Coronavirus (COVID-19)—implications for financial provision cases

Coronavirus (COVID-19)—implications for financial provision cases

Family analysis: Philip Way, partner at Mills & Reeve, Sophie Groves, Director of Divorce & Family Law at Vardags, and Lisa Robertson, solicitor at Vardags, consider the potential impact of the coronavirus (COVID-19) on financial provision, including whether the principles in Barder may be applied in some cases.

How may the coronavirus impact on the payment of maintenance and capital provision where there are changed financial circumstances?

Philip Way (PW): The pandemic could impact on the payment of maintenance and capital in many different ways. Incomes derived from employment or investment are likely to be significantly altered at least in the short term. The court’s power to vary maintenance payments is likely to be widely used. However, where a capital settlement has been reached, the opportunities to re-negotiate are limited—there is power for the court to vary lump sums if they are payable by instalments, but the ability to set aside a capital order is used very sparingly. This is considered below as to whether the pandemic is likely to be seen as a Barder event (per Barder v Barder (Caluori Intervening) [1987] 2 FLR 480).

Sophie Groves and Lisa Robertson (SG and LR): Where COVID-19 has impacted on financial circumstances, we are likely to see far more applications being made to vary downwards any spousal maintenance due to a significant change in circumstances. Businesses in particular may be severely impacted by the virus—if share capital is significantly reduced, there will be less liquidity in the business, which may lead to a delay in capital payments being made. Some companies may even go bankrupt, leaving the current maintenance and capital provision arrangement impossible to meet.

Should clients be advised about withdrawing open offer letters that are based on pre-coronavirus (COVID-19) market valuations in light of the coronavirus pandemic?

PW: Yes. It would be good practice for solicitors to review all live cases and consider whether any offers made, either on an open or a without prejudice basis, should be withdrawn.

SG and LR: Open offers should certainly be reviewed swiftly to determine whether they are still appropriate in light of the pandemic. Once an offer has been accepted, there could potentially be an agreement which the parties may be held to. If a party has made an offer and subsequently lost their job, or been asked to take extended periods of unpaid leave, or if there are concerns that the value previously placed on assets will now be far lower, consideration should definitely be given to whether an open offer should be withdrawn. We must be aware that offers which were good for a client three weeks ago may suddenly become extremely disadvantageous and very attractive to the other side. It is therefore important to act quickly to review open offers to ensure that they remain realistic in light of the new circumstances.

Where parties enter into agreements before or during the coronavirus pandemic, what, if any, safeguards can be built into consent orders to protect clients?

PW: Parties will have to be clearly advised as to the risks they are taking if they proceed with agreements until the future is clearer. Safeguards can be considered on a case by case basis, for example:

  1. where there is ongoing maintenance, this could be expressed as an absolute sum or a percentage of the payer’s defined income whichever is the lower

  2. where a capital payment is being contemplated, a reverse payment could be ordered to be made by the receiving spouse if the paying spouse’s assets were less than a specified sum by the time the order was implemented—the same arrangement could be contemplated if there was a significant change in the value of a pension between the date of the agreement and the date of implementation of a pension sharing order

SG and LR: Safeguards for the party making payment may include building review clauses into the consent order, for example, the order could specify that, if the paying party is made redundant or their earnings drop below a certain level, maintenance will be reduced. A bar under section 28(1A) of the Matrimonial Causes Act 1973 would also be beneficial to prevent the extension of the maintenance term. Further, it may be beneficial to discuss the use of percentages of assets rather than specific figures, given that the value of many assets is decreasing at this time. However, it is important to bear in mind that there is always a risk that the values could increase and therefore a percentage approach may end up being to the paying party’s disadvantage. To protect the non-paying party, it could be made clear in the consent order that the agreement was reached at a time when both parties had knowledge of the crisis and that the agreement was made with that in mind. To that end, COVID-19 should be recorded on the face of the order. Further, where there is a business involved which may be impacted by COVID-19, it could be recorded that steps will be taken to protect the business so far as is possible, such as making sensible decisions in relation to employee furlough and, where applicable, ensuring that the initiatives of the Chancellor of the Exchequer in relation to available funds are taken up as soon as possible.

