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The courts’ jurisdiction to vary capital orders

Date:20 APR 2018
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Family analysis: Clare Williams, associate at JMW Solicitors LLP, examines the limited scope for the variation of capital orders, and diverging judicial views on the jurisdiction of the court to make an interim order for sale, in the case of SR v HR [2018] EWHC 606 (Fam), [2018] All ER (D) 176 (Mar) where an added complication was the bankruptcy of the husband.

What are the practical implications of the judgment?

This case should remind us that there are few, if any, back door routes to the variation of a capital order made in financial remedy proceedings.

It is also an object lesson in advising clients about the risks of pursuing or defending an appeal when costs do indeed follow the event. The wife, who, like the husband, appeared in person, defended the appeal in circumstances that really did appear to be hopeless. She ended up paying £10,000 costs to the intervening trustee in bankruptcy and disbursements of £866 to the husband.

It is perhaps understandable that the wife found it difficult to turn her back on an order made by a circuit judge which was manifestly in her favour, even if it was doubly doomed by the fact of it being made without jurisdiction and after the date of the husband’s bankruptcy.

What is perhaps most interesting about this judgment is the footnote, in which the Family Division judge, Mostyn J, makes reference to the difference in opinion between himself in BR v VT [2015] EWHC 2727 (Fam), [2015] All ER (D) 13 (Oct), and Cobb J in WS v HS [2018] EWFC 11, [2018] All ER (D) 158 (Feb). In a nutshell, Mostyn J maintained that an interim order for sale could be made in financial remedy proceedings, where the circumstances justified it, pursuant to the Family Procedure Rules 2010 (FPR 2010), SI 2010/2955, 20.2(1)(c)(v). Cobb J disagreed and found that this was merely a procedural provision and could only be utilised where there was an underlying statutory basis for an interim order for sale, either under s 17 of the Married Women’s Property Act 1882 (MWPA 1882) or s 14 of the Trustees of Land and Appointment of Trustees Act 1996 (TOLATA 1996). Mostyn J conceded that until the matter could be resolved by a higher court, such applications should be made under MWPA 1882, or presumably TOLATA 1996 in co-ownership cases.
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What was the background?

Like so many appeals, this case had a somewhat unusual procedural history. The deputy district judge had made three property adjustment orders in financial remedy proceedings between the husband and the wife on 24 May 2012. These were rearranged by consent on 7 October 2013, but the underlying effect remained unchanged.

There was considerable delay in implementing the substantive orders, and ultimately the matter was returned to court. An order dealing with issues of implementation was made in June 2016. The wife was granted permission to appeal against this order though due to the unavailability of the order, the scope of this permission was unclear. That notwithstanding, the matter came before the circuit judge on appeal. He decided that the orders were now ‘at the very edge, if not already beyond, any effective period of implementation in [their] terms’. Because of this, he found himself empowered to discharge the 2012 and 2013 orders and replaced them with a new order dated 4 October 2017 (amended on 20 October 2017 to correct an error and clarify an ambiguity) the net effect of which was to transfer an additional £46,000 to the husband. To add a further layer of complexity, the husband had just been made bankrupt on 22 September 2017.

The husband, supported by his trustee in bankruptcy, appealed.

What did the court decide?

On appeal, Mostyn J explored the court’s powers to vary a substantive capital order and found them very limited indeed. Section 31 of the Matrimonial Causes Act 1973 (MCA 1973) provides that the only capital order a court can vary is one for the payment of a lump sum by instalments. An order for sale made under MCA 1973, s 24A can be varied but not in such a way as to alter the underlying capital award to which it is attached.

With characteristic pithiness, Mostyn J summarised the position (at para [9]) thus:
‘It is an iron rule that aside from a lump sum payable by instalments, and aside from a set-aside on traditional grounds...a capital award cannot be varied, or, a fortiori, discharged, by a court of first instance.’
Those traditional grounds are of course fraud, mistake, or supervening event (the so-called Barderjurisdiction). Mostyn J also confirmed that a general ‘liberty to apply’ clause did not leave the door open to alter non-variable capital orders. Equally, the fact that the dismissal of the parties’ claims for a financial remedy had not yet taken effect was not justification to replace an executory order (an as yet unimplemented order) with a new one.

In replacing the 2012 and 2013 orders, the circuit judge had relied on the case of Thwaite v Thwaite [1981] 2 All ER 789, (1981) 2 FLR 280, itself drawing upon an earlier line of case law whereby the court had found itself able to refuse to enforce an order, if ‘in the circumstances prevailing at the time of the application, it would be inequitable to do so’. However, when Mostyn J delved deeper into the authorities upon which this was based, he found that one had concerned the discharge of an undertaking where there was full power to discharge it anyway and another had concerned an interlocutory order. This led him to state that these authorities did not constitute a loophole for varying a capital order that could not otherwise be varied. The court does have a power to release litigants from undertakings and a power to regulate the enforcement of its own interlocutory orders, but this is not the same thing as being able to alter a non-variable final order, even if it is executory.

He also looked at whether the court’s ability to accept a litigant’s request to be released from an undertaking and, where relevant, accept a new undertaking in its place could form the basis of a power to alter a capital order. He made the point that in so doing, the court was not exercising a power to vary an undertaking; it could not do that as an undertaking was a voluntary promise freely given by a litigant, not an instrument whose terms the court could vary. The court could nevertheless accept a replacement undertaking as a term of releasing a party from an earlier undertaking.

Could the judge use the court’s equitable jurisdiction not to enforce the order in return for an undertaking from the wife to pay the husband 20% rather than 70% of the equity in a particular property to achieve the same effect as the new order? Again, he found that relying on this process would be a ‘blatant circumvention of the statutory prohibition on variation’.

The circuit judge’s new order was discharged as having been made without jurisdiction and the deputy district judge’s orders were restored. The fact of the husband’s bankruptcy ended up being something of a red herring. However, Mostyn J did comment that because the husband was bankrupt when the new order was made, he was effectively being ordered to transfer to the wife value he no longer had the ability to give away, as all of his assets had vested in his trustee.

No new law has been made as a result of this judgment. It was, fundamentally, the correction of an order that had been made on an unsound jurisdictional foundation. It provides a reminder that, absent fraud, mistake, material non-disclosure or supervening event, MCA 1973, s 31, should be taken to prohibit the variation of capital orders other than lump sum orders by instalment.

Interviewed by Robert Matthews.

This analysis was originally published on LexisPSL Family (subscription required). Click here to request a free 1-week trial