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ABC v PM & Anor [2015] EWFC 32: Important judgment for finance practitioners

By Lee Henderson

Goodman Ray, on behalf of the wife in financial remedy proceedings, have successfully defended an appeal launched by the husband’s solicitors against an Order which found they had constructive notice of the husband’s intention to defeat the wife’s claim.

The husband had executed a legal charge over the matrimonial home in favour of his solicitors as security for his legal fees.  The executed legal charge was only presented to the wife’s legal team on day two of the final hearing.  The trial judge found that the husband had significant resources amounting to hundreds of thousands of pounds in offshore accounts that he had failed to disclose within the proceedings and the Order transferred all known assets to the wife, including the matrimonial home (being the only property in the UK).   The wife immediately applied to set aside the legal charge in favour of husband’s solicitors.

At first instance the judge found that the husband’s solicitors had had constructive notice of the husband’s intention to defeat the wife’s claims and therefore the charge should be set aside. The husband’s solicitors appealed in their own right.

Mr Justice Moor referred to Hunt v Luck for the law on constructive notice.  Kemmis v Kemmis and J v J – M were distinguished.  Mr Justice Moor found that the husband’s solicitors should have made further enquiries and given notice to the wife’s solicitors of the intention to execute a legal charge.  This would have given the wife an opportunity to dispute it.  The appellant’s failure to do so denied the wife the opportunity to apply for an injunction before the charge was executed.

Mr Justice Moor, in dismissing the appeal, concluded that the District Judge was right to be satisfied from the evidence that was before him that:

“…the solicitors knew something which should have put them on further enquiry, which would have revealed had they thought properly about it that the payment of their fees from the equity in [the former matrimonial home] was in part intended to defeat the Wife’s claims.”

The judgment can be found here.

Trudi Featherstone of Goodman Ray comments:

“Financial practitioners are well advised to take heed of this judgment. With the removal of legal aid by LASPO and the need for spouses to fund their own litigation, pressure increases on practitioners to enter into arrangements with their clients to defer the payment of fees.  Solicitors must be absolutely clear that any arrangement entered into does not fall foul of this case.  Full enquiries must be made at the time of any deferred arrangement where property is given as security.  Where there is a restriction it is incumbent that solicitors give notice of an intention to enter into a legal charge thus giving the other party an opportunity to dispute the charge. If no objection is raised the charge can be completed without fear that it will be subsequently successfully challenged.”

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