England and Wales High Court (Family Division) Decisions

IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION
An Appeal from HHJ Hughes QC sitting at the Central Family Court

		Royal Courts of Justice Strand, London, WC2A 2LL
		28 February 2018

Mr. Justice Cohen:

Background:

1. Mr. and Mrs A were married in 1983 and separated in 2009. They divorced in 2011.There are five children of the family. Throughout the marriage Mrs. A stayed at home and looked after the children and Mr. A set up a construction business which was successful and enabled the family to enjoy a high standard of living and accrue significant wealth.
2. They instructed well-known solicitors and counsel and, over what must have been a significant period of time, managed to compromise their financial affairs upon divorce. The agreement was formed into a consent order made on 15^th September 2011 and which extended to some 14 pages inclusive of 3 pages of schedules.

The Original Order:

3. The principle terms of the order are as follows so far as relevant to the issues before me:

The order commences with a recital as follows:

"Upon the petitioner and respondent mutually agreeing, acknowledging and declaring that: the terms of this order are accepted in full and final satisfaction of all claims for income, capital and pension sharing orders which either party may be entitled to bring against the other or the other's estate in any jurisdiction howsoever arising.

4. Provision was made for the sale of two matrimonial properties, one being the former matrimonial home, a property in Essex known as "RG" and the other being a property in Spain. It was provided that RG was to be marketed for sale for "not less than £8.5 million without agreement of the parties or further order from the Court" and, in relation to the property in Spain, that it shall be marketed for "£3.75 million for six months and shall be sold for such price as may be agreed between the parties or, in default of such agreement, as determined by the court". In respect of each property the two parties were to have joint conduct of sale.
5. The prices sought for the properties may have been (and with the benefit of hindsight plainly were) optimistic. RG had been valued at £7.5 million and also £7 – 8 million but the parties had been advised that it could reach £10 million. Indeed, each party had put in his/her Form E that the value of the property was £10 million. Red Book valuations were unsurprisingly lower.
6. The Spanish property was regarded as difficult to value because it was of large size but with a limited number of bedrooms. It is not clear to me where the figure of £3.75 million came from but it does not matter as the figure was agreed.
7. At the time the parties were living unhappily under the same roof. The wife had found a property ("BL") which she wished to purchase for £2.6 million. The agreement and order was predicated on the basis that the husband would pay for the purchase of the property in the event that the former marital home had not been sold by the time of its completion and that the wife would repay him when she received her share of the two properties to be sold. Accordingly, the order went on to provide that the husband would:

i. Pay the deposit upon the property of £260,000:

ii. Take out a mortgage in the sum of £2.49 million from Coutts & Co. which he would service and,

iii. That, until the sale of RG, he would provide the wife with the sum of £12,000 per month to meet her living expenses.

8. It was expressly provided that:

The wife would "repay the BL mortgage in full and reimburse the husband for the interest payments on the mortgage that he will make on her behalf pending the sale of RG" and that the sum of £12,000 per month would be paid by the husband as a "loan" and that the loan would increase by the amount that he advanced to her each month from 16^th February 2012 until the sale of RG.

9. The magic of the date of 16^th February 2012 is explained by paragraph 6 of the order whereby the husband agreed to pay maintenance pending suit until decree absolute and thereafter periodical payments at the rate of £12,000 per month until the earlier of the sale of RG or 16^th February 2012 (the anticipated date of completion of the purchase of BL) whereupon the wife's claims for periodical payments and secured periodical payments were to stand dismissed and there was to be a clean break.
10. Thus, upon the sale of RG the wife was obliged to repay to the husband:

i. The amount of the BL deposit;

ii. The interest payments that he had made on the BL mortgage; and

iii. The amount accrued under the BL loan namely £12,000 per month from 16^th February 2012.

11. There was no sale of RG by February 2012 and, indeed, there has been no sale of either property in succeeding six years to date.
12. When the sale does occur/occurred the proceeds of sale are/were to be divided equally save that the husband was to pay the wife a lump sum of £1.3 million from his share of RG and a lump sum of £700,000 out of his share of the Spanish property. Thus, the wife would end up with £4 million more than the husband from the sales of their properties. The explanation given to me was that compensated her for the fact that the husband was to keep his own construction companies and thus the parties would leave the marriage with approximately equal sums and having achieved a clean break so that each could go his or her respective way.
13. To cement the order the husband and wife respectively undertook to the court and each other to comply fully and promptly with their respective agreements and obligations as set out in the order. The provisions for payment by the husband to the wife were by way of agreement rather than by way of undertaking so far as is material to this case as it now is. The wife, on the other hand, undertook to the court and agreed with the husband to reimburse him the three sums to which I have referred above.
14. In addition to the provision contained above, the husband agreed to transfer to the wife a pension amounting to 100% of a pension worth some £1.2 million in 2011 and 13% of his rights in a further pension. It is agreed between the parties that the current value of the wife's pensions, which remain undrawn, is not less than £2 million.
15. I need only add that there was the usual provision contained at paragraph 13 of the order for liberty to apply as to implementation and timing of the terms of the order.

