Heather Souter | 8th March 2022

Schedule 1 Children’s Act 1989 : Viewed in the round

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Heather Souter | 8th March 2022

Schedule 1 Children’s Act 1989 : Viewed in the round


Heather Souter reflects on the usefulness of the millionaire’s defence in Schedule 1 Children’s Act 1989 proceedings in the context of the statutory criteria (this article was first featured in the Family Law Journal (Legalease)

While Re Z confirms that the millionaire’s defence may be raised and relied upon in Sch 1 proceedings, it is important to note that such a defence does not give blanket protection when it comes to providing financial disclosure.

The judgment in Re Z (No2)[2021] was the second of three published judgments concerning the child of a British interior designer and an extremely wealthy American, whose assets at the time of the first hearing in November 2020 were in the region of $130m (net) and whose net monthly income was circa $900,000.

The mother launched her initial application when the child was only one day old, which gives a flavour of how litigious the case was. At the time of writing, the child is a little over two years old and there have already been numerous hearings, with a combined legal spend of nearly £500,000 up to only the first appointment in the proceedings under Schedule 1 Children’s Act 1989 (ChA 1989). The litigation shows little to no sign of stopping yet, with the mother seeking costs for, among other matters, anticipated proceedings under s8, ChA 1989.

This article will focus upon the second of the three published judgments and will predominantly consider the application of the ‘millionaire’s defence’ in the context of Sch 1, ChA 1989 proceedings.

Background

The child’s parents first met in the US in 2017, before meeting again in late 2019 when the mother was by then living in New York. Their relationship moved quickly and, by February 2020, they were living together and the mother was pregnant. The relationship deteriorated as quickly as it started and by April 2020 the father suggested they should live separately, albeit reasonably close to one another within one of the two West Coast states in which he resided in the US. However, by July 2020, the mother had returned to the North of England, temporarily living with her own father and stepmother.

In a momentary plot twist, the parents initiated, via solicitors, negotiations for a pre-nuptial agreement based on the prospect of, not only reconciliation, but marriage. However, their hopes were dashed; there was no marriage and the father subsequently issued proceedings seeking ‘anticipatory adjudications on paternity, custody and child support’ in the US in September 2020. This was the first application and was made prior to the child’s birth, with the first hearing being listed on 5 November 2020. It did not take place.

The child was born on 21 October 2020. The very next day, the mother issued her application in England and Wales under Sch 1, ChA 1989. She sought an urgent hearing, which she achieved, the matter being listed only days later on 27 October 2020.

First hearing

The mother’s application was listed before Cobb J (Re Z [2020]). There were five arms to her application, namely:

  • outstanding and unmet legal costs incurred by lawyers no longer instructed, both here and in the US (£71,219);
  • legal costs already incurred with her current solicitors (£86,434 at the date of the hearing, with £41,400 of those costs having been incurred in the three-week period before the child was born);
  • ongoing and future costs (£98,878 in relation to Sch 1 proceedings up to the financial dispute resolution (FDR) appointment and £94,806 in relation to s8, ChA 1989 issues, up to any first hearing dispute resolution appointment);
  • costs of setting up a home for the child in England (£78,000 for furniture, relocation and setup costs, and £19,500 for a rental deposit); and
  • interim maintenance at the rate of £31,396 per month.

In her application, the mother essentially referenced the father’s standard of living, arguing that the child was entitled to be provided with a broadly equivalent standard to that which she would have had in the event her parents had remained together, and which her father still enjoyed. The mother also referenced the pre-nuptial agreement she and the father had been negotiating, arguing that the standard of living the father offered to her under the terms of that agreement was also a relevant benchmark when considering the appropriate financial provision for the child.

Needless to say, the father did not agree with the sums sought and pitched his position far lower, arguing that the mother presented an ‘exorbitant claim before the court’. However, he did accept the English courts had jurisdiction (accepting that the child was habitually resident here), such that the US proceedings were stayed.

In summery, Cobb J made the following awards:

  • no award in relation to the legal costs incurred with firms no longer actively instructed or whose work was paused, both here and in the US;
  • £60,504 in relation to costs already incurred by the mother’s current solicitors in England and Wales;
  • £90,000 paid at the rate of £15,000 per month over the next six months in relation to the costs of the Sch 1 proceedings and s8, ChA 1989 issues; and
  • £70,000 for the mother to relocate and set up a home for herself and the child and £15,000 for a deposit on a rented flat.

