Facing the Supreme Court this week is the paradox that pre-nuptial contracts are  “at one and the same time both unenforceable and  invalid as being against public policy and matters which the court is prepared to take into account (and possibly decisively)” in the exercise of its jurisdiction under section 25 of the Matrimonial Causes Act 1973.  This is “…anomalous, albeit plainly the present state of the law”. The conundrum presented to the courts by pre-nuptial contracts was thus articulated by Rix LJ in the Court of Appeal decision ([2009] EWCA Civ 649 [64]).

Mr Granatino’s appeal from the unanimous Court of Appeal decision handed down on 3 October 2008 by Thorpe, Rix and Wilson LJJ in Radmacher is to be heard on Monday 22 and Tuesday 23 March.  Such is the importance attributed to the issue that it is to be heard by nine Justices of the Supreme Court – Lord Phillips, Lord Hope, Lord Rodger, Lord Walker, Baroness Hale, Lord Brown, Lord Mance, Lord Collins and Lord Kerr.

The Court of Appeal gave decisive weight to a pre-nuptial contract providing that if the couple divorced, neither partner was to make a monetary claim against the other in any ancillary proceedings.  The pre-nuptial contract in question was executed in Germany in August 1998 by Ms Radmacher, a German national, and Mr Granatino, who was French.  Their marriage was solemnised in London, in November 1998. The couple were based in London, where both of their children were born, the first in September 1999 and the second in May 2002.  The couple separated in August 2006.

When the pre-nuptial contract was concluded, both parties were well educated and affluent: Mr Granatino was employed by an investment bank at a substantial salary and Ms Radmacher came from a family with lucrative business interests from which she stood to gain significant personal wealth, in consequence of which she was by far the wealthier of the two.  The terms of the pre-nuptial contract provided that neither partner would have a claim on the assets or income of the other, and there was a mutual waiver of claims for maintenance following divorce, even in cases of need.  The contract was valid and enforceable under both German and French civil law. 

The divorce and ancillary relief proceedings were heard in the English courts however, under English law, wherein there is a long-standing rule that pre-nuptial contracts are invalid and unenforceable as being against public policy. What is more, pre-nuptial contracts are viewed without enthusiasm by English judges, who are wary that unfair concessions may be extracted by (generally) wealthier and more powerful men from financially vulnerable women who want to marry them badly enough to sign away the considerable protections of English matrimonial property law. 

Nevertheless, there is growing acknowledgement that such paternalistic assumptions are at odds with the general presumption that two adult parties of sound mind entering into an agreement generally know what they are doing, unless the contrary is proven. That pre-nuptial contracts are unenforceable at English law has become increasingly at variance with the situation in Europe and most of the Commonwealth and United States. The courts of England are not infrequently asked to consider pre-nuptial contracts, many of which are drawn up in jurisdictions where they are valid and enforceable. The parties to such contracts come to the English courts knowing that the court will not without more uphold their agreements; knowing too that the agreement may be taken into account, but not to what extent. The uncertainty thereby engendered is stressful, costly and counterproductive and this has been increasingly recognised by the courts and the government.

The history of the judicial and governmental attempts to address this situation is chartered in the judgments of their lordships in the Court of Appeal and is not repeated here, save to note that there is broad agreement among senior judges with knowledge and experience of matrimonial property law that a legislative solution is required. In June 2008, the Law Commission announced a review, scheduled to commence late in 2009, of the enforceability of agreements between spouses or civil partners made before or after the marriage/civil partnership. A report and draft bill are expected late in 2012.

It was in this context that Baron J heard Mr Granatino’s claim for ancillary relief in 2008.   Baron J gave a careful overview of the development of the law on pre-nuptial agreements, charting what Wilson LJ in the Court of Appeal  described as “the well-worn map” of the route traversed by the courts in moving from suspicious disregard of any pre-nuptial contract to the present juncture at which such an agreement is taken into account as a circumstance of possibly decisive weight – particularly where there is a foreign element at play. 

Baron J, although her account of the law could not be faulted, and although she referred to the pre-nuptial contract as a factor in exercising her discretion under section 25, gave it what the Court of Appeal considered to be insufficient weight in her eventual award.  She had downgraded the relevance of the contract based on the following five considerations:

  • lack of independent legal advice to Mr Granatino;
  • no disclosure by  Ms Radmacher of her assets;
  • no negotiations;
  • manifest unfairness in depriving Mr Granatino of all claims, even in the event of need;
  • two children were born to the marriage.