The English Property "RG":

16. In 2014 the matter was returned to court in the context of an application in respect of the occupation of RG. In the judgment of Deputy District Judge Berry it is recorded that the property was "presently estimated to be worth £9 million". Since then, the property has remained on the market and has attracted no offers other than one of £6 million which the parties both agreed to reject. The property is very large and in extensive grounds but it has attracted little interest.

The Spanish Property:

17. This also has remained on the market. It did attract an offer of £2 million (rather than £3.75 million) which the parties also rejected. The parties fell out about the marketing of the property. The agent suggested reducing the price to £2 million and, against her advice, the property continued to be marketed at a reduced price of £2.75 million attracting little interest. At the end of January 2017 a revised offer from the party who had offered £2 million was made in the sum of £1.75 million. That subsequently fell through for unconnected reasons.
18. The matter came before HHJ Hughes QC in March 2017 when the judge made an order in respect of the marketing of the Spanish property. At the same time HHJ Hughes gave directions in respect of the wife's application for a variation of the maintenance agreement and her application to be released from her undertaking to repay monies to the husband.
19. Those applications came before the same judge who delivered a written judgment on 22^nd September 2017 after having reserved the matter for some two weeks which she supplemented by a further judgment given in writing on 16^th October 2017. It is against the order made following that hearing that the husband seeks permission to appeal.

The hearing at first instance

20. It is common ground between the parties that the events of the last six/seven years have been extremely unfortunate so far as the wife is concerned. If the properties had sold at somewhere near their expected prices the wife would now be left with the property at BL unencumbered; she would have had liquid capital of somewhere between £3-4 million on midpoint figures and £4.5 million at upper end estimates and she would have the pensions which were transferred to her. Her capital fund might have been subject to a small claw-back to the husband depending on whether the properties were sold before or after February 2012.
21. HHJ Hughes adopted the figures contained at page 36 of the preliminary documents which show that, if RG was sold for £6 million and the Spanish property for £1.75 million, after repayment of the BL deposit, mortgage interest repayments and the loan repayments, the wife would be left with just £819,000 (as of August 2017) which, as of today, would be about £700,000. This is to be contrasted with the expected figure of £3 million plus. The judge went on to emphasise that, in fact, the properties may not reach even these reduced prices so that the wife's balance would be further reduced.
22. In fact, her position would further deteriorate as her debt would increase by £216,000 pa (72k by way of mortgage payments and 144k income provision) so that in 3-4 years her fund would be eliminated even on the sale prices set out immediately above, which may not be achieved.
23. By way of contrast, the husband has prospered in the period since 2011. His businesses which were at that time loss-making, have turned in some very large profits and he has become in receipt of a very substantial income. The precise figures do not matter for these purposes. Suffice it to say that the husband did not seek to oppose the wife's application by reference to the effect on his financial position.
24. It was thus in the context of her reduced fortunes and the husband's increased fortunes that the wife applied for a variation of the maintenance agreement and release from undertakings.
25. The learned judge dealt with the matter by reference to the application for release from the undertaking rather than variation of the maintenance agreement. The issue of variation of maintenance agreement has not been part of the hearing before me. The judge did not release the wife from her obligation to reimburse the husband the deposit in the sum of £260,000 that he had made for the purchase of the BL property.
26. What the judge did do was to release the wife from her undertaking to repay to the husband the mortgage interest payments and the loan (i.e. the income payments of £12,000 per month) on condition that the wife, simultaneously with her release, gave to the court a revised undertaking which had the effect that in the event that she received from her share of the two properties the sum of £1.74 million or more, she would use the surplus above that sum to reimburse the husband the sums that otherwise would have been due under the provision for repayment of the mortgage interest and loan payments.
27. In order for the provision of the wife's revised undertaking to bite, the two properties would need, between them, to produce for the parties an equity of in excess of £3.48 million as only that figure would provide the wife with £1.74 million. The figure of £1.74 million arose from the judge concluding that the wife's intended income fund (excluding pensions) under the agreement was £2 million and she deducted from that figure the amount of the deposit of £260,000 so as to produce the figure of £1.74 million. This undertaking is likely to be of no value to the husband at current estimated values.
28. Although it does not affect the outcome of the appeal, it is right to record that the figure of £2 million, which the judge in her judgment decided was the minimum sum which the parties had agreed for the wife's income fund to be, was in fact a misapprehension.
29. It is easy to see how this error arose. The judge had aggregated the figures of £1.3 million and £700,000 referred to at paragraph 12 of this judgment so as to produce the figure of £2 million. She had then cross-referred to the table appearing at D29 of the submissions made on behalf of the wife which refers to the addition of £2 million as "a Duxbury". In fact, the £2 million was never intended to represent a Duxbury fund but was instead the equalising payment that was to be made to the wife from the proceeds of sale of the two properties. She would, of course, have had substantially more than £2 million as a fund to be used as she liked, but obviously primarily for income, if the properties had achieved anything like the figures for which the parties were hoping.