In addition, provision was made for interim monthly maintenance, broken down as follows:

Until 1 January 2021:

  • Nanny: £5,600
  • Other expenses: £5,600

From 1 January 2021

  • Rent: £4,750
  • Nanny: £5,600 until mid-February 2021 an then reducing to £4,000 (to reflect the anticipated shorter hours the nanny would be employed)
  • Other expenses: £9,612

Second Hearing

The matter next found itself before Cobb J on 20 July 2021. The child was now eight months old and she, together with her mother and nanny, had moved to London, living in a rental property in the vicinity of Regent’s Park at a cost of £6,000 pcm (some £1,250 pcm more than the award Cobb J had made at the first hearing).

Prior to this hearing, the child was diagnosed with heart disease in February 2021, which led to further litigation between her parents in relation to whom should conduct her ongoing medical treatment. This resulted in a four-day hearing before the president of the Family Division who directed that the team at Great Ormond Street should undertake the child’s treatment (which had been the father’s preference).

This dispute had obviously not been anticipated at the first hearing and therefore had the inevitable consequence of incurring yet further costs. These costs had been considered by Mostyn J at an interim case management direction hearing on 10 June 2021, Mostyn J making interim awards pending the hearing before Cobb J in July 2021, which was concerned with:

  • case management to prepare the case for a private FDR; and
  • the mother’s applications for:
    • upward variation of the maintenance provision made at the first hearing;
    • further legal funding (in relation to the medical proceedings that had taken place and concluded, the Sch 1 proceedings and the s8, ChA 1989 issues); and
    • an interim lump sum (by way of costs provision) to reimburse her own father in respect of an alleged loan.

Case management: questionnaires and the ‘millionaire’s defence’

Cobb J noted that all but one of the directions to progress the case were uncontroversial. The direction Cobb J considered controversial related to the mother’s questionnaire, which comprised 11 questions focusing upon the father’s lifestyle and how that was funded (Cobb J referred to this as ‘probing the extent of personal and/or business expense’). Reference to the mother’s counsel’s submissions provides further flavour as to the questions being asked and the information sought; he argued it would be useful to know some of the detail of the father’s spending on holidays, travel and routine daily expenditure.

The father objected to answering the mother’s questionnaire, his legal team having confirmed in his Form E1, as well as correspondence, that he would be running the millionaire’s defence. Their view was that the case ‘is more likely to be about private education than the use of private jets’ and ‘the focus should be on determining [the child’s] realistic long-term needs and how best to meet them’.

At first glance, the concept of the millionaire’s defence is a simple one: a person is so wealthy that they need not disclose the full extent of their assets because they will be in a position to meet any award the court may reasonably make. However, the question of whether that defence is appropriate and may continue to be properly raised has been considered in various cases, both in the context of married couples (which is beyond the scope of this article) and also unmarried couples when considering financial provision for a child.

The question of whether the defence still has a proper place in Sch 1 proceedings was posed in the Court of Appeal case of A (A Child) [2014] and this is the case Cobb J referred to within his judgment. The short answer to that binary question is yes, it does, and the Court of Appeal said that this is because ‘[t]he literal or purposive interpretation of Schedule 1 does not permit of the concept of sharing or compensation for the benefit of the child’, noting that ‘there is no established authority to the contrary’ (para 19).

The principles of sharing and compensation, together with the yardstick of equality, are concepts rooted in financial remedy claims relating to married couples pursuant to the Matrimonial Causes Act 1973 (MCA 1973), such that they have no application within a Sch 1 claim. As Lewison LJ noted in his judgment in A (A Child) (at para 40), the yardstick of equality is essentially applied so as to avoid discrimination between respective spouses’ contributions to the welfare of the family as set out in s25(2)(f), MCA 1973. There is no equivalent provision in para 4, Sch 1, ChA 1989, and therefore the yardstick has no place in a Sch 1 claim.

While RE Z confirms that the millionaire’s defence may be raised and relied upon in Sch 1 proceedings, it is important to note that such a defence does not give blanket protection when it comes to providing financial disclosure. As the Court of Appeal put it, and Cobb J quoted, ‘that is not to say the millionaire’s defence survives intact’ (para 20 of A (A Child)). There are, of course, disclosure obligations within the Family Procedure Rules 2010 (FPR 2010) and these cannot just be ignored, not least because there has to be some framework and context when considering the appropriate award in a Sch 1 application.

