Financial Remedy Update – Claire Athis Schofield and Liam Kelly

Given the ‘unprecedented’ changes wrought on many lay clients’ financial situations by the ongoing Covid-19 public health restrictions, we thought it would be useful for readers to have a summary of case law to assist those seeking to vary Final Financial Remedy Orders with reference to the negative impact of the pandemic on their clients’ finances.

Applications to vary:

If the final order included periodical payments for the benefit of the children or other party, or a lump sum payable by instalments, then there is a statutory right to apply to vary the order under Section 31 Matrimonial Causes Act, 1973 (S31 MCA). Upon such application, the court will have regard to all the circumstances of the case including “any change in any of the matters to which the court was required to have regard when making the order to which the application relates”. Thus, clients will be able to explain to the court the impact of Covid 19 upon their financial circumstances and it will be taken into account.

However, that does not mean that the global pandemic will trigger a nominal spousal maintenance order being made substantive. The wife in AJC v PJP [2021] 1 WLUK 566 was refused such an application with the Judge determining that (in paragraphs 42 and 43 of the Judgment):

“Misfortune or unexpected developments in life is the nature of life… Sometimes those misfortunes or unexpected developments arise from, compounded or accentuated from, the foundation or circumstance of a past relationship. I could see why in those circumstances there might be a justification for a nominal order being made into a substantive order.... However, where misfortune or unexpected developments have absolutely nothing to do with having been in a married relationship a decade earlier then in my assessment it is in 2021 no longer part of the policy and practice of our family law that one spouse should be responsible for the other.

Losing a job through the consequences of the virus when one had a job at the time of settlement a decade earlier cannot be ascribed to relationship generated disadvantage or even a loose causal connection… This court is of course sorry to hear of the circumstances of the former wife as it is of everyone who is in financial difficulties as a consequence of this most appalling development in the life of our planet. It is of all events thoroughly unexpected. However, a nominal spousal maintenance order made almost a decade earlier is not the basis for coming back to court to ask for a short-term financial support provision from the paying party who has not paid anything over that period and is quite probably himself facing his own financial difficulties”

Capital orders:

However, S31 MCA does not apply to a capital order (transfer of property or lump sum order); there being no statutory route to vary a capital order; no such opportunity to undermine the finality of litigation between the divorcing parties has been considered appropriate by Parliament.

The circumstances in which final orders within financial remedies proceedings can be altered or set aside are extremely limited (outwith the presence of ‘vitiating factors’ such as fraud and duress). Would the unexpected financial impact of Covid 19 on one party be considered as a ‘Barder’ event?

Barder v Barder [1988] AC 20.

In 1985 Mr Barder successfully appealed out of time against the consent order which had transferred his former family home to his wife absolutely. The Barders had two children, and five weeks after their final order had been perfected, Mrs Barder unlawfully killed both of the children and then committed suicide herself. The only beneficiary of Mrs Barder’s estate was her mother, who had no pressing need for the house. Mr Barder’s appeal was allowed on the ground that the original order had been made on the fundamental assumption (an implicit assumption - it was not recorded at the time) that Mrs Barder and the children were going to need the former marital home for some years, and that fundamental assumption had been vitiated by subsequent events.

There were further appeals to the highest level. The House of Lords confirmed that Mr Barder’s order would be set aside, but made it clear in its judgment that this was not an invitation to open the floodgates to further cases. Arising from this case the very specific concept of a ‘Barder event’ was born:

A new event which invalidates the basis, or fundamental assumption, upon which the final order was made

The supervening event happened shortly after the making of the order (within a few months)

The application to set aside the order is made promptly

Set aside will cause no prejudice to third parties who have acquired interests in property in good faith for valuable consideration

As the extremely tragic nature of the facts in Barder may suggest, it is a relatively rare application which succeeds in persuading the court to follow this particular precedent, however, it has been done in the cases listed below:

Critchell v Critchell [2015] EWCA Civ 436

The final order in this case transferred the former family home to Mrs Critchell, but subject to a Mesher order in favour of her husband. Within one month of this order being made, Mr Critchell came into a substantial inheritance and wife argued that this was a ‘Barder event’. The court agreed with Mrs Critchell, finding that the husband’s future housing need, which had been a fundamental assumption of the final settlement and addressed by the Mesher order, was now met through his inheritance and his charge over the family home was, therefore, extinguished.

