BT v CU [2021] EWFC 87: Barder, Thwaite, Drafting Lump Sums and Anonymisation

Published: 01/04/2022 06:14

https://www.bailii.org/ew/cases/EWFC/HCJ/2021/87.html

Sometimes in law, as in life, things do not turn out expectedly.

BT v CU was intended to be a test case for whether COVID was capable of being a Barder event. H’s argument was that the pandemic was ‘unforeseen and unforeseeable’, outside the ‘natural processes of price fluctuation’, and thereby capable of providing the basis for an application to set aside a series of future lump sums.

In the event, the hearing developed in unexpected directions, whereby the judgment of Mr Justice Mostyn involved a comprehensive review of four important arears:

(1) Was COVID a Barder event?;

(2) The court’s jurisdiction to review executory orders (Thwaite), and the previously unexamined relationship between Thwaite and Barder;

(3) Was there was a sound legal basis for the practice of drafting ‘a (non-variable) series of lump sum orders’ as opposed to variable lump sums by instalment? and

(4) Should financial remedy judgments continue to be anonymised?

The facts

Unlike many reported financial remedy cases, BT v CU did not involve Ultra High Net Worth individuals, offshore trusts or jurisdictional disputes. The complexity of the legal issues (above) belies the relative normality of the case.

The parties were aged 54 and 49. They had been married for 15 years and had two children, aged 17 and 15. At the date of final hearing (10 December 2019) the assets comprised net capital of £850,000, pensions worth £770k and H’s 100% shareholding in a well-run company, incorporated before the marriage, which provided school meals. The value of those shares had been determined by a Single Joint Expert at £3.2m gross.

At the final hearing, it was common ground that W would receive the majority of available capital in order to rehouse. H had by that stage purchased another property for himself. The main issues related to (i) the value of the company (H disputed the SJE valuation), (ii) whether the company was fully or partially matrimonial, and (iii) how much H should pay to W to reflect the value of her claim in relation to the company.

Following a four-day final hearing, District Judge Hudd (i) accepted the SJE’s valuation of the company (£3.2m, based on an EBITDA calculation), (ii) reflected H’s argument about the pre-marital origin of the company in the overall division of the assets, rather than seeking to quantify what part of the company was marital/non-marital, and (iii) ordered H to pay, in addition to the division of net capital, a series of lump sums totalling £950,000. In light of the strong track record of the company (and the potential to raise finance if profits dipped) the court ruled that these lump sums should not be capable of variation.

The overall effect was that the total assets (comprising net assets, pensions and company shares) of £4.75m were divided 58:42 in H’s favour, reflecting illiquidity, risk and that the company was not entirely matrimonial (i.e. it had been incorporated beforehand). H would retain the company but would be obliged to pay £150,000 on 1 November 2019 (which was paid) and four annual sums of £200,000 commencing 1 November 2020.

Impact of pandemic and set aside application

Five months after this final hearing, on 23 March 2020, the UK went into its first lockdown and, for the first time in living memory, the schools were closed. The impact on the company was immediate in that a previously steady income stream ground to a halt, necessitating urgent applications for loans to maintain its solvency. H contended that he would not be able to pay the lump sums (e.g. £200,000 on 1 November 2020) and that the value of the company had slumped.

In those circumstances – and it is perhaps worth recalling the almost apocalyptic mood of April 2020 – H issued an application to set aside, limited to his future obligations to pay the annual sums. H did not seek to disturb the existing capital orders (i.e. W’s receipt of the net proceeds of sale of the family home or the first lump sum of £150,000).

This raised a novel legal point: could a Barder application be based on the economic effects of COVID?

As every law student will recall, in certain, exceptional circumstances, the court may reopen a final hearing based upon a supervening event (Barder). There are, per Lord Brandon, four essential pre-conditions that should be met, including that the event relied upon should have taken place within a few months and have invalidated the fundamental basis of that order.

In the subsequent case of Cornick (No 1) [1994] 2 FLR 530 Mrs Justice Hale (as she then was) considered the application of Barder to cases where, post-judgment, the value of assets has changed. Hale J identified three categories: (1) where the value of an asset has changed by the natural processes of price fluctuation, (2) where a wrong value was put upon an asset at trial and (3) where something unforeseen and unforeseeable had happened. In the first category, a Barder application could not succeed (as Mr Myerson found to his cost); the second category might be reviewed if it amounted to misrepresentation; only the third might properly come within Barder.

In BT v CU, H sought to argue that COVID and its effects were unforeseen and unforeseeable, thereby falling outside the natural processes of price fluctuation: this was a ‘category three’ case where the court might set aside, rather than a ‘category one’ case.

The litigation

Following issue of H’s Barder application in April 2020, the wheels of justice turned slowly, as they are wont to do. The parties agreed an effective stay for six months, after which it took almost a year before the application was heard (October 2021), by which stage the question of whether COVID could be a Barder event was not quite as fresh and topical as it had been in the spring of 2020.

