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Update - Is Coronavirus a Barder Event? (Part 2)

I ended my previous article on this subject last year by saying that we await the publication of Judgments upon Barder applications with baited breath. Is Coronavirus a Barder Event? (deanscourt.co.uk)

Well, we now have two cases to review and comment upon: the first was FRB v DRC (No 3) [2020] EWHC 3696 (Fam) in December 2020 before Cohen J (Bailii link: https://www.bailii.org/ew/cases/EWHC/Fam/2020/3696.html) and the second is more recent, HW v WW [2021] EWFC B20 heard in March 2021 before HHJ Kloss, in Leeds and arising from a Final Consent Order made even closer to home (Bailii link: https://www.bailii.org/ew/cases/EWFC/OJ/2021/B20.html).

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 clearly taken the earlier Judgment in FRB v DRC (No 3) into consideration. He 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!

The relevant case law was set out fully in my previous article, save for that 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 12th 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 [Myerson v Myerson No 2 [2010] 1 W.L.R. 114, see my earlier article] by 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 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 and British Airways suspending all flights to China on 29th January 2020 to the date of the FDR itself on which day our Prime Minister announced Government measures which would, in Boris Johnson’s words, ‘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.’

At paragraph 95 the Judge summarises his conclusions as follows:

a) The Covid 19 pandemic and its impact upon a key asset is a potential Barder event opening the door to set aside;

(b) The timing in this case of both the pandemic and the Husband’s application leave that door open;

(c) However, the risk of the event, as properly defined, was reasonably foreseeable to the Husband;

(d) In any event, an overall assessment of the impact of the pandemic and more general factors, leads the Court to exercise its discretion against the Husband.

The Court also reminded 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 Coronavirus a Barder Event?, is, at least for the present ‘Not Yet’!

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