Covid 19 – A ‘Supervening Event’?

Wed, 29 Apr 2020

The financial impact of the current global pandemic on both a macro and micro economic level, has been extensively reported:

  • The FTSE has fallen by 24.5% Since the start of the pandemic, impacting the value of investments and consequently, pension values;
  • Almost 1m people applied for Universal Credit in two weeks at the end of March;
  • The Centre for Economics and Business Research forecasts that U.K. house prices could fall by as much as 13% by the end of the year.

Businesses failing, employees losing their jobs and the values of house prices, pensions and investments falling at rates not seen for decades will fundamentally alter people’s personal finances.

This raises an interesting question for divorce lawyers:

Could these fundamental financial changes provide a basis for reopening financial remedy orders (whether arrived at by consent or imposed by the court) on the basis that the financial impact of the pandemic constitutes, in accordance with the well-known judgment in Barder v. Barder (Caluori Intervening) [1988] AC 20,   

 ‘a new event which has fundamentally undermined or invalidated the basis of the original order.’?

‘Barder events’ are notoriously difficult to establish and the door to reopening an order on the basis of changes in the value of the assets retained by one of the parties after divorce seemed to be firmly closed by the judgment in Myerson v. Myerson [2009] EWCA Civ 282. In Myerson, the parties reached an agreement that divided their assets of £25.8m as to £11m to Mrs. Myerson and the balance to Mr. Myerson. Mrs. Myerson’s share was made up of cash and property while Mr. Myerson’s share consisted largely of his shares in a fund management company known as Principle Capital Holdings (‘P.C.H.’). Within a relatively short time of the order being finalised, the full force of the financial crash hit the markets. P.C.H. shares were worth £2.99 each at the time the agreement was reached (June 2008), and by March 2009 were worth only 27.5p each.  

Mr. Myerson’s claim for a revision of the order was firmly rejected by the Court of Appeal. Among the panoply of reasons given as to why the appeal should fail, Thorpe L.J. cited with approval the words of Hale J (as she then was) in her judgment in Cornick v. Cornick (1994) 2 FLR 530:

“(When) An asset which was taken into account and correctly valued at the date of the hearing changes value within a relatively short time owing to natural processes of price fluctuation. The court should not then manipulate the power to grant leave to appeal out of time to provide a disguised power of variation which Parliament has quite obviously and deliberately declined to enact.”

Thorpe L.J. took the view that this reflected the position in Myerson and amplified the point:

“When a businessman takes a speculative position in compromising his wife’s claims, why should the court subsequently relieve him of the consequences of his speculation by re-writing the bargain at his behest?”

This approach was affirmed and followed in Horne v. Horne [2009] EWCA Civ 487.

So could the Coronavirus pandemic provide a basis for forcing open a door so firmly closed by Cornick and Myerson ?

A couple of obvious points of distinction arise which could at least open the door just a crack:

Firstly, it is difficult to see how the general economic downturn and by extension, the fall in share prices and house prices caused by the pandemic could be characterised as being simply due to “natural processes of price fluctuation”. The global pandemic could in fact, be said to have occasioned an entirely unnatural impact on the financial markets.

Secondly, with reference to the original Barder criteria, it was apparent from both Myerson and Cornick that changes in the value of assets (particularly shares) however dramatic they may be, could not be characterised as “unforeseen and unforeseeable.” By contrast, there is clearly an argument that the financial impact of a global pandemic must surely be unforeseen and at least to a significant degree, unforeseeable.

A couple of potential counter arguments are equally obvious however:

When the pandemic eases, global economies will presumably recover – at least to some extent. In these circumstances, why should the party who retained a share portfolio not be required to simply wait for the markets to recover as they would be expected to do following any other drop in values, or the party who retains shares in his or her own business not be required to trade out of financial difficulty when business picks up?

In addition, if any application to revisit a final order on this basis were to be allowed, the floodgates would clearly be opened. Vast numbers of people have been financially impacted by the pandemic and those among them who have been subject to a recently approved final financial remedy order would be expected to flood the court system with applications to reassess those orders in light of their changed financial circumstances.

It seems that the Coronavirus pandemic may provide at least the basis for a Barder argument – sufficient at least to test the strength of the door closed by Myerson and Cornick, but there is certainly no guarantee that the courts will open it given both the legal and public policy reasons why it should remain shut.

The first claims cannot be far away, so we should soon get more guidance as to the potential merits of a ‘Barder application’ based upon the financial effects of Covid 19.    

 

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