Not settling for less |
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Deborah Levy
partner and head of
matrimonial department
at WGS solicitors |
On 11 March 2009 the Court of Appeal's decision in Myerson v Myerson sent out a clear message to those who have been considering making an application to Court or attempting to renegotiate any capital elements of their divorce settlement - "DON'T!"
Many clients whose financial circumstances have drastically changed were eagerly awaiting this decision.
reprinted from 'Private Client Practitioner' Magazine, June 2009
The background
On 28 February 2008 Mr and Mrs Myerson reached agreement whereby of the matrimonial assets then valued at £25.8 million Mrs Myerson would receive £11 million (43%) and Mr Myerson would retain £14.5 Million (57%).
The husband was and is a Fund Manager operating through a Company quoted on the Aim Exchange, Principle Capital Holdings Limited (PCH). Mrs Myerson was to receive £9.5 million in cash and the balance by transfer of a holiday home in South Africa valued at approximately £1.5 million.
Mr Myerson's assets consisted of a very substantial shareholding in PCH and various properties. At the date of the agreement, shares in PCH stood at £2.99, valuing the husband's holding in the Company at just over £15 million. At the time of the financial Consent Order to give effect to the agreement the shares were quoted at £2.75 (19 March 2008).
The value of the shares started to tumble in 2008. By 23 December 2008 the shares were valued at £0.725p. By the date of the Hearing on 11 March 2009 they had sunk to £0.275p per share.
The Consent Order of 19 March required payment of a lump sum of £9.5 million by a first instalment of £7 million due on 3 April 2008 and by four further equal instalments of £625,000 due on 3 April of the four succeeding years. The first instalment was funded by the sale of one of Mr Myerson's properties.
On 23 December 2008 Mr Myerson sought to appeal the 19 March Order on the basis that forces within the global economy and the collapse in the Company's share price had rendered the Order unfair and unworkable.
Barder v Caluori
The case of Barder v Caluori [1988] AC 20 decided that a decrease in the value of assets will only be acknowledged where that decrease makes the Order wholly unworkable. Such an event is known as "a Barder event" however, the change in circumstances must be extreme. The question which is facing many divorce lawyers and their clients is the extent to which the current global economic crisis is "an extreme case".
Mr Myerson's Counsel submitted that the drop in share prices and house values was sufficient to satisfy a Barder event - when before has the government had to buy out British clearing banks?
Mr Myerson's Counsel submitted that these considerations destroyed "the basis or fundamental assumption upon which the original Order had been made", that the overall division of assets was no longer fair and that compliance with the terms of the Order was no longer practicable.
The devastating reduction of the value of the husband's shareholding meant the husband's current net position was at minus £539,000 compared with the wife's at plus nearly £11 million.
Varying an order
On what basis does a party have the ability to apply to Court to vary an Order? Section 31(1) of the Matrimonial Causes Act 1973 (MCA) empowers the Court not only to re-timetable and/or adjust the amounts of individual instalments, but also to vary, suspend or discharge the principal lump sum itself.
Section 31(2)(d) MCA gives the Court power to vary a lump sum payable by instalments. The Court has both the jurisdiction and the discretion to relieve hardship having regard to all the circumstances. However, in Westbury v Sampson [2002 1 FLR 166] Mr Justice Bodey said:-
"The re-opening under section 31 of . . . lump sum Orders by instalments . . . should only be countenanced when the anticipated circumstances have changed very significantly, and/or for cogent reasons rendering it quite unjust or impracticable to hold the payer to the overall quantum of the Order originally made".
The principles governing an application to set aside a Financial Order on the grounds of a dramatic subsequent event have been established and applied over the last 20 years. The basis for such an application is:-
- New events have occurred since the making of the Order which invalidate the basis, or fundamental assumption, upon which the Order is made so that if leave to appeal out of time were to be given, the appeal would be certain or very likely to succeed.
- New events have occurred within a relatively short period of time since the Order was made.
- Application for leave to appeal out of time should be made reasonably promptly.
Simply a change in the parties' circumstances which has taken place since the Order will not normally give rise to any case for re-opening matters. Capital settlements are by their very nature intended to be final.
In Myerson, the Order had been one which had been reached by agreement. Mr Myerson must have known the risks or potential risks which he was likely to face - he had taken a speculative course in reaching agreement - the Court therefore questioned why it should subsequently relieve him of the consequences. The Court also took the view that although the market might take a pessimistic view as to Mr Myerson's prospects, he may not share the market place view and "unusual opportunities are created for the most astute in a bear market".
Failure to vary
Mr Myerson failed to satisfy the condition that the appeal would be certain or very likely to succeed.
It is well known that the Court will do its utmost to uphold parties to the terms of an Order, particularly when it is (as most Orders are) by consent. In reviewing applications to vary the payment of a lump sum by instalments against the background of changed and difficult circumstances on the part of the payer, the Court will look at all possible means to pay the balance outstanding even if it means postponing payment. To warrant the Court exercising its discretion, the nature of any change in financial circumstances has to be extreme. The Court will expect the payer to find whatever legitimate means may exist to fulfil payment - for example to borrow or sell up. If a paying party runs into difficulties in fulfilling payment of a lump sum by instalments the better approach may be to negotiate for additional time.
Notwithstanding the very low prospects of a lump sum Order by instalments being varied by the Court, I always advise clients to discharge their obligations at the earliest opportunity as where an Order remains to be implemented the other party's claims for financial relief are usually not dismissed until full payment has been made - in other words, a wife's outstanding claims for maintenance - if agreed to be dismissed upon payment of the last lump sum instalment will not be dismissed until that payment has been made.
Mr Myerson was disappointed that the Court failed to recognise that the economic downturn had made his divorce settlement unfair. It is understood that Mr Myerson will now take his appeal to the House of Lords. This underlines the tension between the need for finality as regards capital provision and the need for review in exceptional cases where justice demands this.
Given the current economic climate assets have declined in value. As a result of the credit crunch it is important to bear in mind the risk of assets decreasing further in value. When negotiating settlements provision can be made to cover this eventuality - be wary about agreeing a fixed lump sum to re-house when it could be some long while before the property is sold and the anticipated sale price may not be achieved leaving the other spouse short of capital. Percentages are a safer bet in this economic climate as both parties will be sharing the loss (and any gain equally). Bear in mind the nature of assets so that again one party is not left with all the risk laden assets and the other the 'safer' options unless he/she is fully aware of the risks.
This article is rreprinted from 'Private Client Practitioner' Magazine, June 2009
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