In the case of Birch and Birch [2017] UKSC 53 the Supreme Court decided that a consent order made in 2010, under which the wife undertook to discharge the mortgage on the family home in return for the husband giving up his interest in it could be revisited by the court.
The brief facts are that the husband (“H”) and wife (“W”) entered into a consent order on 28th July 2010. Part of the order provided that H should transfer to W his legal and beneficial interest in the matrimonial home subject to the mortgage so that W could continue to live there with the two children of the family. In return W undertook in the recitals to the order to discharge all mortgage payments, to indemnify H against any liability under it and to use her best endeavours to release him from the covenants under it. All pretty standard so far. However, and, crucially, she also undertook that, if H had not been released from his mortgage covenants by 30 September 2012, she would secure his release by selling the family home.
You guessed it ….. she did not manage to secure his release and applied pursuant to s31 Matrimonial Causes Act 1973 to vary the terms of the undertaking. She explained that she would not be able to secure H’s release from the mortgage covenants by 30th September 2012. The children were in schools in the vicinity of their home and it would be gravely damaging to their interests for them to have to move home while still at school. W sought a “variation” so as to postpone her obligation to secure H’s release by way of sale of the home until 15 August 2019, being the date of their son’s 18th birthday.
H argued that the court had no jurisdiction to hear W’s application and requested that the court rule on that preliminary issue. He relied on the Court of Appeal’s decision in Omielan v Omielan [1996] 2 FLR 306 that jurisdiction to vary the latter did not exist where it related to the “territory” of the property adjustment order. 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. W’s appeal came before the Court of Appeal which held that it’s jurisdiction to hear the application was a “formal” jurisdiction which existed only “technically”; that scope for its exercise was “extremely limited indeed”; and that there was no basis for its exercise upon W’s application.
The Court of Appeal were at pains to point out that the cardinal principle of final orders being final in order 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.
The Court of Appeal held that 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. 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 unanimously rejected W’s appeal. W sought and was granted permission to pursue her case before the Supreme Court.
The Supreme Court, by a majority of 4 to 1, allowed W’s appeal and held that jurisdiction exists to hear W’s application. Lord Wilson gave the lead majority judgment, with which Lady Hale, Lord Kerr and Lord Carnwath agreed. Lord Hughes gave a dissenting judgment.
The Supreme Court said that the application as being to “vary” betrayed a conceptual confusion. A court has no power to impose any variation of the terms of a voluntary promise. A litigant who wishes to cease to be bound by her (or his) undertaking should apply for “release” from it (or “discharge” of it); and often she will accompany her application for release with an offer of a further undertaking in different terms. The court may decide to accept the further undertaking and, in the light of it, to grant the application for release. Equally the court may indicate that it will grant the application for release only on condition that she is willing to give a further undertaking or one in terms different from those of a further undertaking currently on offer. In either event the court’s power is only to grant or refuse the application for release; and, although exercise of its power may result in something which looks like a variation of an undertaking, it is the product of a different process of reasoning. The courts below had wrongly concluded that they did not have jurisdiction to release W from her undertaking. However, they failed to distinguish between the existence of the court’s jurisdiction to release W from her undertaking, and the exercise of its jurisdiction. The case law indicated that there was full jurisdiction to hear W’s application. Further, in circumstances where the undertaking could have been framed as an order for sale of the property under s. 24A MCA 1973, variable under s.31(2)(f), it would be illogical for the existence and exercise of jurisdiction to grant release from the undertaking to differ from that in relation to the variation of any such order. 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 was 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. If the court finds that H has suffered, and/or would be likely to suffer, prejudice as a result of delay in selling the home, the court might favour compensating him by asking the wife to make provision for him out of the ultimate net proceeds as a condition of release
Comment
While this ruling is significant in clarifying a couples’ ability to vary an order, it may raise concern for individuals who have similar orders and were hoping to be released from a mortgage at a set time in the future. Their release might now not be as certain as it was prior to this decision by the Supreme Court. One of the key components in family law is to provide certainty at the conclusion of a matter and this case may call that in to question.
It seems to me that the decision raises a number of questions:
- What exactly is a significant change in circumstances?
- How important/relevant is the prejudice the other party will suffer?
- What terms of compensation should be offered or ordered for any prejudice suffered if the application is granted?
- Should a party seeking to be released insist on an immediate sale rather than agreeing a period of grace to allow the other party to attempt to release them from their covenants.It will be interesting to see how HHJ Waller decides the matter so as to provide guidance. What is no doubt intended to provide further flexibility to the courts to consider variation as to when a family home should be sold may well result in more rigidity if finality is to actually be achieved.
