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COVID-19: How final is a financial order in family proceedings?

Posted on 23 April 2020

UPDATE: Since this article was published in April 2020, the Court has considered whether COVID-19 could be a Barder event in the cases of FRB v DCA (No. 3) [2020 EWHC 3696 (Fam) and HW v WW [2021] EWFC B20. See below for further details.

A final financial order between divorcing spouses or civil partners is usually a "full stop" following negotiation or a court decision. There is a strong public policy reason for this: once a dispute has been finally determined (by agreement or order) the parties can start, or continue, to move on with their lives.  

However, the economic impact of the COVID-19 pandemic may radically alter the position of one or both of the parties and lead them to consider whether their financial order can be reopened.  

Maintenance is variable

Both spousal and child maintenance orders are variable as to the amount payable. For example, should the paying party lose their job or otherwise suffer a significant reduction in their income, they may be able to obtain a court order reducing the level of maintenance they must pay, or, where the payments are made following an assessment by the Child Maintenance Service, a fresh assessment.

The term (time period) for payment of maintenance can also be varied, though it is not always extendable. The order may specify that there is a bar to extension under section 28(1A) of the Matrimonial Causes Act 1973 (known as a "section 28(1A) bar").

Lump sums payable "by instalments" are variable

Generally capital awards such as lump sums or property transfer orders are not variable. However, lump sums payable by instalments are a statutory exception to the rule and can be varied in limited circumstances.

It is important to note the distinction between: (i) a series of lump sum payments (e.g. W will pay H £100,000 by 30 June 2020 and £200,000 on completion of the sale of property X) and (ii) a lump sum payable by instalments (e.g. H will pay W £300,000, with £150,000 to be paid by 30 June 2020 and the remaining £150,000 to be paid by 31 December 2021). Only a lump sum payable by instalments is variable. Such orders are less common now, precisely because they are variable. Most modern orders with multiple lump sum payments explicitly state that they are not a lump sum by instalments. Where the order is not explicit as to categorisation, the context has to be considered.

In extremely rare cases the court may set aside a final order and make a new order if the basis of the original order has been fundamentally undermined by a subsequent event.

The circumstances in which the court will exercise this power are extremely rare.

Events which lead to the successful re-opening of cases are known as "Barder" events. In the 1988 case of Barder v Caluori, a financial award to meet the wife and children's needs was fundamentally undermined by the death of the wife and children in a matter of weeks after the final order had been made.

For an application to set aside a final order to succeed, four conditions must be met:

  1. There must have been a new event which has fundamentally undermined or invalidated the basis of the original order;
  2. That event must have occurred within a relatively short time after the order was made. There is not a fixed period, but in most cases it will be no more than a few months;
  3. The application to set aside must be made promptly; and
  4. A third party who has, in good faith and for good consideration (payment), acquired an interest in relevant property must not be prejudiced.

Could the economic consequences of the COVID-19 pandemic constitute Barder events?

A significant change in the value of assets will not ordinarily constitute a Barder event.

Mrs Justice Hale, stated in Cornick v Cornick that "The case-law, taken as a whole, does not suggest that the natural processes of price fluctuation, whether in houses, shares or any other property, and however dramatic, fall within this principle."

In Myerson v Myerson, a case decided in the aftermath of the 2008 financial crisis, the husband's shares had fallen in value by 90% but the Court of Appeal dismissed his appeal to set aside. Whilst the Appeal Court judges did not go as far as to rule that a dramatic increase or decrease in the value of a key asset would never be sufficient, successful Barder applications are incredibly rare and the decision in Myerson is a counter argument to an application to set aside on economic grounds.

One of the factors that has to be considered on a set aside application is whether the event in question was foreseeable. The more foreseeable it was, the more difficult it will be to persuade a court to set aside the order. There could well be some interesting arguments as to foreseeability in the context of COVID-19. Given that the relevant event must have occurred a relatively short time after the order, there could be arguments as to whether it became foreseeable, for example, when the novel virus was first reported at the end of 2019, when Wuhan was placed in lockdown, when cases surged in Italy or when Prime Minister Johnson first announced lockdown measures here.

The court may have "natural sympathy" for parties who have gone through the turmoil of relationship breakdown with the associated financial fall-out and emerged with a final order only now to be facing huge economic pressures which they did not (and perhaps could not) have anticipated. However, it is public policy that finality to litigation (of any type, but particularly within families) is important, and not lightly trumped by alternative considerations. So, whilst we expect some cases to be litigated on Barder grounds it seems highly unlikely that significant numbers of financial orders will be unravelled and re-litigated.

Strike out

Parties opposing a Barder application may gain some comfort from the fact that cases brought without reasonable grounds or that are considered an abuse of the court's process may be struck out by the Court.

This power to strike out was deployed in the 2013 case of T v M. The husband brought an application to vary maintenance payments just four months after a final order was made (albeit in that case the husband claimed that the wife had continually concealed the true level of her earnings, rather than that some intervening event had altered the position). Not only was the husband's application to vary the maintenance order struck out, he was also ordered to pay the wife's legal costs.

However, as the Supreme Court made clear in Wyatt v Vince, the bar for striking out cases is high. In family proceedings, unlike in civil proceedings, there is no power to grant summary judgment. So the question for the family court is not whether the case has a real prospect of success, but whether it has no reasonable grounds; it will be more difficult to persuade the court of the latter.

The family court must consider all the circumstances of each case when exercising its discretion, so whether any of the above will be appropriate or successful avenues will depend on the facts of the individual case.

Practical guidance for COVID-19
Read the latest COVID-19 related updates on our hub.

Update:

In both cases, following the outbreak of the COVID-19 pandemic, the husbands applied to set aside final orders.

In FRB v DCA (No. 3), the husband's failure to provide the court with the crucial evidence to support his argument as to the impact of the pandemic on his assets proved fatal. The case of HW v WW warrants further consideration.

In HW v WW, the husband applied to set aside a final order, pursuant to which inter alia he was to pay the wife a series of lump sums totalling £1 million and she was to transfer her shares in a family company to him. The husband alleged that the value of the family company had plummeted due to the impact of the pandemic. The company in question trades in the wholesale distribution of commercial photocopiers, printers and associated computer software solutions and so was impacted by the move to home working (amongst other challenges). However, HHJ Kloss concluded "not without some hesitation" that when the settlement was reached in mid-March 2020, the risk to the company was reasonably foreseeable (albeit the "full extent of the impact plainly wasn’t, but that is not required").

Refusing the husband's application, HHJ Kloss ruled as follows: "Fairness doesn’t come into it, save in regard to the limited lifebelt that Barder provides. There will be a great many cases where a review of circumstances 12 months post final order betrays an outcome that is hard on one or other party, but that does not mean that it wasn’t fair at the time that the order was made. There will be a hard outcome for one or other party, whatever decision I make on the set aside application."

HHJ Kloss concluded that the COVID-19 pandemic is a potential Barder event. However, he stated as follows "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".

HHJ Kloss noted that the structure of the settlement resulted in the wife receiving the "copper bottomed" assets, providing her and the parties' dependent daughter with security, whilst the husband was "wiped out of liquid assets" but had benefit of the family company as a "cash cow for the long term". He ruled that "The Husband chose for himself the path of greatest personal risk, which was projected to lead to the greatest personal reward… 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."

This settlement structure is very common in practice and has its strong attractions, but this case serves as a pertinent reminder that with the potential reward comes the risk.

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