Wednesday, October 29, 2008

NG v KR (Pre-nuptial contract): Not enforceable, but does affect award

The current state of the law on pre-nuptial agreements received a pretty thorough airing in the case of NG v KR (Pre-nuptial contract) [2008] EWHC 1532 (Fam). Counsel for the Wife, Cherie Booth QC, raised a number of ingenious arguments in favour of upholding the pre-nup but, in a lengthy judgment, Mrs Justice Baron dealt with those arguments and essentially found in favour of the Husband.

The Facts: The Wife was extremely wealthy, mostly from inherited wealth, and she sought to protect that wealth by signing a pre-nuptial agreement which stated that the Husband would not seek anything from her if the marriage were to break down. That agreement was signed in Germany, her native country, shortly before the parties were married in England, in 1998. The parties had two children before they separated, in 2006. The Wife then issued divorce proceedings in this country, and the Husband (who had no assets, only debts) made a claim for ancillary relief, seeking some £9 million from the Wife's estimated wealth of nearly £100 million. The Wife claimed that, because of the pre-nuptial agreement (which would be valid in Germany), the Husband had no entitlement to ancillary relief.

I suspect that Cherie Booth knew full well how the court was likely to view the pre-nuptial agreement. Her task was therefore unenviable. She began by claiming that Section 34 of the Matrimonial Causes Act (which prohibits any restriction in a maintenance agreement of a right to apply to a court for a financial order) "was incompatible with the human rights of the Wife because the Act wrongfully restricted the Wife from entering into binding contractual relations with her spouse by way of an ante-nuptial agreement. It was submitted that the [agreement] had been nullified by no reason other than the parties’ move from one EU jurisdiction to another and such interference constituted a vertical inference by the State in the parties’ freedom to contract". However, by the commencement of the hearing Miss Booth had altered her stance so that she was no longer seeking a declaration of incompatibility. Instead, "she submitted that the Wife’s human rights were of central and highly persuasive importance so as to “boost” the [agreement] and make it the focus/starting point of any discretionary exercise". She further argued that the agreement fell within Section 34 and was therefore a valid maintenance agreement.

The decision: In her judgment Mrs Justice Baron deals with the human rights points, finding that the Wife's rights had not been breached and, most interestingly, reviews the case law on pre-nuptial agreements (paragraphs 109 to 129) concluding, unsurprisingly, that "pre-nuptial agreements remain unenforceable until adopted by the Court". As to the Section 34 point, the agreement did not fall within that section, as it had not been made during the continuance of the marriage. She also found that the agreement was flawed under English Law for a number of reasons, including that the Husband had received no independent legal advice, the Wife had not made full disclosure, and two children had been born during the marriage. However, she did find that the Husband: "understood the underlying premise [of the agreement] that he was not entitled to anything if the parties divorced. In essence, he accepted that he was expected to be self-sufficient. As a man of the world that was abundantly clear. His decision to enter into the agreement must therefore affect the award." She therefore awarded the Husband rather less than he was seeking, finding that a sum of £5,560,000 reflected his needs.

As an aside, I note that Mrs Justice Baron found that the Wife "truly believes that the Husband agreed to take nothing from her and she cannot understand why he is not simply held to his deal as he would be in Germany. She has a huge sense of injustice that the English Court, which has undoubted jurisdiction, should depart from the terms of the [agreement]. She has put up a spirited fight and deployed every weapon including some unwarranted slurs to achieve her end". She also pointed out that the enforceability of pre-nuptial agreements is to be considered by the Law Commission in its current programme, and has no doubt that they "will be a hot topic for debate over the next few months". I'm sure she's right there.

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