Posted: 08/02/2019
The case of Brack v Brack [2018] EWCA Civ 2862, [2019] All ER (D) 18 (Jan) underlines the complexities involved in advising international clients seeking to:
The husband, a former racing driver, and the wife, a homemaker following the birth of the parties’ two children, were Swiss nationals. They enjoyed a 20 year relationship including 14 of marriage.
In the six months prior to the marriage, the parties had signed three prenuptial agreements, referred to as the “Niagara agreement” dated 10 July 2000; the “Ohio agreement” dated 11 December 2000 (signed 18 days prior to the marriage) and the “Gothenburg agreement” dated 26 December 2000 (three days before the marriage). All three agreements heavily limited the wife’s claims upon any later marriage breakdown.
The Niagara and Gothenburg agreements were almost identical in terms, and in essence outlined that each party would retain the property that each of them acquired independently prior to, or during the marriage, and that the City Court of Stockholm, Sweden would have jurisdiction to resolve any disputes arising out of the parties’ separation. The Ohio agreement was a far lengthier and detailed agreement which covered issues such as pensions, taxes and medical expenses, but also referred to issues that would arise upon the termination of the parties’ marriage. Pursuant to clause 12 of the Ohio agreement, the parties agreed to waive any claims for maintenance following separation, and the agreement reiterated the parties’ decision that the City Court of Stockholm, Sweden would have jurisdiction in the event of a dispute. The husband argued that Swedish law should apply to their separation and that proceedings should take place in Stockholm.
During the course of the marriage, the parties had lived in the United States, Belgium and lastly the UK, where the matrimonial home was located, which resulted in the proceedings being issued in England. At the time of the High Court hearing, the parties had accumulated approximately £11 million, including £1.8 million net equity in the family home.
Freely entered into?
The judge examined the validity of the prenuptial agreements. He concluded that the parties had consensually entered into the agreements, with the wife having received independent legal advice on the Ohio agreement, although she chose to ignore the advice she had received not to sign it. There had been no undue influence, duress or other factors which would negatively impact the validity of the agreements. Consequently, the agreements were valid.
Severely curtailed award
However, the judge also found that if the terms of the agreements were strictly applied, the wife would receive approximately £560,000 which amounted to only 5% - 6% of the family assets accrued during the marriage. He ruled that this would leave the wife and children in a predicament of real need.
Jurisdiction clauses
Francis J then addressed the validity of the maintenance prorogation clauses. Article 4 of the Maintenance Regulation provides that parties can agree in writing that a court or the courts of an EU member state, of which one of the parties is a national, shall have jurisdiction to settle any disputes in matters relating to a maintenance obligation which have arisen or may arise between them.
The judge accepted that the parties had clearly agreed that any issue which might arise between them should be resolved by a Swedish court, and that that agreement had been outlined in writing in a valid prenuptial agreement. He therefore found that there was a valid prorogation clause under article 4 of the EU Maintenance Regulation.
Limited powers to deal with property rights only
As a result of (1) the prorogation clause which prevented the court from dealing with “maintenance” (including needs) claims, and (2) the wording of the prenuptial agreements which limited the wife’s claims to needs, Francis J concluded that his powers were limited to deal solely with the parties’ strict property rights. This meant that he could only award the wife with her 50% share of the family home.
Use of schedule 1 to provide for the children
Francis J went on to make orders under schedule 1 of the Children Act 1989 to provide for the children: he ordered the husband to give the wife £2 million to provide a house for the children, which would revert to the husband once the children finished full time education. He was also ordered to pay the wife £95,000 per year as a carer's allowance to meet the needs of the children.
The wife appealed to the Court of Appeal on two grounds, namely that:
The husband cross-appealed arguing that the first instance court was wrong in law to make an award based upon the sharing principle because England does not have a community of property regime and there is no reference to a sharing award under the Matrimonial Causes Act 1973. The husband argued that the result, in light of the limitations within the valid prenuptial agreement, was that the court should have limited itself to making declaratory orders regarding property rights rather than distributive orders.
The Maintenance Prorogation Agreement
Two of the prenuptial agreements were unenforceable in Sweden (the Niagara and the Gothenburg agreements). This meant that the Court of Appeal had to decide whether the relevant clause in the Ohio agreement purporting to be a maintenance prorogation clause met the requirements of article 4.
The court reviewed two authorities: Estasis Salottie di Colzani v Ruwa [1976] and Deutsche Bank AG & Ors v Asia Pacific Broadband Wireless Comminications and Anr [2008] which considered unequivocal and exclusive jurisdiction clauses. It concluded that there was nothing within the Ohio agreement which was capable of being a valid maintenance prorogation clause as the clause did not identify maintenance specifically or encompass it clearly and it was not sufficient for there to only be an inference that the prorogation was in respect to maintenance.
Lady Justice King, in her lead judgment, stated: “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.”
As a result, there was no valid maintenance prorogation clause which meant that the English court could exercise its full range of powers to make an award to meet the wife’s needs.
Did the prenuptial agreement limit the court to decide the case on the basis of needs - and not sharing and/or compensation?
It did not. The Court of Appeal reviewed the relevant case law (Z v Z (No 2) (Financial Remedy: Marriage Contract) [2011] EWHC 2878 and Luckwell v Limata [2014]) EWHC 502. It disagreed with Francis J and found that it was not restricted to make an award on needs alone, but that it had a wide discretion even where there is a valid prenuptial agreement:
“…where a judge has found there to be no vitiating features in relation to a prenuptial agreement, he is entitled, when applying the section 25 factors in his search for a fair outcome, to take into account needs, compensation and sharing. In other words, the fact of a valid prenuptial agreement does not necessarily (but may) lead inexorably to a solely needs-based outcome.”
The Court of Appeal directed that “even where there is an effective prenuptial agreement, the court remains under an obligation to take into account all of the factors found in section 25(2) Matrimonial Causes Act 1973, together with a proper consideration of all of the circumstances, the first consideration being the welfare of any children”.
Prenuptial agreement cases reported since Radmacher v Granatino [201] UKSC 42, [2010] All ER (D), 186 (Oct) have recognised the decision to contract out of the sharing principle upon later divorce. However, this did not mean that there could not be cases in the future where an award would be made over and above needs despite there being a valid prenuptial agreement in place.
Although it remains to be seen whether Mr Brack will appeal to the Supreme Court, Brack v Brack is a reminder of the importance of clear and unambiguous terms when preparing prenuptial agreements. It also opens the door to awards in excess of needs if the right (unusual) circumstances warrant it.
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