The Judgment under Appeal:

30. The judge founded her reasoning on the following matters:

i. Each party had been reasonable in their efforts to sell the properties. She made no criticism of either party in respect of the properties' failure to sell.

ii. The judge was "quite sure" that the wife would not have agreed to pay her own maintenance and mortgage interest repayments by way of a loan had she known how long this would go on for, how much it would have cost her and how much it would deplete her capital funds.

iii. The wife would have been unlikely to have had her claims for maintenance dismissed in six months and replaced by an arrangement whereby she was lent money to maintain herself in a new home which would be repayable on an increasing basis if either of the parties had known that the properties would be unsold after six years.

iv. She accepted that the husband had acted to his own detriment by making the payments that he had made in reliance on the terms of the agreement.

v. The failure to sell the properties was a major and significant change and one which the court could not ignore. Had she received her Duxbury fund in 2011/12 when aged 50/51, the wife would have received £2 million [which I have already explained is in error] which was estimated to provide her with an annual income of £89,000. The cash sum that she would have, after repaying the husband what he was owed, was the sum of only £800,000 yielding her an income on Duxbury calculations of around £40,000 p.a.

vi. The cost to the husband of paying £12,000 per month plus the mortgage interest was a total of £216,000 p.a. Thus, in three/four years, if the properties remain unsold, the wife's entire capital fund would have been removed as it would all be owed to the husband. She would be totally dependent upon her pension.

vii. It was not foreseeable in 2011 that, after a short period of time, the husband's businesses would be so successful as to provide him with substantial income and capital.

31. The judge referred herself to Birch v Birch [2017] UKSC 53. She concluded that the court had power to release a person from undertakings given to the court if just to do so or conditionally by release if the person was to give a different, fairer, undertaking in substitution. The judge found that the one fact in the case which might allow her to release the wife from her undertaking was the delay in selling the properties and the fact that had either party known that the properties would remain unsold after six years, the wife would have been unlikely to have her claims for maintenance dismissed and replaced by an arrangement whereby she was lent money which she would have to repay. The judge went on to conclude:

"The intention of the 2011 order in broad terms was to give the wife money to purchase an alternative home, £2 million as a Duxbury fund, and pension provision by way of a clean break. No court would have expected her to forego maintenance for six years or pay for herself or to pay for her housing mortgage interest as a loan. It seems to me that the fair way forward in this case is to release her from the undertakings to repay the mortgage interest and the maintenance to the extent that she receives the original £1.3 million from the husband upon the sale of RG and £700,000 upon the sale of the Spanish property."

32. Following the delivery of judgment, counsel for the husband asked in writing for the judge to explain whether or not it was her intention that the husband should continue to go on paying for the mortgage interest and monthly payments and, if it was not, he requested that the husband should be discharged from his undertaking to comply with that part of his agreement.
33. The judge's response was that the wife could not pay her bills without the assistance of the husband and; "It seems to me that, as between the two of them in the circumstances in regard to the housing which pertain, it is not unfair for him to continue to support the wife….. As the bread-winner he has always been responsible for his own support and that of the wife and, in my view, it is not unjust for him to continue to do so, given his large income and the paucity of that of the wife left to her own devices."
34. The husband seeks permission to appeal and it was directed that the application for permission be heard with the appeal to follow immediately afterwards if permission was granted. At the outset I indicated that I proposed to grant permission and deal with the matter substantively and that was not opposed.

