If I could turn back time…
Date: 14 May 2009
Authors: Sarah Whitten
Issue: Vol 159, Issue 7370
Categories: Features, Family, Divorce
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Although it is relatively straightforward to make an application to vary a periodical payments order, as the recent case of Myerson (Myerson v Myerson [2009] All ER (D) 05 (Apr)) illustrates, it is far more difficult to re-open capital settlements.
Under s 31 of the Matrimonial Causes Act 1973 (MCA 1973) the court can vary, discharge or suspend any provision for periodical payments including a secured periodical payments order. The court must have regard to all of the relevant factors under MCA 1973, s 25 including any change in those factors since the date of the original order. A husband who is made redundant and who cannot meet his obligations under an order should issue his application promptly.
The court has the power to backdate a variation to a date prior to the application. However, such power is sparingly used and most variations will only be backdated to the date of the application (S v S [1987] 2 All ER 312).
Any application to enforce arrears of maintenance by way of judgment summons will be adjourned pending resolution of a variation application (Corbett v Corbett [2003] 2 FLR 385). However, there may be other ways in which arrears can be enforced in the meantime (for example by way of Garnishee Order).
Downwards variation
In Mubarak v Mubarik [2004] 2 FLR 932, [2007] All ER (D) 28 (Nov) the husband made an application for a downwards variation of periodical payments. There were substantial arrears, in addition to which he had failed to pay the wife a lump sum of about £5m. The wife argued that the husband was not entitled to have his variation application heard as he was in contempt of court. Following Hadkinson v Hadkinson [1952] 2 All ER 567 and Baker v Baker (No 2) [1997] 1 FLR 148 the court held that the husband's contempt gave the court a discretion to refuse to hear his application or to impose conditions upon him (which he did).
Although a failure to pay amounts to a contempt (whether or not the debtor has the means to pay), the nature of the contempt and any element of wilfulness is relevant to how the discretion should be exercised (Bodey J in Mubarak v Mubarik [2007] 1 FLR 722). The discretion to make a Hadkinson order would be used in an “exceptional and unusual case” not as a matter of routine.
A City husband who is no longer in receipt of the substantial bonus to which he had become accustomed may find it tricky to obtain a substantial downwards variation if he has capital reserves built up from past bonuses. His former wife may argue that, having profited from his bonuses during the good times, he should be expected to utilise the capital he has saved during the downturn.
Lump sums
The court has the power to vary a lump sum payable by instalments as to amount or timing under MCA 1973, s 31. In current times it is likely that courts may be sympathetic to a husband who needs more time to make a payment to his former wife. He may have anticipated that assets would sell easily or that he would be able to borrow easily at the time he agreed to pay a lump sum by instalments. However, the power of the court to reduce a lump sum is one the court will be slow to use (Penrose v Penrose [1994] 2 FLR 621).
A deferred lump sum cannot be varied under s 31. Conventionally it has also been thought that if an order is expressed to be for a series of lump sums this cannot be varied. However, in Lamont v Lamont (13 October 2006 unreported) the court said that a series of lump sum payments was effectively the same as a lump sum payable by instalments. It could also be vulnerable to variation under s 31. Practitioners should warn clients that there is no absolute guarantee that a lump sum cannot be varied where lump sums are ordered in a series as a drafting mechanism to avoid s 31.
Those who seek to vary the instalments of a lump sum as to timing or quantum should make their application promptly. The judgment rate applies to unpaid lump sums from the date of the order. At 8% for High Court debts this offers a return unrivalled in the market.
Financial crisis
Brian Myerson recently sought to persuade the Court of Appeal (Myerson v Myerson [2009] EWCA Civ 282, [2009] All ER (D) 05 (Apr)) that the impact of the global economic crisis on his own financial position and liquidity had destroyed “the basis or fundamental assumption” upon which his consent order was made in March 2008. He argued that the drop in share prices and house values were new events under the test in Barder v Calouri [1987] 2 WLR 1350, [1987] 2 All ER 440. He sought leave to appeal the original order out of time.
