HW & WW (Covid 19 pandemic : set aside a financial remedy consent order?)

Factual and Procedural Background

The Applicant and Respondent, hereinafter referred to as Husband and Wife respectively, reached a financial remedy settlement at a First Directions Review (FDR) hearing on 12 March 2020, approved by a Deputy District Judge the following day. The Order required the Husband to pay the Wife a series of lump sums totaling £1,000,000, with the first payment of £750,000 due by 10 June 2020. Subsequent payments were due by April 2021 and April 2022.

Following the onset of the Covid-19 pandemic and its economic impact, the Husband failed to pay the first lump sum. He applied initially to stay the lump sum payments for 12 months, which was superseded by an application to set aside the entire financial remedy consent order on grounds that unforeseen and unforeseeable circumstances, specifically the pandemic's impact on the value of shares in the family company and his ability to pay, had significantly changed the assumptions underlying the Order.

The Wife issued an enforcement application due to non-payment. The Court directed the parties to file narrative statements and updated disclosure. At the hearing before Judge Kloss, the stay application was dismissed as superseded, and the enforcement application was held in abeyance pending the decision on the set aside application.

The hearing involved oral evidence from both parties and detailed submissions, focusing on whether the pandemic and its effects constituted grounds to set aside the Order under established legal principles.

Legal Issues Presented

1. Whether the Covid-19 pandemic and its impact on the value of a key asset constitutes sufficient grounds to set aside a financial remedy consent order.
2. Whether the Husband's application to set aside the Order meets the criteria established in the Barder principle for reopening financial remedy orders based on unforeseen and unforeseeable events.
3. Assessment of the foreseeability of the pandemic's impact on the Husband's business and ability to meet the Order's terms at the time the Order was made.
4. Evaluation of the scale and fundamental nature of the change in circumstances required to justify setting aside the Order.

Arguments of the Parties

Applicant's Arguments

• The Covid-19 pandemic constitutes a new, unforeseen, and unforeseeable event that has drastically impacted the value and liquidity of the family company, invalidating the basis of the Order.
• The pandemic's impact on the company’s turnover, profits, and balance sheet value is substantial and ongoing, with a 38% fall in turnover and a net loss for the year ending August 2020.
• The Husband cannot meet the lump sum payments due to liquidity issues and inability to raise funds, as borrowing options have been withdrawn or are unavailable.
• The application was made promptly within eight months of the Order, satisfying timing requirements for a Barder application.
• The impact of the pandemic is beyond mere price fluctuation and should be considered a fundamental change.

Respondent's Arguments

• The Husband has not demonstrated a new unforeseen event within the Barder criteria; the pandemic was known and foreseeable as of the date of the Order.
• The Husband has failed to provide sufficient evidence of a fundamental change in the value of assets or ability to pay.
• The Husband's dissatisfaction with the original valuation does not justify reopening the Order.
• The Husband retains options to raise funds, including selling or charging company properties, and has chosen to bear the risks of the business.
• The principle of finality in litigation supports maintaining the Order as made.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court began by confirming the legal framework permitting setting aside a financial remedy order where unforeseen and unforeseeable events invalidate the basis of the order, referencing the Barder conditions and Cornick’s categorization of asset value changes. The Court acknowledged that the Covid-19 pandemic is an extraordinary event that could, in principle, qualify as a Barder event.

However, the Court carefully analyzed the timing and foreseeability of the pandemic’s impact. It considered the timeline of events before the Order was made, concluding that the Husband, an experienced businessman managing an international company with exposure to China and Europe, was on notice of significant and developing risks that could affect his business. Thus, the risk of a significant impact was reasonably foreseeable at the time the Order was made.

The Court evaluated the evidence of the pandemic’s economic impact on the Company, including turnover and profit declines, liquidity issues, and forecasts. It found that while the Company had suffered and faced difficulties, the evidence did not demonstrate a fundamental and dramatic change sufficient to meet the high Barder threshold. The Husband’s more pessimistic evidence was contrasted with more optimistic borrowing forecasts presented to a bank, which were only disclosed late in the proceedings, leading the Court to view the Husband’s evidence with caution.

The Court emphasized the importance of finality in litigation and the high threshold for reopening financial orders. It noted that the Husband voluntarily assumed the risks of the business and that the Order reflected a sensible and fair compromise at the time. The Court also recognized that a variation application was not available given the Order’s drafting as a series of lump sums.

Ultimately, the Court found that the Husband’s application failed on foreseeability grounds and that the overall impact of the pandemic, while significant, was not fundamental enough to justify setting aside the Order. The Court exercised its discretion against reopening the proceedings.

Holding and Implications

The Court dismissed the Husband's application to set aside the financial remedy consent Order.

The direct effect is that the original Order remains in force, requiring the Husband to comply with the lump sum payments as ordered. The Court acknowledged that the Company and Husband face real financial difficulties due to the pandemic, but these do not meet the exceptional threshold to reopen the Order. The decision preserves the finality of litigation and does not establish new precedent beyond confirming that the Covid-19 pandemic can, in principle, be a Barder event, though the foreseeability and impact must be carefully assessed.

The Court indicated openness to consider alternative applications or consensual arrangements to address the practical difficulties arising from the pandemic’s impact, but no such orders were made at this stage.