The Arguments on Appeal:

35. The cases of the husband and of the wife have been argued by counsel with great skill and attraction. I am grateful to them for their submissions, written and oral.
36. The Husband's Case:

On behalf of the husband it was argued as follows:

i) The husband's primary point is that this was a consent order carefully negotiated and crafted over months of negotiation. It was intended to provide the parties with a clean break and send them off each on their own way.

ii) The judge, in her judgment, paid lip-service at most to the principle that the parties' agreement is a matter of the utmost importance and should, unless there is a very good reason otherwise, be respected. I was referred to Radmacher v Granatino [2011] 1 AC 534 and Zimina v Zimin [2017] EWCA Civ 1429.

iii) This order would never have been set aside if the Barder v Caluori [1988] AC 20 or Myerson v Myerson [2009] 2 FLR 147 principles were to be applied. What has happened was eminently foreseeable. The parties took a punt on the value of the two properties and their failure to sell is a direct result of that.

iv) There was no minimum figure contained in the agreement which the wife might receive. If the wife wanted a minimum that is something that she should have negotiated.

v) The husband has gone on paying, pursuant to the terms of the agreement, the sum of some £216,000 a year to his manifest disadvantage. Indeed, under the order of the judge that will continue indefinitely until the properties are sold.

vi) The wife could have put a stop to all this by taking out an application to the court for the properties to be sold at a lesser price than that at which they were being marketed.

vii) The judge's rationale which in part was a comparison of the parties' respective financial positions, took into account an immaterial factor. That the husband had done well financially since 2011 by his own financial endeavours is immaterial.

viii) It is unfair to release one party only from a reciprocal obligation.

ix) Insofar as the judge justified her order by reference to fairness she failed to take into account, as she should have, what was agreed at the time. That would be the best judge of fairness.

x) This was a commercial agreement which the court cannot go behind and release a party from one part of it only.

xi) The wife cannot say that the consequence of being held to the agreement would leave her on the breadline. She would still have a pension fund of £2 million plus whatever sum is received when the properties do eventually sell.

xii) It is very much a matter of chance that the wife has been given this legal avenue to come back to the courts to vary an undertaking. If the order had been differently drafted so that the sum that she was to repay the husband was by way of reverse lump sum, it would not be variable. It is a matter of fluke that the obligation to repay is by way of undertaking rather than order.

I find many of these points to be well made and I will return to them.

37. The Wife's Case:

On behalf of the wife it was argued as follows:

i) This case is dealing with a very specific set of circumstances. The wife agreed to what would have provided her with a fund, outside the provision of her new home and pension, of at least £3 million and perhaps as much as £4.5 million.

ii) She would never have agreed to accept monthly payments by way of loan so as to generate a huge debt if it had ever been anticipated that it would have gone on for so long or the value of her fund would have been so dramatically reduced.

iii) It was never the intention of the wife to assume the risk.

iv) Unless she is given relief, there may well be no income fund at all. It needs only another 3.5 years before the entire sum disappears, leaving her only with a property and a pension fund which, at the moment, she is too young to access and will remain so for another four or so years.

v) If the gateway to release from an undertaking is a significant change of circumstances then there could hardly be a more dramatic change than this.

vi) It is impossible for the husband to argue that it has produced an unfair result when his financial position is so much stronger than hers.

vii) This is not a first-instance hearing. On an appeal the judge's ruling is only to be displaced if it is plainly wrong or has taken into account irrelevant material or omitted important material. It is not for me to substitute my discretion for that of HHJ Hughes.

Discussion:

38. I have found this a difficult case to resolve. It is a classic example of the tension between change of circumstances on the one hand and integrity of a freely negotiated agreement on the other. There is much force in many of the points made on each side.
39. I specifically reject a number of the arguments put to me. First, I do not have sympathy with the argument that the wife could have crystallised the situation by applying earlier for an order for sale leading to a quicker resolution. It is, of course, true that she could have applied earlier but HHJ Hughes specifically made a finding that neither party had acted unreasonably in relation to the sale of the two properties and I should not go behind that. Furthermore, I cannot assume that, even if the price had been lowered, it would necessarily have been to a price that would have made the properties such a bargain that they were bound to have sold. The fact that every property has a price at which someone will buy it does not take the matter further.
40. I also reject the argument that an agreement should only be set aside in the very limited circumstances which might qualify for a change under Barder or Myerson principles. Those cases involved appeals against consent orders and there is nothing in Birch which leads me to conclude that the power to release from an undertaking is so constrained.
41. However, I am satisfied that the judge failed to give sufficient regard to the fact of the agreement. It was a highly material factor and was not lightly to be interfered with. Insofar as there was to be a material change to the agreement that should be kept, in my judgment, to a minimum. This brings me to replacement undertakings.

