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Background

The parties were both qualified barristers. The wife (hereafter ‘W’, aged 44) worked for an international bank in the City of London, earning c. £155,000 per annum gross. The husband (hereafter ‘H’, aged 51) worked for the Government, earning c. £69,000 per annum gross. They began cohabiting in 2005 and married in 2007. The marriage broke down in 2019. They had two children (14 and 10 years old), who were subject to Children Act proceedings in 2020, which resulted in shared care and a 12-month supervision order in favour of Tower Hamlets LBC.

The petition was issued in February 2019. A Form A followed, and a First Appointment took place in May. The proceedings reached the FDR stage in September 2019.

At the FDR before DDJ Butler the Decree Nisi has not yet been issued, but both parties were nevertheless content to negotiate. The main asset available to the parties was the family home (‘the family home’). This was a flat in East London in a multi-storey block built with cladding outer walls. It had an agreed value of £1.1 million, the figure arrived at by the SJE surveyor (notably this SJE did not raise any other issues with the property). There was estimated net equity of £450,000.

The parties also had two investment properties; also flats in East London, with c. £60,000 and c. £40,000 respectively in net equity. Additionally, W had property in France subject to legal rights of other members of her family and the parties both had significant debts and relatively modest pension provision.

The main sticking point at the FDR was the treatment of the family home. Eventually H conceded his desired outcome of the home being sold and the proceeds divided on the proviso that he would transfer his interest to her in exchange for a lump sum. W eventually agreed to pay a sum of £300,000.

A Xydhias deal was struck late in the day with Heads of Agreement being drawn up and signed by the parties. The agreement could not be a Rose order, since Decree Nisi was still pending.

It appears that not much thought was given to the mechanics of W raising the lump sum, with suggestions that W might be able to get help from her employer. W had already been communicating with the mortgagee of the family home, Yorkshire Building Society, to enquire about borrowing in order provide a lump sum to H. The judge noted that H’s counsel had in cross-examination placed some weight on W not having disclosed these communications to H at the FDR. The judge decided this was not probative in relation to the matters in issue before the court.

Following the FDR, W applied to Yorkshire Building Society for the extra borrowing. However, in October 2019 this application was rejected by the mortgagee when their surveyor’s report gave the family home a nil value on the basis in that it did not have the requisite fire safety documents; this appears to have been the required response in the wake of the Grenfell Tower disaster in June 2017. Initially W appears to have believed that this was more of a clerical issue, and that it would just be a matter of getting the necessary approvals in order to rectify this situation, rather than that there was actually a substantive problem with the cladding. Indeed, she appeared to have received some reassurance of this position from the representatives of the freeholder.

Decree Nisi was ordered on 18 October 2019, meaning a full financial remedies order was possible.

At this point, as the judge noted, it would have been open to W to inform H’s legal team of the problem with the cladding and her inability to raise the lump sum against the family home as things stood. The judge noted the unfortunate truth that it would likely have been possible for W to decline move forward with the consent order on the basis of the cladding issue being an Edgar vitiating factor. Instead, W pressed on with the consent order process. The judge described this decision as a having been a ‘gamble’ on the part of W, likely taken in order to prevent H from having another opportunity to push for the immediate sale of the family home.

In November 2019 W took steps to advance the Xydhias agreement, transferring one of the investment properties and signing the consent order to go to the court. Only after DDJ Butler had approved the order on 13 November 2019 did W’s solicitors communicate the nil value issue, albeit in a way which seemed to imply that the matter would be rectified in due course, and that there was no immediate cause for alarm.

Over the following months W appears to have struggled to progress matters. Following the consent order W continued futile efforts to find alternate mortgagees. Her hopes were raised and then dashed when a promised fire safety inspection in December 2019 did not materialise.

By February 2020 the situation had becomes increasingly desperate and W attempted to ameliorate H by making a down-payment of £50,000 to him. On 20th February 2020 W received a copy of the ‘nil value’ surveyor’s report from Yorkshire Building Society, which she forwarded to H. The following day, Decree Absolute was ordered. Thereafter W continued to try to find alternative sources of lending unsuccessfully.

In June 2020 a fire safety officer deployed to inspect the family home reported what the parties had dreaded: there was indeed a major problem with the cladding requiring remedial work which would cost around £8 million for the building (i.e., c. £40,000 per flat) and could take around three years to fix.

The Applications

With W unable to pay the lump sum under the terms of the consent order, H issued a general enforcement application in August 2020, seeking an immediate sale of the home. He sought payment of the lump sum of £250,000 plus statutory interest.

In September 2020 W responded with an application to set aside the order of DDJ Butler. She sought to remain in the family home, whilst renegotiating the lump sum payable to H in line with the change in value of the home.

Legal structure of the applications

H argued the court had the jurisdiction to make an order for sale, notwithstanding the lack of a default order for sale in the consent order. The judge agreed that he had the necessary jurisdiction to either order the sale or delay its implementation, on the basis that under the MCA 1973, s.24A the court has the power to make an order for sale “at any time thereafter”.

In determining an appropriate implementation period, the judge considered the dicta of Lord Wilson in Birch v Birch [2017] UKSC 53, which noted the caution with which judges must approach applications to vary s.24A orders (and which the judge thought were analogous to the present case), on the basis that although such decisions could not change the allocation of assets as between the parties directly, they could have the effect of doing so indirectly by reason of the postponement of the receipt of capital by one party.

