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MacLeod is lifted?

  • Author : Christian Luthi
  • Date : April 2011
ABOUT THE AUTHOR: Christian Luthi is a Director at Conyers Dill and Pearman

The recent decision of the UK Supreme Court in Radmacher (formerly Grantino) v Grantino [2010] UKSC 42 has reversed the ruling of the Privy Council in MacLeod v MacLeod [2008] UKPC 64 and cleared the way for pre-nuptial agreements to be made legally binding.

The Privy Council is the court of final appeal for, among others, Bermuda, the British Virgin Islands (BVI) and Cayman. Its decisions are binding in the first instance and on appeal courts of those jurisdictions. It is worth noting that many of the same judges sit in the Privy Council and in the Supreme Court. Two judges, Lady Hale and Lord Walker, were on the bench for both Radmacher and MacLeod.

Background

In MacLeod the Privy Council was prepared to recognise and enforce post-nuptial agreements but refused to do so in connection with pre-nuptial agreements, interrupting the momentum that had been building in the UK courts, in cases such as S v S (Divorce: Staying Proceedings) [1997] 1 WLR 1200; M v M(Prenuptial Agreement) [2002] 1 FLR 654; K v K(Ancillary Relief: Prenuptial Agreement) [2003] 1 FLR 120; and Crossley v Crossley [2007] EWCA Civ 1491; [2008] 1 FLR 1467.

The momentum was building in Bermuda in Swan v Swan [1992] SC (Bda) Div. 162, when the Bermuda Supreme Court held that s.29(1) of the Bermuda Matrimonial CausesAct 1974 empowered the court to have regard to all of the circumstances of the case in deciding how to exercise its powers under s.27 (financial provision orders) and s.28 (property adjustment orders). It held that it would be inequitable to disregard a pre-nuptial agreement, as it formed part of the parties’ conduct, which the court had to consider under s.27. The Court would have given effect to the agreement in that case, except for the fact that the wife had not had the benefit of legal advice and was asked to sign the agreement on the day of her wedding.

In MacLeod the Privy Council was prepared to give effect only to post-nuptial agreements, on the basis that s.35 of the UK Matrimonial Causes Act 1973 expressly applied and referred to post-nuptial agreements, and that post-nuptial agreements could be distinguished from pre-nuptial agreements on the grounds that a married couple make agreements to reflect the existing reality. Pre-marriage, the couple are trying to reach an agreement to govern what might happen in an uncertain and unhoped-for future. Accordingly, although an argument could still be advanced, post-MacLeod, that pre-nuptial agreements were part of the overall circumstances of the case and ought to be taken into account, their status was severely undermined.

Radmacher

The Supreme Court in Radmacher expressly disagreed with the Privy Council and held that an agreement entered into at the very start of married life had little difference to one entered just before, and that many couples enter married life having already lived together for many years or with children. It held that there was no reason why the same principles should not apply both to pre- and post-nuptial agreements.

The Supreme Court in Radmacher held that a pre-nuptial agreement should be given full weight, provided both parties enter into it of their own free will, without undue influence or pressure, and are informed of its implications. Sound legal advice and full disclosure of assets are desirable to achieve this. However, there may be cases where a party is fully aware of the implications of a pre-nuptial agreement, and is indifferent to the detailed particulars of the other party’s assets. The key element is that each party has all of the material information for making a decision, and that both parties intend for the agreement to govern the financial consequences of their marriage ending.

For pre-nuptial agreements entered into prior to Radmacher, the Supreme Court suggested that there may be a defence if the agreement was entered into on the understanding that such agreements were void under English/Commonwealth law and likely to carry little or no weight. The defence is less likely to be effective in cases where there was a ‘foreign element’ to the agreement or the marriage, i.e. where there was a connection to a foreign jurisdiction where pre-nuptial agreements have legal recognition.

Conduct such as undue pressure or exploitation of a dominant position, might reduce or eliminate the weight put on the agreement.

Other factors to be considered in assessing the weight to be put on it include a party’s emotional state and the general pressure they were under; a party’s age or maturity; and whether the marriage would have gone ahead without the agreement or the terms agreed.

An agreement with unfair terms from the start will carry reduced weight, but this will be less crucial than the question of whether the agreement operates unfairly, having regard to the circumstances at the time of the breakdown of the marriage.

The Supreme Court sums up the position by stating that the court shall give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless, in the circumstances prevailing, it would not be fair to hold the parties to their agreement.

Decisions of the UK Supreme Court are highly persuasive for the courts of Bermuda, BVI and Cayman
Guidance

The court laid down some guidance for cases where it would not be fair to hold the parties to the agreement. The interests of children are paramount, and a nuptial agreement should not be allowed to prejudice the reasonable requirements of any children. Further, the more uncertain the future situation at the time of the agreement, the more the courts will be willing to consider that it would be unfair to enforce the agreement years later. Conversely, when the agreement addresses pre-existing circumstances (such as living arrangements, business affairs), it is less likely to be considered unfair to enforce it.

The courts are likely to hold that it was not the intention of the parties to enforce an agreement that would leave one of them in real need, while the other is comfortable. Further, it is likely to be considered unfair to hold the parties to an agreement where one of them commits to looking after the family in order to give the other the opportunity to accumulate wealth, and is excluded from sharing in the wealth earned by the other.

Dissenting voice

There was one main dissenting voice in Radmacher, Lady Hale. This is of interest, because she delivered the unanimous opinion of the Privy Council judges in MacLeod. In Radmacher she suggests that, in a democratic society, it is up to Parliament rather than the Courts to reform a complex and sensitive subject such as this. She even questioned whether a court comprising eight men and one woman was an appropriate forum to consider such an issue where it was usually the woman who was the economically weaker party. She had various other criticisms, such as the uncertainty left hanging over whether a pre-nuptial agreement is contractually binding, and also raised the issue of how a ‘foreign element’ should be dealt with, given that it could create differing expectations as to the enforceability of a pre-nuptial agreement.

Although, technically, the Privy Council could disagree with the approach in Radmacher, its composition has a considerable overlap with that of the Supreme Court, and it is very unlikely that a subsequently convened Privy Council would lock horns with the Supreme Court. Decisions of the UK Supreme Court are highly persuasive for the courts of Bermuda, BVI and Cayman and, given that the institution of marriage functions no differently in the overseas territories than in the UK, it is hard to imagine that the Radmacher approach would not be followed in Bermuda, BVI and Cayman.


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