BP v KP and NI (Financial Remedy Proceedings: Res Judicata)

Mr Justice Mostyn
A brief summary of BP v KP and NI (Financial Remedy Proceedings: Res Judicata) [2012] EWHC 2995 (Fam), which was decided on the 26th of October last, but has just been reported on Bailii.

It's not often you come across the term res judicata in a family law report, so I thought this case might be worth a quick look at, even though it is unlikely to have a great bearing upon the future conduct of family law proceedings.

The case revolved around a financial agreement entered into in March 2008 (according to the husband) between the husband and a friend, who was an investor in a fund managed by a company of which the husband was a part owner. I do not intend to go into the details of the agreement, but its effect was that the husband owed a substantial sum to the friend, for which the friend obtained judgment in the Chancery Division. The husband would have to satisfy the judgment out of the family assets.

The wife disputed this. She claimed that the agreement had actually been entered into in 2010, when the marriage was breaking down, and was a fraudulent attempt to reduce her claim (she maintained that the friend would repay the husband 'when the dust has settled'). To test her claim, she tried to obtain a copy of the agreement, but coincidentally it, its counterpart and the husband's computer copy had all been lost.

The wife therefore applied to set aside the Chancery judgment. However, for reasons I will not go into, matters relating to the agreement were compromised, and as part of the compromise the wife's application was dismissed. The effect of the compromise upon the 'matrimonial pot' was to reduce it by between £2,258,931 and £3,826,640.

Two matters fell to be determined by Mr Justice Mostyn in the financial remedy proceedings:
  1. Whether the wife was barred by operation of the doctrine of res judicata from asserting in the financial remedy proceedings that the agreement was either the product of collusive fraud between the husband and the friend, or, if not actually fraudulent, was in fact formed in 2010; and
  3. Whether at the final hearing the wife was also barred from running a case of "add-back" in relation to the losses suffered by the husband by reason of the agreement.
In respect of the first issue, counsel for the wife accepted that the effect of the Chancery judgment, which would not now be impeached by virtue of the compromise, was that he could not by virtue of the doctrine of res judicata argue that the agreement was procured by fraud and was therefore void. However, the judgment said nothing of when the agreement was formed, and he therefore maintained that the wife was not precluded from asserting that the agreement had been entered into in 2010, which would greatly strengthen her case on add-back.

Mr Justice Mostyn agreed, and held that the wife was not estopped from seeking a finding as to the date on which the agreement was formed at the final trial of the financial remedy proceedings, in support of her add-back argument.

In respect of the second issue, Mr Justice Mostyn was not prepared to bar the wife from running her add-back argument, although he did indicate that she faces "a stiff climb" to meet the requisite test.