Covid – Can A Family Court Order Be Set Aside?

BT v CU is another family law case which considers whether COVID is capable of being considered a “Barder event.”  FLiP Associate Vanessa Asante explores the case in detail in this blog. 

Barder events relate to rare circumstances in which new and unforeseeable events occur shortly after the making of a final order, such that the events invalidate the basis or fundamental assumptions on which the financial order was made. In such cases, the new set of circumstances could arguably be valid grounds to apply for the financial order to be set aside, including the capital provision awarded under the order which in normal circumstances is not capable of being varied. The case of Barder itself involved a sad situation in which an order was made by consent that the husband would transfer his interest in the family home to the wife, who provided the main care for their two children. However, 5 weeks after the order was made, the wife committed suicide and killed their two children. This event justified the set aside of the original order due to the unforeseeable nature of the events, and because the basis of the original order (which was intended to provide for the wife and children’s needs) was undermined.

In the case of BT v CU, the husband argued that his business had been adversely affected by the arrival of the COVID 19 pandemic. At first instance, the Judge had made an order that the husband was to pay the wife £950,000 as a series of lump sum payments to be spread over 4 years. Tapering spousal maintenance was also awarded, as well as the payment of the children’s school fees and a pension share in the wife’s favour. The husband was to retain his shareholding in his business which was involved in providing school meals. This was the most valuable asset and the division represented a 58% / 42% split in the husband’s favour.

The first instance judge had specifically recognized that there was an element of risk in the husband retaining the entirety of the shareholding, and this justified a departure from equality in his favour, particularly so as the shareholding was not comparable to cash in the bank. It was also noted that both parties had in their open offers accepted that the husband should retain his shareholding intact.

Five months after the final order was made, the country went into lockdown as a result of the COVID 19 pandemic and all schools were closed. The husband applied shortly thereafter to set aside parts of the final order on the basis that the pandemic was unforeseen and had damaging consequences for his business, such that he was unable to discharge his obligation to pay the remainder of the wife’s lump sum.

Mr Justice Mostyn, hearing the husband’s application for a set aside order, set out the conditions for an order to be capable of being set aside under the Barder principles:

1. New events have occurred since the making of the order invalidating the basis, or fundamental assumption, upon which the order was made. To this should be added that the event must have been unforeseeable.
2. The new events should have occurred within a relatively short time of the order having been made. It is extremely unlikely that could be as much as a year, and in most cases, it will be no more than a few months.
3. The application to set aside should be made reasonably promptly in the circumstances of the case.
4. The application if granted should not prejudice third parties who have, in good faith and for valuable consideration, acquired interests in property which is the subject matter of the relevant order.
5. The applicant must demonstrate that no alternative mainstream relief is available which broadly remedies the unfairness caused by the new event.

Mostyn LJ held that conditions 2-5 were satisfied. In expanding on condition 5, it was said that there were two potential routes open to the husband in this case. The first was that he could in theory apply for the financial order to be permanently stayed given that it was executory. In other words, the court had the power to decline to enforce the order it had made. Prior to the case of Barder, this could be done if, in the circumstances prevailing at the time of the application, it would be inequitable for the court to enforce the order. However, it was said that the case of Barder, with its much stricter conditions for setting aside an order, had superseded this route. In any event it was said that there is no power to make a different order in place of the original order under this first route which would not be helpful.

The second potential option was for the husband to apply under s31(2)(d) Matrimonial Causes Act 1973 on the basis that in reality the order for a series of lump sum payments could objectively be seen as payments of lump sums by instalment. Mostyn LJ corrected the prevailing view that under this statute, lump sums by instalment were variable as to the overall quantum. Instead it was said that the correct interpretation was that lump sums by instalments can only be varied so as to reduce the size of the instalments and extend the time for payment; however it does not operate to reduce the overall quantum (unless the circumstances of the case meet the Barder principles). This second option would not therefore assist the husband in the case of BT v CU, and furthermore, the Judge at first instance had made it very clear that her order was for a series of lump sums which were not capable of variation.

Despite meeting conditions 2-5 set out above, the husband’s case did not meet the first condition in respect of the Barder principles. The court was sceptical as to the accuracy of the evidence provided by the husband regarding the effect of the pandemic on the performance of the business. For example, over the Covid period, the net assets of the business had in fact increased from £939,000 to £1.2 million, and the cash at the bank increased from £830,000 to £1.8 million. The husband was able to avail himself of various government schemes which assisted the business during this period. No hard evidence was provided by the husband as to the negative impact of Covid on his business.

However, Mostyn LJ commented that even if his scepticism as to Covid’s impact on the husband’s business was misplaced, ultimately he did not accept that the events that caused these unwelcome movements in turnover and increased costs for the business were unforeseeable or that they had invalidated a fundamental assumption on which the order was based. He commented that at the time the order was made, a reasonable person would have said that there was certainly a chance, which could not sensibly be ignored, that in the next year there would be an economic downturn which would have the effect of reducing turnover and increasing costs. It mattered not that this economic downturn came as a result of Covid.

The case of Myerson v Myerson (no 2) was cited. In the case of Myerson, an order was made for the husband to receive 57% of the assets and the wife 43% of the assets. Most of the husband’s assets were made up of his business, which at the time had a share price of £2.99 per share. Soon after the final order was made, the 2008 global economic crisis hit and the value of his shares plummeted to 27p per share. This meant that by the time of his application to set aside the original order, the husband had a negative share of the assets, and the wife held 105%. The husband’s application was refused as the global economic downturn was not unforeseeable and the events did not undermine the fundamental basis of the original order.

In that case it was said “When a businessman takes a speculative position in compromising his wife’s claims, why should the court subsequently relieve him of the consequences of his speculation by rewriting the bargain at his behest? [The husband] continues to enjoy control of the opportunities that go with it.”

Mostyn LJ also cited the case of Cornick v Cornick, in which it was said that the circumstances in which the Barder principles would apply are very few and far between. 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.” 

Lending weight to the commentary above, Mostyn LJ went on to say that ‘a final order …will not be set aside under the Barder doctrine, even if the shift in values has been massive, and even if it was the consequence of a major economic global downturn. This is because such a shift will have been a foreseeable consequence of the natural processes of price fluctuation. Major economic downturns are cyclical by nature. They may cause financial devastation, but they cannot be said to be unforeseeable or of a nature that invalidates the basis, or fundamental assumption, on which the final order was made.”

He went on to say that if the dramatic facts in Myerson did not satisfy the first condition of the Barder principles, then it is impossible for these facts in the present case to do so. He described the business downturn put forward by the husband in this case, (even if accurate), as a pale shadow compared to the devastation caused to Mr Myerson’s business by the 2008 global financial crisis. In addition, the judge at first instance had already addressed the fact that the business was inherently risky and that there may not be profits sufficient to pay the lump sums, in which case she said the husband would have to look to financing solutions or to the deployment of the ample cash held in the company.

In the recent case of FRB v DRC (No 3) in 2020 also considered whether Covid was a Barder event. Cohen J commented that it was important to take a long term, rather than a short term, view. Markets can and do recover.

In this case, Mostyn’s answer to the question of whether Covid is capable of being a Barder event, was ‘probably not,’ but it would depend on the specific facts of the case. Although it would be highly unlikely that a Covid-related fall in the value of a business or property could constitute a Barder event, the judgment does not completely rule out Covid being a Barder event in other circumstances; for example, if one of the spouses who were young, with no previous health conditions, fell ill and passed away from Covid shortly after a final order was made, the case may be arguable, but the main difficulty may be one of foreseeability.