Is the coronavirus pandemic likely to be seen as a Barder event?

PW: The four conditions which have to be satisfied for a financial order to be set aside were established in the House of Lords decision in Barder and are:

  1. a new event must have occurred that invalidates the basis or fundamental assumption on which the order was made

  2. the new event occurred within a relatively short time of the order—while no precise limit was set down by the House of Lords, it was said that it would be 'extremely unlikely' that it could be as much as a year and in most cases will be 'no more than a few months'

  3. the application for leave to appeal out of time should be made reasonably promptly, and

  4. the grant of leave to appeal should not prejudice third parties who have acquired interests in property in good faith for valuable consideration.

When contemplating whether the coronavirus pandemic is likely to be seen as a Barder event, arguably the most relevant precedent at which to look is the Court of Appeal decision in Myerson v Myerson [2009] EWCA Civ 282, [2009] 2 FLR 147.

The parties in Myerson entered into a consent order on 19 March 2008 which divided the matrimonial assets as to 57%:43% in favour of the husband. By the time the husband’s application to set aside was lodged, the effect of the consent order was to alter this ratio to 14%:86%, and by the time of the hearing in the Court of Appeal, the ratio was -5.2%/105.2%. The husband asserted that forces within the global economy and the collapse in the share price of his company had rendered the consent order both unfair and unworkable and that this was sufficiently dramatic to fall within the principles set out in Barder.

As with every case, Myerson was highly fact specific. It was, for example, highly relevant to the decision of the Court of Appeal that the husband was able to pursue a variation of the quantum of the lump sums which remained payable to the wife by instalments. However, central to the decision as to whether to permit the husband to set aside the order was Thorpe LJ’s citation of Hale J’s (as she was then) decision in Cornick v Cornick (1994) 2 FLR 530. There, Hale J found three possible causes of a difference in the value of assets:

  1. an asset which was taken into account and correctly valued at the date of the hearing changes value within a relatively short time owing to natural processes of price fluctuation—the court should not then manipulate the power to grant leave to appeal out of time to provide a disguised power of variation which Parliament has quite obviously and deliberately declined to enact

  2. a wrong value was put on that asset at the hearing, which had it been known about at the time would have led to a different order, and provided that it is not the fault of the person alleging the mistake, it is open to the court to give leave for the matter to be reopened—although falling within the Barder principle this is more akin to the misrepresentation or non-disclosure cases than to Barder itself

  3. something unforeseen and unforeseeable had happened since the date of the hearing which has altered the value of the assets so dramatically as to bring about a substantial change in the balance of assets brought about by the order where, provided that the other three conditions are fulfilled, the Barder principle may apply—however, the circumstances in which this can happen are very few and far between and 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 Cornick, the value of the husband’s shareholding had soared since settlement. Hale J rejected the wife’s application to set aside, saying: ‘Nothing has happened since then other than a natural albeit dramatic change in the value of the husband's shareholding.’

Thorpe LJ found that this and other citations clearly pointed to the dismissal of the attempt of the husband in Myerson to set aside the order.

The particular questions that arise when considering whether the Coronavirus pandemic represents a Barder event are these:

  1. whether the pandemic is unforeseen and unforeseeable, so as to be distinguishable from the financial crisis of 2008, and

  2. whether the economic impact of the pandemic on a party to a matrimonial order is such so as to take their position beyond the natural processes of price fluctuation, however dramatic

The husband in Myerson found the court unsympathetic to his plight in March 2009. There might just be a party to a recent order who feels that the effect of the pandemic on their particular circumstances merits an attempt at set aside but they will have to be bold.

Interviewed by Pietra Asprou.

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