Financial Divorce – Covid 19 & Consent Orders

Over the past few days I  have been inundated by enquiries in respect of whether or not the current pandemic and its impact on valuations may be a reason to revisit an agreed order entered into before the lockdown. Clearly the value of many businesses and assets will have been negatively impacted by the pandemic but by no means all. Whereas for many engaged in businesses such as hospitality or travel the impact will have been devastating for others, say engaged in  online grocery, online D.I.Y products or the provision of P.P.E, the opposite will apply.

The question arises as to whether the current pandemic may constitute a good reason to set aside a consent order. The answer is uncertain at this time as the issue has not as yet been tested by the Courts.

Historically the courts have generally lacked enthusiasm in setting aside orders  save in exceptional circumstances.

In the leading case of Barder Lord Brandon said:

‘A court may properly exercise its discretion to grant leave to appeal out of time from an order for financial provision or property transfer made after a divorce on the ground of new events, provided that certain conditions are satisfied. The first condition is that new events have occurred since the making of the order which invalidate the basis, or fundamental assumption, upon which the order was made, so that, if leave to appeal out of time were to be given, the appeal would be certain, or very likely, to succeed. The second condition is that the new events should have occurred within a relatively short time of the order having been made. While the length of time cannot be laid down precisely, I should regard it as extremely unlikely that it could be as much as a year, and that in most cases it will be no more than a few months. The third condition is that the application for leave to appeal out of time should be made reasonably promptly in the circumstances of the case …fourth condition is that the grant of leave to appeal out of time should not prejudice third parties who have acquired, in good faith and for valuable consideration, interests in property which is the subject matter of the relevant order.’. Where the change of circumstances relied upon has been a rapid change in the value of relevant assets the courts have been keen to impress upon litigants that ‘the natural processes of price fluctuation, whether in houses, shares, or any other property, and however dramatic, do not satisfy the Barder test’.

I shall now look at each condition in turn. The first condition is that new events have occurred since the making of the order which invalidate the basis, or fundamental assumption, upon which the order was made. On the face of it it is certainly arguable that the current pandemic and its effect on valuations falls into this category. That said following  the financial crisis in 2008 and 2009  the case of  Myerson was heard. In that case the husband sought to set aside an order  on the ground that a fall in the value of shares undermined the basis of the order and represented a Barder event. In that case the husband’s application was dismissed.  The original order had divided the assets at 57% to the husband and 43% to the wife. The husband’s retained assets were largely made up of his shareholding in his company. At the time of the compromise each share was valued at £2.99..By the time of the application the shares were trading at 27.5p. Thorpe LJ rejected the application  even though it had “dramatic features”. In his judgment  “natural processes of price fluctuation” should not constitute a Barder event He went on to say that: “There may be many who are contemplating an attempt to reopen an existing ancillary relief order on the grounds of subsequently encountered financial eclipse.  All in that situation should ……..   be well advised to heed the warning that very few successful applications have been reported.  I echo the words of Hale J that the natural processes of price fluctuation, whether in houses, shares, or any other property, and however dramatic, do not satisfy the Barder test.” Only time will tell as to whether the Courts will take the view that the current pandemic has an impact that falls beyond “the natural process of price fluctuations’

We now come on to the  second condition being that that the new events should have occurred within a relatively short time of the order having been made.  On the basis of Barder it would seem that orders entered into relatively recently are only likely to be entertained even if the first condition may be overcome. As was said in Barder: ‘ While the length of time cannot be laid down precisely, I should regard it as extremely unlikely that it could be as much as a year, and that in most cases it will be no more than a few months.’

The question then arises as to whether someone who has entered into a consent order which on the basis of post pandemic valuations should sit back and wait until the issue has come before the court? The  third condition in Barder  is that the application  should be made reasonably promptly in the circumstances of the case. It would therefore seem that any contemplated application should be made sooner rather than later.

The fourth condition is that the grant of any  should not prejudice third parties who have acquired, in good faith and for valuable consideration, interests in property which is the subject matter of the relevant order. Clearly if relevant assets have already been sold or transferred to third parties then this may be a reason not to grant an order.

In summary, we are going through very uncertain times and before contemplating any application which although arguable faces an uncertain outcome one needs to consider costs risks of such an application and make a commercial decision.

John Hudson