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Family law, Birch v Birch, family home, divorce, application to vary undertaking, s 31 Matrimonial Causes Act 1973
The issue the Supreme Court was asked to consider was whether the court should apply s 31 of the Matrimonial Causes Act 1973 to the application to vary the undertaking, or whether the court was constrained by the Court of Appeal authority to apply a narrower approach (Omielan v Omielan  2 FLR 306), even if this was considered to be inconsistent with the children’s best interests.
InBirch v Birch UKSC 53, the appellant (‘W’) has successfully appealed to the Supreme Court and her case is to be remitted for hearing in relation to an undertaking which she gave pursuant to a consent order dated 26 July 2010.
The issue the Supreme Court was asked to consider was whether the court should apply s 31 of the Matrimonial Causes Act 1973 to the application to vary the undertaking, or whether the court was constrained by the Court of Appeal authority to apply a narrower approach (Omielan v Omielan 2 FLR 306), even if this was considered to be inconsistent with the children’s best interests.
On the breakdown and dissolution of their marriage W and the respondent to the appeal (‘H') entered into a consent order, the elements of which are relevant to this appeal provided:
H was to have no interest in the former family home, and transfer the property to W subject to the mortgage;
W gave an undertaking to release H from the mortgage by 30 September 2012, and by virtue of undertaking she promised that if she was not able to do so, the property would be sold in order to achieve H’s release.
W and H have two children born 16.02.00 and 15.08.01 (so now aged 17 and almost 16) who resided and continue to reside with W at the former family home.
By November 2011 it was apparent that W would not be able to release H from the mortgage and she made an application to the court to vary, seeking an amendment to provide that H would be released from the mortgage or, in default, the property be sold when the youngest child reached 18, or both of the children completed their full time education.
W made her application pursuant to s 31 of the Matrimonial Causes Act, analogous to an order for sale under s 24A, presumably so as to ensure that the court would be required to give first consideration to the children’s best interests when determining the application.
The district judge at first instance listed a hearing to determine if the court had jurisdiction to consider the W’s application to vary. W’s application was dismissed on the basis that there was no jurisdiction for the court to consider the claim. Permission to appeal was refused.
W then sought and obtained permission to appeal to HHJ Waller, who also dismissed W’s appeal.
W then applied to the Court of Appeal; she was granted permission to bring a second appeal limited to the issue of whether the court had jurisdiction to entertain the application.
Court of Appeal decision
Before the Court of Appeal, W resiled from concessions made in the court below and argued that the undertaking for sale of the property was tantamount to an order for sale under s 24A, to which the power to vary under s 31(1) & (2)(f) apply. If W’s case was accepted, the court would undoubtedly have the power to order a variation and the first consideration would be the welfare of any minor children.
W sought to distinguish her case from the existing line of authority established in Omilean v Omilean, on the basis that in that case the variation sought affected the beneficial interests in the property, whereas her application was limited to seeking to extend the period for a deferred sale. H argued that what W sought fundamentally altered the substance of the consent order, and therefore could not be determined in isolation.
The Court of Appeal were at pains to point out that the cardinal principle of final orders being final to achieve finality is a long and correctly held, principle which the courts have been right to be alive to in order to achieve finality. Property Adjustment and Lump Sum Orders (with the exception of those payable by instalments) are not subject to s 31 jurisdiction, and deliberately so, therefore there is no route to variation of these orders. Section 24A was held to be purely procedural and relating solely to enforcement, implementation and procedure.
The Court of Appeal held that W’s undertakings remain live whether the s 24 order for transfer of the property had been effected or not.
Undertakings are enforceable as effectively as orders and the question in W’s case, once it had been distinguished from Omilean, was whether variation was equivalent of a s 24 order or at all. If so, does it revisit the final order or was it ancillary to the core tenets of the order? If it is considered to be part of the fabric of the order, it is well established that it can only be reviewed in the case of fraud, mistake, material non-disclosure or a 'Barder event'. This is of course in addition to the statutory jurisdiction of s 31 to vary certain orders.
The jurisdiction to vary an undertaking must technically exist, even if the discretion is rarely exercised, particularly where the circumstances are such that the variation invalidates the basis or fundamental assumption upon which the order was made.