This feeds into the question of how then, in circumstances where this defence is utilised, are Sch 1 claims to be considered or, to borrow the words of counsel for the appellant in A (A Child), ‘by reference to what principled criteria is a Schedule 1 award to be calculated?’ (para 5)

According to Macur LJ in her judgment in A (A Child), the answer to that is ‘in accordance with the statutory criteria identified in Schedule 1, and relevant existing jurisprudence’ (para 23), ie regard must be had to all the circumstances of the case including those factors and criteria specifically contained at para 4, Sch 1, ChA 1989, which includes income, property and other financial resources. This is in addition to case law, of which Cobb J’s judgment now forms a part. It is therefore clear that even when the millionaire’s defence is appropriately run, the statutory criteria nonetheless require some consideration of an absent parent’s assets and resources, albeit not to the same detailed (nd some would say onerous) extent.

In RE Z (No 2), Cobb J concluded that he was satisfied that the father had given ‘adequate disclosure thus far’ and he did not (para 17):

… regard it as proportionate let alone necessary to require him [the father] to answer questions about his holidays, travel, his domestic help, his business expenditure, his credit card expenditure, and how much he has paid his American attorneys.

He did require one question regarding the father’s gross and net income over the past three years to be answered, albeit there was specific reference to COVID-19 as part of the reasoning for that question.

At this point, it is worth reminding ourselves of the now ancient, but at the time landmark, Court of Appeal’s decision in Re P (A Child). This case tells us that, in those cases where one parent is wealth (and the father in that case was extremely wealthy), the home that they should provide for the child should be the starting point when considering the whole package of financial provision for a child. After all, once it is known what sort of home the child needs, the other costs and everything else will flow from that, making it easier to ascertain the appropriate overall financial provision.

Cobb J’s approach was therefore clearly in tune with both of these Court of Appeal authorities on the millionaire’s defence, ie that:

  • there needs to be some context for the court’s decision;
  • each case turns on its own facts; and
  • the overriding objective in Pt 1, FPR 2010 (which, it seems, is so often overlooked) means that a forensic and expensive trawl through the defendant’s financial affairs (the father’s in this case) is unnecessary, undesirable and to be avoided.

In short, the court need only know what it needs to know.

What next for the child and her parents?

Cobb J was called upon once more on 20 October 2021 to determine further questions as to the interim maintenance provisions for the child’s nanny and whether a costs order should be made in the father’s favour in relation to the mother’s alleged loan to her father (which was not quite as the mother had presented previously) (Re Z (No 3) [2021]). This he did and now the mother’s Sch 1 application should be on course for a private FDR.

Armed with sufficient information and context, one would hope that an agreement about the appropriate financial provision will be reached at the private FDR. The mother has been given a clear steer by the judge that she must concentrate, not on the precise extent and details of the father’s wealth, but upon the child’s individual needs.

Neither is there any room for the application of sharing or compensation for the benefit of a child and this article would not be complete without brief reference to CA v DR [2021], a case in which the mother sought an order for periodical payments which included an allowance for pension contributions for her benefit, something the court determined was not permitted under Sch 1.

As with almost all children matters, and particularly with the child in RE Z given her health needs, the best approach surely has to be a focus on the children themselves and on working together to co-parent, rather than engaging in acrimonious and costly, both financially but more so emotionally, litigation. Whether this can be achieved remains to be seen and will depend wholly on whether the parents can agree – in the broad context of the father’s wealth – what the child needs.

What next for practitioners?

This case reminds us as practitioners not to fall into the trap of treating Sch 1 claims in the same way we would a financial remedy claim under MCA 1973. The principles of sharing, compensation and the yardstick of equality must be put to one side. The focus must be needs, the statutory framework in Sch 1 and the case law building upon that.

In cases where one parent is especially wealthy, having in mind that Sch 1 focuses on a child’s needs and applying the overriding objective, due consideration must be given to the millionaire’s defence. There is a place for it in these cases and it certainly needs to be thought about at relatively early stages of Sch 1 proceedings; if acting for the wealthy parent, it needs to inform the way in which that parent’s financial disclosure is prepared and, if acting for the ‘other parent’, it should determine, not only the extent of any further enquiry into the disclosure provided, but also the evidence gathered as to what the individual child must have in order to meet its needs.

Cases Referenced

  • A (A Child) [2014] EWCA Civ 1577
  • CA v DR [2021] EWFC 21
  • Re P (a child) (financial provision) [2003] EWCA Civ 837
  • Re Z (No 2) (Schedule 1: Further Legal Costs Funding Order; Further Interim Financial Provision) [2021] EWFC 72
  • Re Z (No 3) (Schedule 1: further orders); sub non X v Y [2021] EWFC 85
  • Re Z (Schedule 1: Legal Costs Funding Order; Interim Financial Provision) [2020] EWFC 80

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