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International marital agreements scrutinised by the Court of Appeal: Bräck v Bräck

Date:12 FEB 2019
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Michael Allum, Rachel Roberts and Sarah Basso, of the International Family Law Group, analyse the case in which, Lord Justice Lewison, Lady Justice King and Lord Justice Peter Jackson heard the appeal by the applicant wife in relation to the final financial Order of Mr Justice Francis (in DB v PB). The unanimous judgment[1] was handed down by Lady Justice King on 20 December 2018.

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The wife’s appeal was successful and the case will now be remitted to Mr Justice Francis for further consideration of her claim for financial remedy, now absent a binding maintenance prorogation clause (“MPC”), against the background of the facts as found at first instance.[1] The Court of Appeal supported the view, which formed the wife’s second ground of appeal, that the clause purported by the husband (and found at first instance) to be a valid MPC according to Article 4 of the EU Maintenance Regulation was not a prorogation clause.

The Court of Appeal also found, in relation to the wife’s first ground of appeal, that the judge was not precluded, consequent upon the prenuptial agreements, from making an order in favour of the wife that was not based on her needs.

DB v PB – the first instance decision

By way of brief summary of the facts and findings in DB v PB:

1.     Both parties were Swedish by birth and nationality. 

2.     The husband and wife, at the time of the first instance decision, were 50 and 49 years of age, respectively. They had two children who were 12 and 8. 

3.     The martial relationship was approximately 20 years. The parties had lived in England (where the matrimonial home was then located) for a period of approximately five years prior to separation. 

4.     The parties had entered into three prenuptial agreements which were all on similar terms. Significantly, each of the agreements provided for:

a.     Swedish law to apply in the event of separation to determine any dispute around property; and 

b.     Each of the parties to retain their own assets on the breakdown of the relationship, which practically speaking would result in the wife retaining one half of the matrimonial home (5-6% of a gross asset pot of £10.86m) as the balance of assets were held solely in the husband’s name.

The three prenuptial agreements became known by the locations in which they were signed. They were: the Niagara agreement signed on 10 July 2000; the Ohio agreement signed on 11 December 2000 (18 days before the wedding); and the Gothenburg agreement signed on 26 December 2000 (three days before the wedding). The Niagara and Gothenburg agreements were Swedish prenuptial agreements and the Ohio agreement was an America prenuptial agreement.

5.     The wife ran her case for sharing on the basis of the husband’s misrepresentation in relation to the pre-nuptial agreements and unfairness. The wife claimed that he had obtained her signature by telling her that the agreements would never be implemented and that in the event of divorce she would receive financial provision to enable her to maintain the matrimonial standard of living. Further, the wife said that the agreements were so unfair that the court should not give any effect to them. Mr Justice Francis rejected the wife's assertion that the husband was guilty of serious misrepresentation.

6.     Mr Justice Francis found that owing to Article 4 of the EU Maintenance Regulation and the election made in writing in the prenuptial agreement, he had no jurisdiction to make an order in respect of the wife’s needs. 

7.     Mr Justice Francis also described the prenuptial agreement as ‘unfair’ in circumstances where ‘the overwhelming majority of assets were generated in the marriage and so the wife’s sharing claim is clearly made out’.[2] However, he ultimately decided that his ‘power was circumscribed to addressing a right in property in the strict sense’.[3]

8.     Mr Justice Francis made orders pursuant to Schedule 1 of the Children Act 1989 to provide for the housing and needs of the children and the wife, in her capacity as the children’s mother.

For a comprehensive consideration of the decision of Mr Justice Francis at first instance, please see Michael Allum’s article ‘DB v PB: reminder of potential effect of maintenance agreements’ and David Hodson’s article ‘DB v PB: Unfair marital agreements, chaos of EU law and unusual routes to fairness’.

The grounds of appeal – Brack v Brack

The appeal was filed by the wife on 27 January 2017. The wife was the applicant at first instance and appealed the Order of Mr Justice Francis on the following grounds:

1.     In essence, the wife was asking what restrictions there were on the ability for a judge to make financial orders following a Radmacher compliant prenuptial agreement;[4] and

2.        That the court erred in finding that the relevant clause was a valid MPC, including by failure to construe the clause as required by law.[5]

Article 4 of the Maintenance Regulation

Article 4 of the Council Regulation (EC) No 4/2009 (Maintenance Regulation) provides:

‘1. The parties may agree that the following court or courts of a Member State shall have jurisdiction to settle any disputes in matters relating to a maintenance obligation which have arisen or may arise between them:  …

(b) a court or the courts of a Member State of which one of the parties has the nationality;

… The conditions referred to in points (a), (b) or (c) have to be met at the time the choice of court agreement is concluded or at the time the court is seised. The jurisdiction conferred by agreement shall be exclusive unless the parties have agrdeeed otherwise.

2. A choice of court agreement shall be in writing. Any communication by electronic means which provides a durable record of the agreement shall be equivalent to ‘writing’. …’

The Maintenance prorogation clause

At the appeal hearing, the first ground of appeal the court considered related to whether there was a valid MPC according to European Law.

