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.