Replacement Undertakings:

42. If a court is contemplating the discharge of an undertaking in these circumstances it seems to me self-evident that the court should look at the provision of replacement undertakings and to limit the release to that which is necessary to avoid serious hardship or injustice. There is no reference to this principle in the judgement and I asked counsel whether this was an area that was canvassed for the judge.
43. On behalf of the husband, it was said that this was never an issue put to the judge at trial and that the two parties each went to their extreme positions, the wife saying that the undertaking to repay should be discharged in its entirety and the husband saying that the application for release should be dismissed.
44. Rather to my surprise, the wife gave a different answer. She said, through counsel, that it was suggested to the judge on her behalf that there could be replacement undertakings, in particular, discharging the husband from his obligation to make future payments or by a variation of the amount that the wife had to repay the husband, albeit that this was a fall-back position. Furthermore, it was pointed out that indeed the wife did indeed give a replacement undertaking, namely that referred to at paragraphs 26-27.
45. The wife succeeded in persuading the judge that no further undertaking was required and there is no further mention or discussion of replacement undertakings anywhere in the judgment.

Conclusion:

46. The judge found as a fact that there was a significant change of circumstances, namely the fact that the wife would not receive any or any significant sum over and above the property in which she lives and the pension fund unless she was discharged from the undertaking when, on the other hand, she had been expecting to receive a sum of more than £3 million. It seems to me that this was clearly a significant change of circumstances.
47. Nevertheless, I agree with the husband that this does not lead, inevitably, to the release from an undertaking. All it does is to open the gateway to consideration of the change of circumstances in the light of all other relevant factors.
48. Most significant amongst those factors must be the fact that:

i) the parties came to an agreement that was intended to be a clean break and a complete agreement of all matters between them,

ii) the order had in a number of respects already been put into effect,

iii) the husband had honoured the agreement and paid substantial sums to, and for the benefit of, the wife in the expectation that he was going to be repaid.

49. All those factors seem to me to be powerful ones and which militate strongly in favour of the provision of replacement undertakings if the principle undertaking to repay was to be discharged.
50. In assessing fairness the judge was entitled to take into account the much improved state of the husband's finances. This does not amount to a sharing of the husband's post-separation accrual as was urged upon me. It was an essential part of the consideration of the fairness to each party.
51. I conclude that the judge was entitled, in the exercise of her jurisdiction, to conclude that the wife should be discharged from her undertaking but that fairness to the husband requires that replacement undertakings be put in place.
52. I do not have enough information to finalise the terms of replacement undertakings. Both sides have asked me to deal with this issue rather than to remit it. I have in mind the following matters in particular:

i) In a few years time the wife will be entitled to cash-in her pension and take 25% of it as a lump sum. I would require persuasion that she should not pay that or a significant element of it to the husband in part-repayment of the debt.

ii) I would want to give consideration as to whether the wife's new property should not continue to carry an element of mortgage so as to release funds to repay the husband.

iii) I would need persuasion that it was just for the husband to be required to go on paying the current monthly provision of £12,000 per month to the full extent. I say this particularly when the figures put to the judge, as contained in the judgment, suggest that the income fund that the wife would have achieved from her (wrongly described) Duxbury fund was £89,000, which approximates to £7,400 per month when he is currently paying £12,000 per month. I would wish to have a close eye on the wife's budget to assess what is a reasonable sum going forward. I would also want to know her capital position to act as a further check on that figure.

53. The above is not a comprehensive list and there may be other or different matters I will need to consider after hearing submissions. It will of course be a matter for the wife to determine whether or not she wishes to offer replacement undertakings although, for obvious reasons, I am sure that she will.
54. I would like to impress that these cases must and should be rare. Parties are entitled to and expect finality when they enter into a clean break. But occasionally circumstances will arise where the change is so significant and unforeseen that the basis of the order is undermined and leads to an injustice which should be corrected if the circumstances are such that it will not cause excessive prejudice to the respondent.
55. It follows from the foregoing that I allow the appeal although not to the extent that the husband would have wished.