The wife asserted that there was no valid MPC and that the English court had the power to make a needs-based adjustment. She relied on the following arguments in support of her position:

1.     That Mr Justice Francis had failed to properly construe the alleged MPC. The wife suggested that instead, all that had been looked at was whether the parties had consented to the agreement.  For the prorogation clause to be valid according to Article 4 of the EU Maintenance Regulation, it needed to demonstrate a clear and precise consensus between the parties and that clause 19 (and see below) did not demonstrate clear and precise consent by the parties to elect Sweden as the forum to address issues of maintenance. 

2.     If the parties intended to have a binding MPC, it could have been contained in the second or third prenuptial agreement executed by the parties. It was not.  

3.     That the three agreements should be read together, noting that the second agreement referred to an intention that a third agreement be entered. That if there was inconsistency between the Ohio agreement and the two Swedish agreements, that owing to a clause in the Ohio agreement the Swedish agreements would prevail or take precedent. It was agreed (by the parties) that the two Swedish agreements did not contain a MPC and it would therefore be inconsistent for the Ohio agreement to contain a valid MPC.

The clauses within the agreement which were asserted by the husband to contain MPC were clauses 12 and 19. Clause 12 provided as follows:

"Each party hereby irrevocably waives, releases and relinquishes any and all claims or rights that he or she now or hereafter might otherwise have, including without limitation any rights acquired of virtue of the marriage, to receive in the event of the termination of the marriage any payment whatsoever from the other party for alimony, maintenance or support, by whatever name designated, under the present or future laws of the Kingdom of Sweden or any other jurisdiction in which the parties now or hereafter reside."[6]

Clause 19 provided as follows;

"This agreement is entire and complete and embodies all understandings and agreements between the parties, except to the extent that these may conflict with a "Prenuptial Agreement and Prorogation Agreement" dated within ninety (90) days of this Agreement, to be filed with the judicial authorities in Sweden and more particularly described above. The terms of said agreements shall be incorporated in the within Agreement but shall not merge and shall survive… "

"Nothing herein contained shall infer that the parties wish to have the agreement herein resolved in the courts of any jurisdiction other than the City Court of Stockholm, Sweden and nothing herein contained shall confer jurisdiction upon any Court in any jurisdiction other than the City Court of Stockholm, Sweden.

In the event that the City Court of Stockholm, Sweden shall cease or decline to accept      jurisdiction of any dispute between the parties, then, in that event, any such dispute shall be submitted to any Court within the geographical boundaries of the Kingdom of Sweden and shall accept the same, as if no court in Sweden shall accept such jurisdiction, any court accepting jurisdiction shall be required to apply Swedish law in resolution of any dispute between the parties.

The parties agree that no dispute between the parties shall be submitted for resolution to any Court in any jurisdiction before the City Court of Stockholm, Sweden or such successor Swedish Court as is provided for above has first declined jurisdiction and the appellate process for such declination has expired."[7]

The husband maintained the position he had at first instance, namely that the Ohio agreement contained a valid MPC and that the English Family Court did not have jurisdiction to make a needs-based order. Some of the arguments made on the husband’s behalf during the appeal hearing were as follows:

1.     That clause 12 of the Ohio agreement referred to maintenance and that as an aspect of the agreement related to maintenance and the prorogation clause dealt with ‘any dispute between the parties’, the prorogation clause was a valid MPC. It was asserted on the husband’s behalf that it was ‘plainly an election by the parties to this agreement to Swedish law and to Swedish Courts’.[8]

2.     That there was nothing inconsistent with having a first agreement which dealt with capital only and a second agreement which dealt with both income and capital.[9]

Interestingly, both the first and third prenuptial agreements contained prorogations clauses relating to property, despite such clauses being invalid pursuant to Swedish law at the time. It was noted by King LJ that maintenance prorogation clauses however, were possible owing to Article 17 of the 1968 Brussels Convention on jurisdiction and the enforcement of judgments in civil and commercial matters and that if the agreements were considered in the context of that Convention,  ‘it would conclude that nothing in the three agreements would have been capable of being a valid prorogation clause under Article 17 of the 1968 Brussels Convention.’[10]  

No valid prorogation clause

The Court of Appeal found in favour of the wife, finding that there was no valid MPC and therefore ground 2 of the appeal would succeed. In light of the unanimous finding that there was no valid MPC, the decision made by Mr Justice Francis pursuant to schedule 1 of the Children Act 1989 would also need to be reconsidered.

When asked for submissions on the best way forward given the finding in the wife’s favour on ground two, Mr Chamberlayne QC, on behalf of the wife, indicated that without the court also ruling on the first ground of appeal in relation to the pre-nuptial agreement, the matter being remitted would be unlikely to assist with bringing the proceedings to a conclusion.[11]

Sharing powers of the English Court following a Radmacher compliant prenuptial agreement

Mr Justice Francis had found the pre-nuptial agreement to be unfair. However, the wife had failed to make out her claim as to misrepresentation and therefore did not persuade the court that the husband told her that the nuptial agreement would not govern the financial consequences of the marriage coming to an end.