Nasim v Nasim [2015] EWHC 2620 (Fam)

A final order was made which awarded a 70% share of the value of the family home to Mrs Nasim, partly on the basis of her role as primary carer of the children, aged 13 and 10 years. Six weeks after this final order there was an ‘incident’ between Mrs Nasim and the older child, which lead to, firstly, the criminal prosecution for assault (and conditional discharge) of the mother and, secondly, the change of the children’s residence to live with their father. This was found to be a Barder event, leading to the setting aside of that order with the suggestion that a 50:50 division of the family home would be more appropriate in the new circumstances.

Needs vs Sharing:

Common to both the above successful applications was a factual matrix where, like the original case of Barder, needs-based awards were made and then, shortly afterwards, the needs in question had, unexpectedly, disappeared.

What then of sharing-based awards where events subsequent to the final order had radically affected the shares awarded?

Cornick v Cornick (No.1) [1994] 2 F.L.R. 530

In Mrs Cornick’s proceedings, the district judge had made a lump sum order, giving her 51% of the capital assets. Shortly afterwards Mr Cornick's company shares increased in value enormously, so that wife's lump sum represented only a 20% share. Mrs Cornick sought leave to appeal out of time on the grounds that the increase in the value of the shares was a supervening event which justified the reopening of the case.

However, Mrs Cornick was unsuccessful: in order to qualify as a ‘Barder event’ the supervening occurrence (that is the rise in the value of the shares) had to be both unforeseen and unforeseeable. The court was of the view that parties should not seek to profit by later changes in fortune once they were divorced and their capital divided.

Myerson v Myerson No 2 [2010] 1 W.L.R. 114

The other side of the coin was considered in the Myerson case, in the context of the devastating impact of the 2008 global financial crisis in circumstances most closely aligned with the ongoing financial impact of Covid 19.

At the time of Mr and Mrs Myerson’s Financial Dispute Resolution Hearing in March 2008, their assets were valued at £26 million. It was agreed that wife would receive a 43% share (largely in cash) and husband would retain a 57% share (largely in shares in one Company worth, at the time, £2.99 each). A year later, post-crash, Mr Myerson’s Company shares were worth only 27.5p each, radically altering the capital division to 14% to husband and 86% to wife. Mr Myerson argued that the forces within the global economy and the collapse in the company's share price constituted a new event which undermined the basis upon which the original consent order was made.

Husband’s attempt at a ‘Barder event’ appeal was dismissed. Although extreme in extent, the court found that the fall in the share price was ‘a natural process of price fluctuation’, and not an unforeseeable event. Essentially Mr Myerson had made a business appraisal and taken a speculative position and the court should not subsequently relieve him of what had turned out to be a bad bargain.

Of note in this case was the fact that the payment of the lump sum to Mrs Myerson was spread over five instalments of which £2.5 million was left to pay, so Mr Myerson was able to invoke the statutory power of variation, which could enable his needs to be met.

Covid 19 Case Law:

The reported cases to date suggest that the Courts are determined to take a similarly restricted view on the impact of Covid as they did about the Global Crash of 2008. There are two cases from which we can draw conclusions:

FRB v DRC (No 3) [2020] EWHC 3696 (Fam)

FRB v DRC (No 3) was not strictly speaking a Barder application as the Husband was applying to vary the quantum of lump sums by instalments and, relying on the Court of Appeal’s dicta in Westbury v Sampson [2002] 1 FLR 166, Cohen J noted that the Court had ‘a little more latitude… than.. the Barder conditions’ but his reformulated explanation of the Court’s discretion was: ‘it would be exceptional for the court to vary the quantum of lump sums in circumstances markedly different to those that would justify a Barder variation’.

