Punam Denley, of the International Family Law Group, considers the recent Court of Appeal judgment in the "credit crunch" case of Myerson
After the 1st of April 2009 the chances seem to be very slim indeed of setting aside a divorce settlement because of the dramatic change in the economy. The Court of Appeal in Myerson v Myerson [2009] EWCA Civ 282 gave a firm indication that such applications do not satisfy the Barder test and would be unlikely to succeed. There were few in the family law community who did not anticipate this outcome. Has the decision really changed anything?
Mr Myerson appealed against the consent order of 18th March 2008 (made at an FDR) which then provided for a 57%/43% split of the £25 million assets in his favour. The grounds for his appeal were that there were new events that had happened since the date of the order which invalidated the entire basis of the order. The new event was the financial meltdown in the world markets, leading (he submitted) to an unforeseeable and extraordinary fall in his personal wealth.
The court order amounted to a lump sum of £9.5 million to the Wife, payable by way of £7 million immediately and then four further equal instalments of £625,000 each, the last being due in April 2012. The Husband had paid the first tranche as ordered. At the time of his appeal, the Husband said that the order had become unfair because, as a result of the collapse of the share and housing markets, the bargain was now 86%/14% in the Wife’s favour. This meant that he was unable to fulfil his remaining obligations under the order, as he simply didn’t have the funds to do so.
The Husband wanted to change the terms of the order so that he would not have to pay the rest of the instalments and made an application on this point in November 2008. That application will be heard separately in July 2009. The case before the Court of Appeal in March 2009 related to an application that he made in December 2008, appealing against the original order of March 2008.
Lord Justice Thorpe gave the lead judgment with Lady Justice Smith and Lord Justice Sullivan. He went through a history of the case, including an analysis of the diminution of the Husband’s wealth. Mr. Myerson is the Executive Chairman of Principle Capital Holdings Ltd (PCH) and has a 30% shareholding in the company. At the time of the order in March 2008, his shares were worth £15 million, and trading at almost £3.00 per share. The price declined steadily which the Husband appeared to accept with equanimity up until November 2008. At that stage, the low share price of £1.41 prompted the Husband to issue his appeal application. By the hearing date in March 2009, the price stood at 27.5 pence per share, having sunk to 10% of its original value.
The Wife’s legal team, led by Mr Mostyn QC, said that all share prices went up and down. He pointed out that her former Husband had issued a robust and optimistic public statement as Chief Executive about his company’s prospects in September 2008. He had not tried to sell his shares to crystallise or minimise his losses. He said:
“He has simply continued as captain of a great ship currently in stormy waters but still steaming on.”
Mr Mostyn contended further that the Husband had not made his application with reasonable promptitude, in that he waited for nine months after the date of the order. This was later rejected by the Court of Appeal.
He also made the very important point that to allow this Husband to succeed would mean that many couples would use the drop in their asset values to renegotiate their settlements, with consequential chaos, and confusion in a huge number of cases for the whole family legal system and practitioners.
Thorpe, LJ’s judgment went through the authorities and the law. He adumbrated the categories into which a case must fall in order for it to be considered under the Barder principles in terms of a change in asset value:
1) An asset correctly assessed at trial changes in value a short time later owing to “the natural processes of price fluctuation”; but judges should not be tempted to vary an order on this ground when they patently do not have the power to do so;
2) Mistaken valuation of an asset at trial, which if correctly valued would have led to a different result. Provided this is honest, a court can reopen the order;
3) Something unforeseen and unforeseeable has occurred since the trial which has altered the asset value so dramatically so as to skew the balance of assets as between the parties. A court could reopen an order in these circumstances but these cases are “few and far between”.
The Court of Appeal rejected the appeal for a number of reasons, including the fact that the Husband had consented to the order and in doing so had agreed to take on the risk-laden assets. He had sought a refund of all or part of the first instalment of the lump sum that he had paid to his Wife, in return for a transfer to her of some shares in PCH. The judges were deeply unimpressed with this and questioned why the court should rewrite the bargain at his behest. The Husband had already invoked the statutory power of variation in relation to the instalments and that other application is to be heard in the summer.
Judges do not want to ‘open the floodgates’; a rather hackneyed expression to signify a fear of what considerable litigation might follow if a certain route is taken on an appeal decision. In this case, the fear is that many spouses will rush to court to undo their agreements and orders. The Court of Appeal was making a general policy decision as to the attitude of the courts and laying down a warning to others who think they might have a stab at this.
Lord Justice Thorpe’s very words were: “very few successful applications have been reported”.
He said that the quite astonishing 90% drop in the Husband's share price was a “natural process of price fluctuation” and is not enough to reopen an order. Very many political and economic experts and commentators across the world (including the politicians at the G20 summit meeting as the Court of Appeal judgment was given) consider that the present worldwide economic crisis is somewhat different to the “general fluctuation” in market shares as found in normal healthy market conditions. Undoubtedly the Court of Appeal wanted to make a policy statement to discourage substantial reopening of court orders, and the outcome may be correct in this particular case. It might be said that that the Court of Appeal has misjudged the effects of the current economic climate, which is so serious as to require a quite unprecedented £3.4 trillion rescue package to stimulate the world economy by the G20 that same week.
The Court of Appeal decision restates current law whereby judges are wary of reopening orders, save in the most exceptional of circumstances. A successful ‘Barder’ remains elusive, and Myerson has changed nothing in this regard. Would the Wife have been viewed with more sympathy had she been the one to lose out because the Husband’s speculation had paid off and she hadn’t had a share of it? It is most unlikely. This is where the opinions of the legal profession and the public at large diverge. Most fair-minded people would consider that a dramatic change in fortunes of one spouse very soon after a divorce settlement should lead to a reassessment.
Of course, the other interesting point about Myerson was the Financial Dispute Resolution hearing itself at which the original agreement was brokered in March 2008. The FDR was appealed and heard in November 2008 ([2008] EWCA Civ 1376, 20th November 2008). The issue was that the Consent Order agreed between the parties had left open the question of security for the lump sum instalments. The Husband applied for an extension of time, variation of the lump sums and permission to appeal. The Wife cross-applied with an application to increase the amount of the lump sums and reduce the timescale over which they were to be paid. The judge who had dealt with the FDR decided that she could determine this matter. The Husband disagreed, contending that the FDR judge could not take any further part in the proceedings.
The Court of Appeal ruled that an FDR judge could only do three things; approve a consent order, give further directions or set up another FDR. Therefore, the applications to vary or set aside the consent order must be heard by a different judge, and the case was remitted to Mr Justice Bennett, who will hear it in July 2009. It will be instructive to analyse the outcome of Mr. Myerson’s application at that stage.
Punam Denley
