any way improperly, the fact that the estate has to bear so substantial a burden of legal costs is not a matter which I think should interfere with what is otherwise a proper award” (paragraph 97).

CONCLUSIONS FOR PRACTITIONERS

The case has several noteworthy features for practitioners to bear in mind in relation to spousal claims under the Act:

  1. In a big money – short marriage case, the short duration of the marriage may well mean that equality is departed from and non-matrimonial property will not be shared.
  2. Consider the value of growth of a family business during the marriage; active growth may be taken into account, passive growth on the other hand, is likely to be omitted.
  3. The divorce cross-check in the Act is neither a floor nor ceiling on any award. It is simply a comparison that is to be taken into account along with other factors and the weight given to it will depend upon the facts of the particular case.
  4. A clean break between the parties is likely to be essential and the idea of continuing any form of life interest for the widow is “inherently unattractive”.
  5. The Court remains willing to penalise parties in relation to their legal costs for maintaining unrealistic positions until a late stage in proceedings and/or adopting a no holds barred approach.
  6. The disparity between the costs regime for claims under the Act and ancillary relief proceedings should be the subject of further consideration.

Lilleyman -v- Lilleyman [2012] EWHC 821 (Ch)
Lilleyman -v- Lilleyman (Costs) [2012] EWCH 1056 (Ch)
Cunliffe -v- Fieldon [2006] Ch 361
Miller -v- Miller [2006] UKHL 24
P -v- P [2006] 1 FLR 431