Cohen J declined the Wife’s invitation to summarily dismiss the Husband’s application as an ‘obvious attempt to vary a very recent order’, specifically referencing Covid 19 in his comment that ‘this application is set against the background of world events, which give what could be respectability to the argument’. However, the learned Judge went on to lament the lack of particularised evidence to support the Husband’s application for set aside, stating that ‘in my judgment it is not proper for the court to accede to H's application to vary the quantum on macro-economic grounds’. On the generalised position which the Husband put forward (which seemed to be essentially ‘I have business interests in hotels and airlines, which have been negatively affected by Covid 19 therefore I want to pay my Wife less’), Cohen J determined the following:

“I have also considered the topsy-turvy financial times in which we now live. The major stock market indices are now at a high level and have rebounded to above their pre-Covid-19 levels. A valuation done today would inevitably be even more speculative than that done in a pre-Covid time. It would almost certainly be overtaken by events in the period before a further hearing in about 9-12 months' time. Most commentators believe that at some stage within the next couple of years the world economy will be back to where it was. It is essential to view H's application in the long term as well as in the short term.

Having read and heard what is said on behalf of H and considered the factors mentioned, I have come to the view that he has not shown a proper basis for reopening the award.”

HW v WW [2021] EWFC B20

In HW v WW [2021] EWFC B20 the Husband had fully particularised his case to the Court, which was heard over two days. Although the Final Order which was subject to the Husband’s set aside application also involved payment of lump sums by instalment, which he was seeking to vary downwards, he confirmed that he had ‘applied to set aside the Order in its entirety, on the basis that ‘circumstances that were unforeseen and unforeseeable have significantly changed the assumptions upon which the Order was made’ and he ‘cannot now meet the terms of the Order’. The Husband relies upon the alleged substantial change in the value of shares in the family company and in his ability to pay the lump sums ordered, flowing from the economic impact of the Covid 19 pandemic.’ At last, a true Covid 19 Barder application!

In relation to the foreseeability requirement HHJ Kloss relied on Mostyn J’s dicta in DB v DLJ [2016] EWHC 324 (Fam) (Paragraph 36):

‘The question is not whether a future event is literally incapable of being imagined. The capacity of homo sapiens to imagine fictive things is vast. The question is posed by the court standing retrospectively in the shoes of the actors and asking itself whether the then future, but by now past, event could reasonably have been predicted’.

The Original Final Order:

The Husband was the Managing Director of the parties’ jointly owned company which was a wholesale distributer of commercial photocopiers, printers and associated computer software. Husband was 53, Wife was 49 and it was a 24 year marriage, with three children of 21, 18 and 12 years of age. The parties had the benefit of an SJE Company valuation at FDR (which took place on 12^th March 2020) and their settlement was based on the Wife retaining slightly less than 40% of the marital assets with a clean break once the lump sums were paid (over a period of 2 years) but her assets (FMH, lump sums) were ‘copper bottomed’. The Judge noted that Husband had been wiped out of liquid assets and would have to fund his own housing needs by taking debt, but that he had willingly agreed to this outcome whereby he ‘retained the benefit of a business which had a high net value, which was backed up by hard assets including the business property and which was projected to give him a net income of £350,000 pa into the future’.

The Husband’s ‘Barder’ Application:

The Husband argued that although the Coronavirus pandemic was known about as at the date of the FDR, it was not foreseeable in March 2020 that Covid 19 would develop and endure as it has, or have the impact that it has. The Husband sought to distinguish himself from Mr Myerson stating that

“The impact on the Company, the business community and society as a whole takes the case outside of that of mere price fluctuation. The value of the Company has plummeted and the Husband is unable to pay the lump sums due. It has invalidated the basis upon which the Order was made.”

The Husband asserted in his statement in support of his set aside application that the company had suffered from a fall in turnover, lower profits, diminished value and was also facing liquidity issues and a bleak long-term future. He provided draft accounts and a re-valuation of the Company undertaken by the Company accountant as well as data from Infosource, a specialist information company for the copier/printer market, as to the state of the market generally.

