Family update
Family law update: variation of financial order under MCA 1973
Birch v Birch [2017] UKSC 53 considers whether, when varying a consent order, the court should apply Matrimonial Causes Act 1973 s31, or if it must apply a narrower approach.
The husband and wife entered into a consent order on 28 July 2010. Part of the order provided that the husband should transfer to the wife his legal and beneficial interest in the matrimonial home, subject to the mortgage, so that the wife could continue to live there with the two children of the family. In return, the wife undertook (at paragraph 4.3 of the recitals) to discharge all mortgage payments, to indemnify the husband against any liability under it, and to use her best endeavours to release him from the covenants under it. Then, crucially, she undertook (at paragraph 4.4 of the recitals) that, if the husband had not been released from his mortgage covenants by 30 September 2012, she would secure his release by placing the home on the market for sale and proceeding to sell it.
The Supreme Court by a majority of 4:1 allowed the wife’s appeal. The court held that jurisdiction existed to hear the wife’s application
On 18 November 2011 the wife, who had (and still has) duly discharged the mortgage payments, issued an application to ‘vary’ her undertaking at paragraph 4.4. She explained that she had not been able to secure the husband’s release from his mortgage covenants and would not be able to do so by 30 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. In such circumstances, she sought a ‘variation’ of the undertaking at paragraph 4.4, so as to postpone for seven years her obligation to secure the husband’s release from his covenants under the mortgage by sale of the home until 15 August 2019, being the date of their son’s 18th birthday.
The husband argued that the court had no jurisdiction to hear the wife’s application, and requested that the court rule on that preliminary issue. He argued that the wife’s undertaking was equivalent to an order for sale under section 24A of the Matrimonial Causes Act (MCA) 1973. And 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.
When the wife’s appeal from an adverse decision below came before the Court of Appeal, it held that:
- its 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 the wife’s application.
Lord Wilson gave the lead majority judgment, with which Lady Hale, Lord Kerr and Lord Carnwath agreed. Lord Hughes gave dissenting judgment.
The description of the application as being to ‘vary’ the wife’s undertaking is confused. The court’s power is only to grant or refuse an application for release from the undertaking. Although the court’s exercise of its power may result in something which looks like a variation of an undertaking, if it decides to accept a further undertaking, it is the product of a different process of reasoning (para 5).
The courts below wrongly concluded that they did not have jurisdiction to release the wife from her undertaking. They failed to distinguish between the existence of the court’s jurisdiction The Supreme Court, by a majority of 4:1, allowed the wife’s appeal. The court held that jurisdiction existed to hear the wife’s application to release the wife from her undertaking, and the exercise of its jurisdiction (para 6). The case law indicated that there was full jurisdiction to hear the wife’s application (para 12). Furthermore, in circumstances where the undertaking in paragraph 4.4 could have been framed as an order for sale of the property under section 24A of the MCA, variable under section 31(2)( f), it would be illogical for the existence and exercise of jurisdiction to grant release from the undertaking to differ from those in relation to the variation of any such order (para 17–18). The equivalence of the wife’s paragraph 4.4 undertaking with a section 24A order for sale seems clearly to confirm the existence of the court’s jurisdiction to hear her application for release from it (para 19).
Lord Wilson was unable to subscribe to the Court of Appeal’s determination of the appeal in Omielan by reference to the non-existence of jurisdiction rather than a refusal to exercise its jurisdiction. Where parliament has conferred jurisdiction on a court, there is no scope for a court to say that part of it does not exist. The terms of a financial order are often interlinked, and therefore it is difficult to apply the concept of different territories to such an order. The demarcation of territories within the order is no proper criterion for identifying the existence of a jurisdiction (para 27).
Parliament did not, in section 31(7) or elsewhere in the MCA, make a change of circumstances a condition for the exercise of jurisdiction to vary a section 24A(1) order for sale. However, unless there has been a significant change of circumstances since the order was made, grounds for variation of it under section 31 seem hard to conceive (para 15).
The court remitted to HHJ Waller the inquiry into whether the court’s jurisdiction to vary the undertaking should be exercised. In light of the equivalence of the wife’s undertaking with a section 24A order for sale, his inquiry will be conducted in accordance with section 31(7) of the MCA. He will give first consideration to the welfare of the two children; however, it is a consideration which may be outweighed by other factors. He will have regard to all relevant circumstances, including, in particular, whether the wife can establish a significant change of circumstances since her undertaking was given and whether, and if so to what extent, the husband has suffered, and is likely to continue to suffer, prejudice by remaining liable under his mortgage covenants (para 29). If the court finds that the husband 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 (para 30).
Lord Hughes gave a dissenting judgment, not on the existence of the jurisdiction to vary a section 24A order for sale, or its equivalent achieved via an undertaking, but on the principles for its exercise. It must be kept in mind that the section 24A order is ancillary to a capital order, and that final capital orders cannot be varied in their substance (whether or not there is a change of circumstances). Lord Hughes stated that the acid test should be whether the application is in substance (impermissibly) to vary or alter the final order, or whether it is (permissibly) to support it by working out how it should be carried into effect (para 54). The application in the present case is one which attempts to vary, not to carry into effect, the originally agreed and court-endorsed order, and therefore the Court of Appeal was right to hold that it was bound to fail (para 57). Lord Hughes would dismiss the appeal (para 58).
- This summary article aims to assist readers in understanding the UK Supreme Court’s (UKSC’s) decision. It does not form part of the reasons for the decision. The full judgment of the UKSC is the only authoritative document, available at: www.supremecourt.uk/cases/docs/uksc-2015-0230-judgment.pdf