In Barder the suicide of the wife and killing of the children within weeks of the court order was found to be a new event which invalidated the basis on which the order had been made, so that any appeal was certain or very likely to succeed. Leave to appeal out of time was granted. It was held that where an application is made for leave to appeal out of time an order on the basis of a new event, the court will only grant the application if certain conditions are met. These were that the new event had occurred within a relatively short time of the order, the application for leave to appeal was made reasonably promptly and the grant of leave to appeal out of time would not prejudice third parties who had acquired, in good faith and for valuable consideration, an interest in the property which was the subject matter of the order.
In Myerson the husband argued that, as a result of the recession, if the order were implemented in full he would end up with negative assets. This was less than thirteen months after the date of a consent order which had been intended to leave him with 57% of the assets (then valued at £25.8m). The Court of Appeal rejected Mr Myerson's application. The court agreed with Hale J in Cornick v Cornick [1994] 2 FLR 530 that the “natural processes of price fluctuation, whether in houses, shares or any other property, and however dramatic, fall within this principle”. The Court of Appeal will not allow litigants to use the current economic climate as a means of reopening capital orders. Very few cases pass the Barder test.
Although Mr Myerson failed in his attempt to set aside the original order, he has an outstanding application to vary the instalments of the lump sum which may yet be successful.
Renegotiation
Clients must also be advised that renegotiating an agreement will be extremely difficult even if they seek to do so before an order is actually made. Formal agreements, properly and fairly arrived at with competent legal advice, are generally given effect by the courts, unless there are good and substantial grounds for showing that injustice would be done by holding the parties to their agreement or there has been material non disclosure (see Edgar v Edgar [1981] 2 FLR 19, Xydhias v Xydhias [1999] 1 FLR 683 and McLeod v McLeod [2008] UKPC 64 for recent judicial comment on the upholding of agreements.)
The current economic climate means that courts are likely to be especially sympathetic to the argument that both husbands and wives should be expected to share in the safer and more risky assets that they have at the breakdown of their marriage. In Wells v Wells [2002] 2 FLR 97, All ER (D) 312 (Mar) the Court of Appeal looked at a case where the husband had a majority shareholding in his own company whose fortunes had dipped by the time of judgment in the ancillary relief case. The court stated that: “the separation of the family does not terminate the sharing of the results of the company's performance. That is easily achieved in any case in which the wife's dependency is met by continuing periodical payments. It is less easy to achieve in a clean break case. In that situation, however, sharing is achieved by a fair division of both the copper-bottomed assets and the illiquid and risk laden assets.” Those observations are particularly relevant today.
In the past husbands such as Mr Myerson may have been keen to keep control of their own companies and be content to retain speculative assets. They would have been confident that it was unlikely that their ex-wives would benefit from future windfalls where there had been a clean break (assuming that there had not been any material non-disclosure).
Cornick
In Cornick v Cornick the district judge made a lump sum order, which gave the wife 51% of the capital assets plus periodical payments. Shortly after the order the husband's company shares increased in value dramatically so that the wife's lump sum represented only 20% of the net assets. The wife sought leave to appeal out of time on the grounds that the increase in the value of the shares was a new event which justified the reopening of the case. The appeal was dismissed. The value of the assets had changed dramatically leading to a substantial change in the balance of assets but only as a result of natural processes of price fluctuation. Parties should not seek to profit or lose by later changes in fortune once they were divorced and their capital divided. The wife could seek a variation of her periodical payments under s 31 but the court should not manipulate the power to grant leave to appeal out of time to provide a disguised power to vary a lump sum, which had “quite obviously and deliberately” not been granted by Parliament.
Although some husbands prefer to spread the risk when dividing their assets, others such as Mr Myerson, have decided that they would rather continue to be “captain of the ship certain to keep for himself whatever profits or gains his enterprise and experience would achieve in the years ahead”. Practitioners should warn such clients that the courts will not throw them a lifejacket if their ship strays into choppy waters.
Sharing risk
As a result of Myerson husbands may well choose to be less bullish and expect their spouses to share the risks. This may mean that fortunes are joined for a longer period of time than might have been the case. There may be more cases in which the parties continue to share interests in companies after their divorce. Wives who might have been able to negotiate clean breaks may no longer be able to do so. Alternatively husbands who agree to keep intact their speculative interests may expect a substantial discount in the amount their wife receives by way of cash or property adjustment if she is receiving the lion's share of the “copper bottomed assets”.
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