However, cross examination of the Husband revealed that a recent application for bank borrowing by the company had been made on the basis of five year forecasts, which had not been disclosed (although they were subsequently provided). HHJ Kloss made the finding that Husband had been ‘giving one assessment and prediction to the Court and at the same time a different (and far more positive) assessment to the bank’. Further factual findings were made that ‘despite the fact that the Company was said by the Husband to be ‘desperate’, it has not had to utilise any of the debt facility offered by the bank whilst continuing to pay down capital on the commercial property mortgage’ and ‘the Company received a windfall of approximately £150,000 from one of its suppliers, based on sales commission. The Husband had put those funds aside in a Company deposit account…, where they have remained to date, untouched throughout the crisis’.

The Court’s overall assessment of the Husband’s evidence was that it ‘was left with the general impression that his anger and frustration had lead him to present a picture now which was partial.’

Wife argued that the financial impact of the Covid 19 pandemic falls within the definition of ‘natural processes of price fluctuation’, submitting that every ‘price fluctuation’ has a cause, as was found in the case in Myerson, and that this fluctuation is no different.

The Court’s Conclusions:

The Court did not accept the Wife’s case, stating that:

“The Covid 19 pandemic is an extraordinary event, different in nature and scale, to any similar world event in the lifetime of the parties. This is not an issue of market volatility which is periodically experienced, neither is it a national issue with predictable localised causes. It is akin to a war, with tentacles spreading across the world. I therefore find that in principle, the Covid 19 pandemic can open the door to a successful Barder claim.”

However, the Court did not accept this particular Husband’s case. It all came down to the issue of foreseeability, the crucial question being: ‘as at 12/3/20 (the date of the FDR) could the Husband reasonably have foreseen a risk that the Covid 19 pandemic might have a significant impact upon the trading position of the Company? The Court analysed in detail the ‘Coronavirus timeline’ from the first Covid 19 patients testing positive in the UK on 29^th January 2020 to the date of the FDR itself on which day the UK Government announced measures which would ‘cause severe disruption across our country for many months’ and France implemented a national lockdown. The Judge put himself in the Husband’s shoes, remarking that he was an experienced and successful international businessman, and found that ‘Husband agreed to the Order notwithstanding the context and events (of the Coronavirus timeline). He did not foresee it, but in all the circumstances I find that the event, as properly defined, was foreseeable. The full extent of the impact plainly wasn’t, but that is not required.’

Having found that the financial impact on the company of Covid 19 was foreseeable, the learned Judge in a ‘belt and braces’ approach went on to consider, in the event that the Court was wrong about that first issue, whether the scale of the impact was sufficient to meet the Barder threshold in any event.

A detailed analysis of the financial information before the Court was undertaken, against the backdrop of the finding that the Husband at FDR ‘chose for himself the path of greatest personal risk, which was projected to lead to the greatest personal reward’. HHJ Kloss opined that ‘If the business had involved, for example, the supply of PPE/thermometers/home office equipment and had increased in profitability and value, the Wife could not have sought an increase in her award. The gamble was taken by both parties.’ and the Court further noted ‘It is axiomatic that if a party chooses pressure and risk, it is a very steep hill to climb to avoid the downside of that risk.

The Court reminded the parties and practitioners alike (in paragraph 94):

‘The Barder threshold is deliberately set very high. There are sound public policy reasons why the finality of litigation is to be preserved, save in the most exceptional of circumstances. The fact that there has not yet been a tsunami of Covid 19 pandemic Barder applications before the Courts appears to suggest that exceptionality is still holding good, even in these difficult times, although I accept that cases may be in the pipeline and/or other remedies pursued.’

Conclusion:

The short time window set by the Barder conditions and the rapid development of the vaccination programme in the UK may mean that there are relatively few cases still ‘in the pipeline’. That remains to be seen, but what we can say for now is that it would seem the answer to the question ‘Is Covid 19 a Barder Event? is, at least for the present, ‘Not Yet’.