Even had the Court of Appeal concluded that the undertaking was equivalent to an order under s 24A the conclusion, that it would have revisited the territory of the primary order so as to render it unjust to vary, would have been the same.
In summary, the Court of Appeal decided that there does exist a formal jurisdiction in the court to vary an undertaking. However, when the variation sought attempts to substitute a different outcome, there is extremely limited jurisdiction and W’s case had no basis on which to persuade the court to exercise its discretion.
The Court of Appeal were unanimous in their decision to reject W’s appeal, save that Gross LJ was not certain that an undertaking was not equivalent to an order pursuant to s 24A, although in reality this had no impact on the outcome in any event.
W sought and was granted permission to pursue her case before the Supreme Court.
Supreme Court decision
Lord Wilson gave the lead judgment, Lady Hale and Lords Kerr and Carnwath were in agreement, with Lord Hughes dissenting.
The Supreme Court was keen to correct the use of the term to 'vary' an undertaking and correctly pointed out that the court can only grant or refuse an application to release a person from their undertaking since an undertaking is a voluntary promise, not something which can be imposed. Although the result of the grant or refusal may result in a variation, how you arrive there is by quite different reasoning.
The courts below had been wrong to conclude that there had been no jurisdiction to release W from her undertaking and had failed to separate this from the refusal to exercise the court’s discretion to do so. Furthermore, it is illogical to distinguish the existence of jurisdiction to exercise discretion to release a person from an undertaking from an application to vary under s 24A. The Supreme Court disagreed with the Court of Appeal in Omilean to refer to the non-existence of jurisdiction rather than a refusal to exercise it. Parliament has not made a change of circumstances a condition of the exercise of the court’s jurisdiction to vary under s 31(2). However, it is hard to conceive of circumstances where an application would be meritorious without it.
W’s application is to be remitted to HHJ Waller to consider if the court’s jurisdiction should be exercised in accordance with s 31(7); and therefore the first consideration should be the welfare of the children but the court must also consider all of the circumstances of the case, which will include whether there has been any significant change in circumstances since the undertaking was given, and if there has been, whether to accede to W’s application will be prejudicial to H. The court may consider how H can be compensated by W as a condition of release from the undertaking. There will be a balancing exercise once W has been able to put her case. It is now only two (as opposed to five) years for which W contends delaying H’s release.
The dissenting voice
The Supreme Court were united in their decision save for Lord Hughes dissenting who, in summary, agreed that the jurisdiction to vary an order for sale or the equivalent undertaking exists but held a differing view on the exercise of that jurisdiction. Lord Hughes took the view that there ought to be an 'acid test' on whether the application is really to vary or alter the substance of the order, or whether it is simply a matter of implementation. His view was that the substance of W’s application was to vary the order rather than to carry into effect the terms of the order and therefore the Court of Appeal was right to dismiss it.
What will it mean in practice?
In light of the fact that at no point had the court got as far as analysing the veracity of W’s application, the Supreme Court was cautious to avoid expressing any view on the merits of W’s factual case. This was deferred for consideration by HHJ Waller. A number of questions arise:
What exactly is a significant change in circumstances?
How important/relevant is the prejudice the other party will suffer? How is this to be balanced with the prejudice to the applying party of not granting an application for variation?
As practitioners what, if anything, do we advise the party applying for the variation to propose in terms of compensation for the prejudice they might suffer if the application is granted?
As ever, the impact of this decision remains to be seen and HHJ Waller now has the unenviable task of deciding how the intention of the Supreme Court is to be applied. The court’s discretionary powers remain intact. As practitioners, we can only hope that the judgment is published to provide further guidance before we flood the courts with test cases applying to extend deadlines in cases with Mesher orders.
What is no doubt intended to provide further flexibility to the courts to consider varying when a family home should be sold may well result in more rigidity if finality is to be required. Practitioners will now need to consider advising those to be released from mortgages at a future date to remain steadfast in seeking an immediate sale, rather than agreeing a period of grace to allow the other party to attempt to release them from their covenants.
Undoubtedly the ramifications of this decision will not have been fully considered, or even discussed with clients when this fairly routine way of disposing of claims would have been employed, and so there may be many people who may have thought their order was watertight when in fact a leak may now have sprung.
Finally, perhaps W ought to have countered H’s argument with a simultaneous application pursuant to Schedule I of the Children Act 1989?