Moreover, the issue had been transformed by the unexpectedly generous Government furlough scheme. By the time BT v CU reached court in October 2021, the company had received over £3m of grants, without which, it would likely have collapsed. Without such Government largesse, it is likely that the courts would have faced a significantly greater number of applications to reopen final orders made in the months leading up to March 2020. An interesting counter-factual is, what would the outcome have been in BT v CU without furlough?

Judgment of Mostyn J

(1) COVID and Barder

There was no dispute in BT v CU as to which authorities were relevant. W relied on the well known case of Myerson (No 2) [2009] EWCA Civ 282, where the value of the husband’s shares slumped post-judgment from £15m to a negative value. At [29], Mostyn J observed that ‘it is clear that [Thorpe LJ’s] principal reason was that the global financial crisis of 2008 was not unforeseeable and the downturn did not invalidate the fundamental basis of the order’.

At [21], Mostyn J commented, ‘When assessing whether a new event was unforeseeable in a case where it is said that the event has caused a major shift in the value of the assets (as opposed to a case where the new event is the death of a party) I consider that the court should principally focus on the economic impact rather than its cause or event’.

Accordingly, the court focused not on H’s argument that the pandemic was a once-in-a-century event but on the bottom line, i.e. its financial impact: ‘au fond such a case is no different in substance to one where a business was devastated by the impact of the 2008 global financial crisis’.

In a case where the company had, in effect, been rescued by the furlough scheme, Mostyn J held that the impact of COVID on this business, projected to involve a reduction in turnover of 10%, wiping out the operational profit, failed to satisfy the first of Lord Brandon’s conditions, i.e. that the fundamental basis of the order was invalidated. The court’s answer to the direct question posed in the case, was as follows:

‘[22] My answer to the first question posed for me – Is Covid capable of being a Barder event? – is “probably not”, but, as always, it depends on the specific facts of the case.’

(2) Executory orders (Thwaite)

Having failed in his Barder application, the question arose: could H succeed on the basis of seeking to review what was still an executory order.1 In Thwaite [1982] Fam 1, the Court of Appeal held that where an order was still executory, the court may refuse to enforce it if, in the circumstances prevailing at the time of the application, it would be inequitable to do so. This ‘Thwaite’ test (‘inequitable to do so’) is notably lower than the Barder test (i.e. invalidates the fundamental basis of the order).

In other words, have family lawyers been applying the wrong law in set aside cases for the past forty years? Have we been struggling with the famously difficult terrain of a Barder application when an easier path was available to us, by virtue of Thwaite?

Curiously, in the past four decades, no court had resolved the tension between these two cases. The point had apparently been raised in L v L [2006] EWHC 956 (Fam), but Mr Justice Munby (as he then was) described this as ‘a refinement which there is no need for me to explore here’. One of the benefits of undertaking legal research online is that it becomes much easier to detect trends. It is notable that for a generation, Thwaite arguments almost disappeared from the law reports. The case was cited in only one family case from 1988 to 2016. Since then, it has been relied upon in at least seven. Moreover, Thwaite has been applied inconsistently. In Akhmedova [2020] EWHC 2235 (Fam), Knowles J held that for Thwaite, the change of circumstances must have been unforeseen; in Kicinski v Pardi [2021] EWHC 499 (Fam), Lieven J held that there was no such requirement.

From paragraph [43] of his judgment, Mostyn J reviewed his own decision in SR v HR [2018] EWHC 606 (Fam):

‘that any application under the principle in Thwaite should be approached “[51] extremely cautiously and conservatively”, which, of course, was coded language expressing my doubt that the jurisdiction to rewrite (as opposed to mere refusal to enforce) existed at all … [56] However, since my decision in SR v HR, there have been four cases which have rejected my doubts and which have held that the court has the power not merely to stay enforcement of an executory order, but to rewrite an executory final order to provide for something completely different to that which it originally stated.’

Mostyn J reviewed each of the four decisions and expressed his respectful disagreement:

‘[63] I have to say, with great respect, that I do not agree with these decisions. They appear to me to be in conflict with the binding precedent of Barder

[64] An application to set aside an executory order under the Barder doctrine is explicable as an exercise of appellate powers, now replaced by a specific rule permitting the power to be exercised at first instance. An application to set aside an executory order based on fraud, or mistake, can be explained as a separate cause of action. These are surely the only legitimate exceptions to the statutory prohibition on variation of the amount of capital settlements.

[66] If this route were available, then it means that many Barder cases, including Barder itself, will have been tried, and in most cases dismissed, applying a set of principles far more rigorous than those required under the executory order doctrine. This is because most Barder cases, including Barder itself, concern orders which are executory. It would therefore seem, if the proponents of the executory order doctrine are correct, that the entire litigation in Barder itself, all the way to the House of Lords, was conducted on a completely wrong footing.’

Lump sums by instalment

The third substantive issue concerned the possibility that District Judge Hudd’s order might be varied, in spite of the learned judge’s clear intention that it should not be. This was relevant on the question of whether H might have an alternative remedy to pursuing a Barder set aside (cf. Myerson).

