To Trust…..Or Not…….Mesher Orders In Financial Remedy Proceedings

The purpose of this article is to consider the issue of Mesher Orders in the context of Financial Remedy proceedings.

Mesher Orders arise and are used in Financial Remedy proceedings, when in all the circumstances in terms of section 25 of the Matrimonial Causes Act 1973 (“the Act”), it is appropriate for a property (normally the former matrimonial home) to be held in trust for the benefit of the parties in terms of section 24 of the Act until a trigger event, whereupon the property will be sold, normally referred to as a “Trust of Land” provision. When the property is sold, the net proceeds will usually be divided in the same ratio that the parties held the property in trust.

Mesher Orders usually arise as a result of Orders which have been negotiated by the parties by consent and known as Consent Orders or following contested proceedings, an Order handed down by the Court. Whether the Order arises as a result of consent or following contested proceedings, the Court in terms of its mandatory duty, shall consider all the factors set out at section 25(2) of the Act before such an Order is approved.

An alternate procedure, is the process whereby the legal and beneficial ownership of the property is transferred to one of the parties and a registered charge is registered against the title deeds reflecting the value of the net proceeds to be paid to both parties upon sale following a trigger event, referred to as “Transfer with charge back”. The registered charge in effect acts as security and a mechanism whereby the share of the net proceeds is registered and divided between the parties when the property is sold.

Whether a Trust of Land or Transfer with charge back is appropriate will depend on the particular facts of any case. Factors that will need to be considered include: (1) whether one party can release the other party from the mortgage and/or (2) whether tax issues (including capital gains tax) arise and if so, the extent thereof, for which expert evidence will need to be obtained and/or (3) the resources of the parties and/or (4) the type and list of trigger events and/or (5) the agreed or determined conditions under which the property is held in trust or subject to a registered charge.

Given the development of the law and that where possible, these days, Courts will try to affect a clean break between the parties, it is interesting to look at the original decision which gave rise to a Mesher Order in the context of current legal developments.

The Court of Appeal first considered the matter as far back as 12th of February 1973 and which was reported in the case of Mesher v Mesher and Hall [1980] 1 All ER 126, CA, over 40 years ago.

The issue for the Appeal Court in the Mesher case was, whether to grant the Husband’s appeal against a Final Order made by the Judge in the lower Court and in particular, whether the Order transferring the main (and only) capital asset, the jointly owned family home, to the Wife should be reversed on appeal and allow for the family home to be held on trust for sale in equal shares until the minor child reached the age of 17 years or further order. It is to be noted that this case was considered by the lower Court in October 1972 which mandatorily had to take into account the factors set out in section 5 of the Matrimonial Proceedings and Property Act 1970. Section 5 has now been superseded by section 25 of the Matrimonial Causes Act 1973 which came into effect on the 1st of January 1974. The section 25 criteria are roughly the same as the section 5 factors of the previous Act.

The facts in summary were, a 14 year marriage, one minor child who lived with the Wife, both parties were living with new partners (the Husband having purchased another property with his new partner), the sole joint capital asset was the family home, the Court found that the income of both new households was roughly the same and the Wife’s raised conduct, her case being that the marriage had irretrievably broken down due to the Husband’s infidelity. The lower Court had ordered that: (1) the family home be transferred to Wife rather than a lump sum award and (2) the Husband pay child maintenance and (3) that the question of periodical payments to the Wife be adjourned generally. The Husband’s case was that in all the circumstances it was unfair and unreasonable that he should be deprived of the whole of his interest in the family home and that the proper order was that he and the Wife should share it equally. The Court of Appeal agreed with the Husband. Taking a broad approach and considering the Court of Appeal case of Wachtel v Wachtel [1973] 1 ER 829 which had held that there should be no reduction in the Wife’s award due to alleged infidelity, it ordered that the family home should be held in trust until the trigger event or further order.

Fast-forwarding to the present day and current law, there are 2 cases which illustrate the fact that each case will turn on its own facts.

The first case is that of Mansfield v Mansfield [2011] EWCA Civ 1056. The Court of Appeal in what was technically, a second appeal, allowed the Husband’s appeal against the determinations of the District and Circuit Judges and granted a Mesher Order in favour of the Husband in respect of one third of the equity of the prospective property to be acquired by the Wife. The Appeal Court indicated that in all the circumstances, it was appropriate for a registered charge to be lodged against the title deeds of the Wife’s prospective property to be redeemed when the minor children reached maturity. The facts of the case were briefly that the Husband purchased 2 properties prior to the 6 year marriage as a result of a substantial personal injuries award of £0.5 million. One of the properties (referred to as “The Orchard”) was specially adapted to his special needs. The District Judge at final hearing considered the section 25 criteria and the parties’ respective (housing) needs and determined in all the circumstances, the Husband should pay the Wife a lump sum of £285,000 in default of which The Orchard should be sold. On appeal, the Circuit Judge dismissed the Husband’s appeal. The Court of Appeal held [at 15] that the District Judge correctly noted the first point, namely that the fact that the capital came by way of compensation did not exclude it from the Court’s consideration but that she omitted to apply the second and important qualifying part of the guidance namely, that each case must be looked at on its on facts and in many instances, the application of the general sharing must be tempered to reflect the particular needs of the recipient and the very nature of the acquisition of the capital namely by way of compensation for personal injuries. The Appeal Court accordingly held that this misdirection by the District Judge and approved by the Circuit Judge entitled it to investigate and exercise its own discretion in relation to two facets of the award, namely (1) whether the lump sum of £285,000 was correct and (2) whether the District Judge was correct in refusing the Husband’s application for a charge back in his favour in the shape of what is known as a Mesher Order [at 16-18]. The Court of Appeal declined to overrule the lump sum award of £285,000 but granted the Husband’s appeal in respect of the Mesher Order.

The second case is that of W v H [2020] All ER (D) 199 (Feb) in which His Honour Judge Hess sitting as a single judge in final contested proceedings in February 2020, ordered that in all the circumstances it was appropriate for the jointly owned family home which other than the pension provision, was the sole capital asset, to be the subject of a Mesher Order and that both parties should retain their 50% share until sale. In the interim, the Wife would continue to live in the family home with the 3 children until one of the trigger events.

Of general application and by way of interesting update, in the context of Mesher Orders and Financial Remedy Orders generally, is the latest case of Derhalli v Derhalli [2021] EWCA Civ 112. This case re-affirms 3 main issues of general application relating to Financial Remedy Orders, including Mesher Orders, namely, (1) that such Orders, whether by consent or otherwise, should clear and precise, the case on appeal having turned solely on the proper interpretation of the (approved) Consent Order and (2) a Consent Order derives its authority from the court and not the consent of the parties and as such, the principle that a financial remedy order is not a contract remains good law and (3) any financial remedy Order, whether agreed by consent or determined by the Court, has to rooted in sound legal principles. As Lady Justice King [20] indicated when delivering the majority judgement, “I am conscious of the words of Lord Sumption in Prest v Petrodel [2013] UKSC 34 ’37….Courts exercising family jurisdiction do not occupy a desert island in which general concepts are suspended or mean something different. If a right of property exists, it exists in every division of the High Court and in every jurisdiction of the county courts. If it does not exist, it does not exist anywhere”. As will be noted from the Becket Chambers’ website, Holly Coates has dealt with this case in-depth.

Pulling the strands together, whether it will be appropriate for a Mesher Order to be handed down will depend on the specific facts of the case. Whether a Trust of Land or a Transfer with charge back is appropriate, will depend, in the main on the 5 factors set out above.