It therefore fell to the judge to consider how to divide the matrimonial property, with the prorogation clause he had found to be valid preventing him from making a maintenance award. The judge was not driven to disregard the agreement, as it was suggested he should on behalf of the wife.

Francis J considered 3 judgments at first instance; Z v Z [2011] EWHC 2878 (Fam), Luckwell v Limata [2014] EWHC 502 (Fam) and Radmacher v Granatino [2011] AC 534 and concluded that where assets are available to meet the wife's needs, these should be met by invading the husband's separate property. All of the awards made in the cases to which Mr Justice Francis referred were needs based.

The issue before the Court of Appeal was whether the judge was limited to only making a needs-based award on the basis that a pre-nuptial agreement existed, even though the judge found the agreement to be unfair, particularly in so far as it related to sharing claims. The husband asserted that the judge in exercising his discretion had decided that a needs-based award would be appropriate,[12] rather than because he was constrained by a principal of law from making a sharing-based adjustment. The wife argued on appeal that the judge (in error) had felt constrained in law to reach a needs based-outcome.[13] The parties were agreed that a judge was not precluded in law from finding a sharing case despite the existence of a pre-nuptial agreement, provided there are no vitiating features, is entitled to take into account needs, compensation and sharing.

The Court of Appeal emphasised that in allowing the wife’s appeal, it was not advocating that an award should be made in excess of the wife’s needs, but the matter would be remitted to Mr Justice Francis so that he can made an order he regards as fair in all the circumstances.[14]

Concluding comments

1.     The importance of drafting - This decision emphasises the importance of drafting in prenuptial agreements. If, pre-Brexit, parties intend to enter into a binding agreement regarding the EU forum who will deal with maintenance-based disputes, it needs to be by way of written agreement in which the consensus between the parties must be clearly and precisely demonstrated. This point is highlighted by Lady Justice King in her judgment, particularly where she says:

As I have said, a choice of jurisdiction clause is simple to draft in clear and unambiguous terms, and the necessary consensus will have been established once committed to an agreement in writing. Failure to express a choice of jurisdiction in unambiguous terms can result, as here, in international jurisdictional disarray leading to delay and lengthy, complex litigation at extortionate cost.  

In considering the question that needed to be asked pursuant to Article 4 of the EU Maintenance Regulation, Lady Justice King said that it should be considered ‘did the parties agree that "the following court or courts of a (named) Member State shall have jurisdiction to settle any disputes in matters relating to a maintenance obligation which have arisen or may arise between them"’. Had the prorogation clause been drafted in those simple terms, it is likely to have been found to be binding.    

2.     The existence of a valid pre-nuptial agreement does not necessarily limit an award to a needs-based outcome. Where there are no vitiating features in relation to a prenuptial agreement, the search for a fair outcome, when applying the section 25 factors, can take into account needs, compensation and sharing.[15] Although in the majority of cases where a valid pre-nuptial agreement with no vitiating factors is unfair the court will only interfere to the extent required to meet needs, the court has a very wide discretion and could potentially (albeit unusually) make an order in excess of needs.  This is perhaps best captured as follows:

In my judgment, in the ordinary course of events, where there is a valid prenuptial agreement, the terms of which amount to the wife having contracted out of a division of the assets based on sharing, a court is likely to regard fairness as demanding that she receives a settlement that is limited to that which provides for her needs. But whilst such an outcome may be considered more likely than not, that does not prescribe the outcome in every case. Even where there is an effective prenuptial agreement, the court remains under an obligation to take into account all the factors found in s25(2) MCA 1973, together with a proper consideration of all the circumstances, the first consideration being the welfare of any children. Such an approach may, albeit unusually, lead the court in its search for a fair outcome, to make an order which, contrary to the terms of an agreement, provides a settlement for the wife in excess of her needs. It should also be recognised that even in a case where the court considers a needs-based approach to be fair, the court will as in KA v MA, retain a degree of latitude when it comes to deciding on the level of generosity or frugality which should appropriately be brought to the assessment of those needs.” [16]

The matter will now be remit to Mr Justice Francis to review the award and to make a final determination, if the parties cannot reach an agreement without further adjudication by the court.

Michael Allum, Rachel Roberts & Sarah Basso

Michael.Allum@iflg.uk.com; Rachel.Roberts@iflg.uk.com; Sarah.Basso@iflg.uk.com

The International Family Law Group LLP www.iflg.uk.com

[1] Brack v Brack [2018] EWCA Civ 2862 (Brack) at [107]

[2] See [59] of DB v PB [2016] EWHC 3431.

[3] See [65] of DB v PB [2016] EWHC 3431.

[4] Brack at [38]

[5] Brack at [39]

[6] Brack at [18]

[7] Brack at [20]

[8] Or Words to that effect.

[9] As submitted by Mr Pointer QC on 21 November 2017 on behalf of the husband.

[10] Brack at [47]

[11] Brack at [77]

[12] Brack at [83]

[13] Brack at [81]

[14] Brack at [105]

[15] Brack at [75]

[16]Brack at [103]

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