The Court of Appeal took issue with the judge’s assessment of each of these considerations:

  • Independent legal advice, though always desirable and often necessary as an indication that a party entered into the agreement with knowledge and understanding, was not critical in this case because the husband had ample opportunity to seek such advice but chose not to do so, notwithstanding being encouraged to do so by the German notary who drew up the contract;
  • The parties’ choice not to disclose their assets to each other was not fatal, because it was not causative of the contract  – in other words, there had been no suggestion that the husband would not have entered the contract had there been full financial disclosure;
  • The absence of negotiation was considered irrelevant in a context where both parties had clearly regarded their entry into such a contract as a matter of course;
  • Nor was the birth of the girls in itself a factor as this was not an unexpected development in any marriage, and the contract had no effect on what would be required in the way of funds to be provided for the husband for the benefit of the girls;
  • Making adequate provision for the girls and for their father’s financial capacity to care for them would more than cater for his present financial exigencies, with the result that the contract could not be regarded as “manifestly unfair” in its application.

Accordingly, the Court of Appeal set aside the order of Baron J and substituted it with an award which gave decisive weight to the pre-nuptial contract, with the result that the amounts awarded to the husband were geared to his responsibilities as father of the two daughters in common, and came to an end on the younger daughter’s 22nd birthday. By that stage, some 15 years hence, the father, whom it was considered had considerable earning power, would have had a generous period of time within which to become fully financially self-sufficient. (For a helpful summary, see paragraph 81 per Rix LJ.)

Between the judgment of Baron J and that of the Court of Appeal, the Board of the Privy Council had handed down judgment on appeal from the Isle of Man in Macleod v MacLeod [2008] UKPC 64. The Board comprised Lord Scott, Lord Walker, Baroness Hale, Sir Henry Brooke and Sir Jonathan Parker.  It was concerned with a post-nuptial agreement regulating the matrimonial property consequences of a couple’s marriage and divorce, but the Board, in a judgment delivered by Baroness Hale, made important obiter statements about the state of the law on pre-nuptial contracts. 

The Board considered that it was not open to them to reverse the rule that pre-nuptial agreements are not contractually binding, and expressed the view that “the difficult issue of the validity and effect of ante-nuptial agreements is more appropriate to legislative rather than judicial development” (per Baroness Hale at paragraphs 31 and 35).  Notwithstanding their somewhat muted acknowledgment of increasing calls for legislative recognition of pre-nuptial agreements, the Board remained sceptical as to the merits of pre-nuptial, as opposed to post-nuptial agreements: 

“There is an enormous difference in principle and in practice between an agreement providing for a present state of affairs which has developed between a married couple and an agreement made before the parties have committed themselves to the rights and responsibilities of the married state purporting to govern what may happen in an uncertain and unhoped for future…”  (at paragraph 35 per Baroness Hale).

The Board went on to say:

“Post-nuptial agreements, however, are very different from pre-nuptial agreements. The couple are now married. They have undertaken towards one another the obligations and responsibilities of the married state. A pre-nuptial agreement is no longer the price which one party may extract for his or her willingness to marry.“  (paragraph 36).

The Macleod decision, while not binding on the Court of Appeal, is clearly of the highest authority, and was considered as such by the Court of Appeal.  Nevertheless, their Lordships in the Court of Appeal made it clear that they were not as negatively disposed to pre-nuptial agreements as were the Board in Macleod, and in particular, were politely sceptical as to whether there is really so sharp a distinction between pre – and post-nuptial contracts as the Board had identified (Thorpe LJ at 24-29;  Wilson LJ 125-128).

Hence, as far as the Court of Appeal were concerned, the approach of a court to a pre-nuptial agreement should be substantially the same as the Board recommended in the consideration of post-nuptial contracts at paragraph 42 of MacLeod:

“We must assume that each party to a properly negotiated agreement is a grown up and able to look after him- or herself. At the same time we must be alive to the risk of unfair exploitation of superior strength.”

Thorpe LJ at para 53 expressed the present state of the law, pending the report of the Law Commission, in the following terms:

“…in future cases broadly in line with the present case on the facts, the judge should give due weight to the marital property regime into which the parties freely entered. This is not to apply foreign law, nor is it to give effect to a contract foreign to the English tradition, It is, in my judgment, a legitimate exercise of the very wide discretion that is conferred on the judges to achieve fairness between the parties to the ancillary relief proceedings.”

It will be interesting to see whether the Supreme Court, in addressing the pre-nuptial agreement at issue in Radmacher, will view it with the suspicion presaged by Baroness Hale’s comments in Macleod, or whether it will be persuaded by the considerations articulated by the Court of Appeal.  In either event, the Court’s guidance on future cases involving pre-nuptial contracts pending the eventual commencement of new legislation will be anxiously awaited by matrimonial property practitioners and those whom they advise.