Kremen v Agrest

On an application for a charging order, the court must consider all the circumstances and balance the ordinary expectation of a judgment creditor against the hardship which enforcement would cause a former spouse and children. Neither interest has automatic predominance.

The balancing exercise is not confined to securing alternative accommodation or to a former matrimonial home. It may include wider financial needs, including the maintenance of children. A creditor who knowingly entered a risky transaction after notice of the spouse’s claim may have a substantially reduced expectation of enforcement, particularly where the spouse and children need the asset and the creditor has other means or prospects of recovery.

Following divorce, the respondent obtained an award of £12.5 million against her former husband. An earlier order had set aside the appellant’s acquisition of the company owning South Lodge, a property beneficially owned by the former husband, and required the former husband to indemnify the appellant for his loss.

The appellant obtained a default judgment under that indemnity and an interim charging order over South Lodge. Mostyn J refused to make the order absolute while determining the respondent’s financial claims: [2012] EWHC 45 (Fam).

The appellant contended that, as a judgment creditor, he was entitled to enforce against the former husband’s property. The respondent relied on the limited assets available to meet her and the children’s needs. The central issue was how the discretion under section 1(5) of the Charging Orders Act 1979 should be exercised.

1. Appeal dismissed. The court upheld the refusal to make the interim charging order absolute.

2. Per Moore-Bick LJ, section 1(5) of the Charging Orders Act 1979 required a balancing exercise. The usual expectation of a judgment creditor that a charging order will enforce the judgment must be weighed against the hardship to the former spouse and children. The guidance in Harman v Glencross, [1986] Fam. 81, did not give either interest automatic predominance. A Mesher-type postponement may sometimes protect occupation while preserving the creditor’s security, but each case turns on its facts.

3. The exercise was not restricted to the provision of adequate alternative accommodation, nor to a property that had been the matrimonial home. The court must consider all relevant circumstances, including wider financial needs and the costs of supporting children. The appellant was a bona fide judgment creditor and his application was not an abuse of process merely because enforcement would reduce the assets available to satisfy the respondent’s award. His creditor status had to be fully taken into account.

4. Nonetheless, the balance decisively favoured the respondent. The appellant completed the purchase after learning of her claim and of the protective order, when he knew that the transaction might be challenged. He was therefore substantially the author of his own loss. The respondent and children required the limited equity in South Lodge and the funds already in court for accommodation and living expenses, with little prospect of further recovery from the former husband. The appellant was wealthy and might yet recover from the former husband. A Mesher order was inappropriate because the equity was likely to be exhausted relatively soon.

5. Thorpe LJ agreed in the result, emphasising the appellant’s informed assumption of risk and the respondent’s and children’s acute needs. The Chancellor agreed with Moore-Bick LJ’s approach and the dismissal.

• Court of Appeal (Civil Division): Dismissed the appellant’s appeal and upheld the refusal to make a charging order absolute: [2013] EWCA Civ 41.
• High Court, Family Division (Mostyn J): Refused the appellant’s application for a charging order absolute while determining the respondent’s financial provision claims: [2012] EWHC 45 (Fam).