All family lawyers will know that lump sum orders cannot be varied, with the exception of ‘lump sum orders by instalment’ (see ss 23(1)(c) and 31(2)(d) of the Matrimonial Causes Act 1973). Since the Court of Appeal decision in Hamilton [2013] EWCA Civ 13, a practice has developed whereby orders are drafted as ‘lump sums by instalment’ (which are variable) and ‘a series of lump sums’ (which are not).

The jurisdictional basis of this distinction is questionable. In Hamilton, Mrs Justice Baron (sitting in the CA) cited no authority in support of the proposition that by artful drafting the parties could achieve an outcome which involved staggered lump sum payments which avoided the power to vary. In Baron J’s judgment, the end justified the means: (‘there must be a mechanism whereby the parties can agree, or the court can effect a clean break’).

In the longest section of Mostyn J’s judgment (paras 68 to 98), the learned judge traces through the development of the court’s powers to make capital orders, placing particular emphasis on the 1969 Law Commission Report, ‘Financial Provision in Matrimonial Proceedings’. That report recommended the creation of a power to vary the timing of lump sum instalments but not the overall quantum.

The question of the court’s power to vary the quantum of lump sum orders has been considered in at least eight reported cases, none of which referred to the 1969 report, and in only one (Tilley (1980) 10 Fam Law 89), was the power to vary the quantum actually exercised. Tilley is a short report which Mostyn J disregards (‘I do not consider that there is a clearly expressed ratio decedendi which binds me’).

Having reviewed the development of statutory and case law in some detail, Mostyn J concludes that the Court of Appeal incorrectly stated the law in Hamilton and that the expression ‘a series of lump sums’ is no more than camouflaging language. Where an order contains provision for different payments on different dates then this is a lump sum by instalment which is, as a matter of law, variable as to timing but not as to quantum:

‘[96] … If, however, there are different payments on different dates for different purposes, as described by Sir George Baker P in Coleman, then that arrangement will be a series of lump sums. Mr Chandler submits that the law should look to effect and not semantics; and cites Lord Templeman’s famous aphorism in Street v Mountford [1985] AC 809 (albeit in a different context):

“The manufacture of a five-pronged implement for manual digging results in a fork even if the manufacturer, unfamiliar with the English language, insists that he intended to make and has made a spade.”

I agree.

[97] In my judgment, notwithstanding that the order in this case is to be characterised as a lump sum payable by instalments, it is not variable as to overall quantum under s 31 Matrimonial Causes Act 1973. The overall quantum can only be set aside or altered under the Barder doctrine. Under s 31 all that can be achieved is recalibration of the payment schedule.’

Anonymisation

Finally, an issue arose as to anonymisation. Traditionally, financial remedy judgments are anonymised up to High Court level, but heard in open court, without anonymisation, in the Court of Appeal and above. Accordingly, the case which was reported as NG v KR [2008] EWHC 1532 (Fam) is re-titled as Radmacher v Granatino in the Court of Appeal ([2009] EWCA Civ 649) and Supreme Court ([2010] UKSC 42).

On the wider question of open justice in the family court, the Family Division has traditionally divided as follows: on one hand there is Mr Justice Holman who presumptively sits in open court (see e.g. Luckwell v Limata [2014] EWHC 502 (Fam)); on the other, all of the other High Court judges have started with the opposite presumption, e.g. Mostyn J in DL v SL [2015] EWHC 2621 ‘it is my opinion that [FPR 27.10] does incorporate a strong starting point or presumption [sitting in private] which should not be derogated from unless there is a compelling reason to do so’.

However, in BT v CU, Mostyn J effectively crossed the floor. At paragraph [105], the learned judge remarked:

‘[105] I no longer hold the view that financial remedy proceedings are a special class of civil litigation justifying a veil of secrecy being thrown over the details of the case in the court’s judgment. In my opinion it is another example of the Family Court occupying a legal Alsatia (Richardson v Richardson [2011] EWCA Civ 79, [2011] 2 FLR 244, para 53, per Munby LJ) or a desert island “in which general legal concepts are suspended or mean something different” (Prest v Petrodel Resources Ltd and others [2013] UKSC 34, [2013] 2 AC 415, para 37, per Lord Sumption).’

While on the facts of BT v CU, the court retained anonymisation, a clear warning was sounded:

‘[113] it should be clearly understood that my default position from now on will be to publish financial remedy judgments in full without anonymisation, save that any children will continue to be granted anonymity. Derogation from this principle will need to be distinctly justified by reference to specific facts, rather than by reliance on generalisations.’

Conclusion

Mostyn J’s judgment in BT v CU covers many legal issues and is required reading for financial remedy practitioners. For those who prefer a more abbreviated read, the headline points are as follows:

(1) COVID probably isn’t capable of founding a successful Barder argument.

(2) Thwaite has been misapplied in several cases and is not realistically available as an alternative to Barder.

(3) The practice of drafting a series of lump sums in order to avoid the variation power is disapproved as camouflage. However, the variation power should extend only to timing and not as to quantum.

(4) The court’s presumptive approach from now on in financial remedies should involve naming the parties unless distinctly justified otherwise.

Class Legal

Calendar

Share this

    Most read

    message