W’s primary position was that the entire order should be set aside pursuant to the House of Lords’ decision in Barder v Barder (Calouri intervening) [1998] AC 20. The judge quoted heavily from the dicta of Mostyn J in DB v DLJ [2016] EWHC 324, which he described as being “masterfully explained”. Quoting from DB v DLJ (supra), the judge set out the four conditions of a set aside:

  • New events have occurred since the making of the order invalidating the basis, or fundamental assumption, upon which the order was made.
  • The new events should have occurred within a relatively short time of the order having been made. It is extremely unlikely that there could be as much as a year, and in most cases it will be no more than a few months.
  • The application to set aside should be made promptly in the circumstances of the case.
  • The application if granted should not prejudice third parties who have, in good faith and for valuable consideration, acquired interests in property which is the subject matter of the relevant order.

To this the judge added excerpts of Mostyn J’s consideration of the distinction between a “true Barder case” (which he described, pace Donald Rumsfeld, as involving “unknown unknowns”) and cases of mistake (“known unknowns”):

54. As I see it, the crucial distinction between a mistake case and a true Barder case is that in the former the relevant facts will exist at the time of the order; but will be unknown; while in the latter the relevant facts will arise after the order …

55. Where a case of mistake, as opposed to supervening event, is being advanced the question of the ability of the claimant by exercising due diligence to have discovered the true facts is critically important. In this regard the burden will be on him to show that he could not have discovered the true state of affairs.”

The judge then set out Mostyn J’s test for mistake in these circumstances:

57. Therefore I think that applicable principles in relation to the mistake ground can be formulated as follows:

  • The court may set aside an order on the ground that the true facts on which it based its disposition were not known by either the parties or the court at the time the order was made.
  • The claimant must show that the true facts would have led the court to have made a materially different order from the one it in fact made.
  • The absence of the true facts must not have been the fault of the claimant.
  • The claimant must show, on the balance of probabilities, that he could not with due diligence have established the true facts at the time the order was made.
  • The application to set aside should be made reasonably promptly in the circumstances of the case.
  • The claimant must show that he cannot obtain alternative mainstream relief which has the effect of broadly remedying the injustice caused by the absence of the true facts.
  • The application if granted should not prejudice third parties who have, in good faith and for valuable consideration, acquired interests in property which is the subject matter of the relevant order.”

The judge also adverted to the importance of finality in settlements of this nature as a factor to weigh in the balance on a set aside application (Walkden v Walkden [2010] 1 FLR 174, per Elias LJ).

W’s fall-back position was that the date for paying the existing lump sum should delayed to a time when the cladding issue would be sorted with little or no interest payable.


Application of legal structure to the present case

The judge decided that the set aside application was not made out on the facts of the case, taking the relevant date as that of the making of the order in November 2019 (rather than the FDR in September). On that date the cladding issue was, in the Rumsfeldian taxonomy, a “known unknown”; W was aware that the cladding could have been defective, notwithstanding the fact that the defect was only confirmed in June 2020. As a result, this case was one of mistake rather than a true Barder case.

The judge thereafter applied the test for mistake set out above, holding that the test for foreseeability was not made out. The judge characterised W’s decision to go ahead with the order as being a “calculated gamble”. He was clearly of the view that W had been in a position to ascertain the true position much earlier than June 2020 and that she had not exercised due diligence in this regard. Ultimately this fact was fatal and a case for mistake could not be maintained against this backdrop. The judge added that there could also be alternative mainstream relief in the form of his eventual decision.

Having dismissed W’s primary position, the judge turned to her secondary argument that he should effectively delay enforcement of any order for sale to allow the cladding situation to be remedied and to enable W to raise a lump sum. H continued to argue that there should be an order for immediate sale.

The judge assessed the parties’ respective financial positions and then sought to balance the relative impact each outcome would have on each party. The judge accepted that either outcome would result in some hardship on the opposing party; each would have to fall back on rental accommodation and be unable to pay off debts in the event of the decision going against them.

However, the salient factor appears to have been that if the property were to be sold immediately it would have crystalised the loss of value of the property as a result of the cladding issue; that equity being permanently lost to the family. The W’s proposal, however, contained the possibility of the flat regaining value on the rectification of the cladding issue. The judge, whilst recognising that there was “an element of gamble here”, decided that this second option was the fairest outcome.

The judge therefore proposed to make an order for sale, albeit with implementation being delayed in order to allow a reasonable opportunity for the cladding to be fixed (the mainstream relief referred to above), which the judge suggested could be in the region of three years. He thereafter proposed to hear submissions on the form of such an order, albeit with the following conditions:

  • Statutory interest at the High Court judgment debt to continue to run to compensate H.
  • W to have right to occupy the family home, albeit predicated on undertakings to pay outgoings and payments concerning the cladding. W to undertake to try to raise the relevant lump sum for H.
  • W to indemnify H for any CGT liability.
  • H to have opportunity to predicate the delay in enforcement on transfer by W to H of one of the investment properties (its value to be offset against the eventual lump sum).
  • W to be required to maintain transparency with H about the cladding issue and the attempts for her to re-mortgage.

Costs

In relation to costs, the judge characterised the applications as a “score draw” where there should be no order as to costs, subject to any further argument by the parties in correspondence.

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