Interpreting consent orders: Derhalli v Derhalli [2021] EWCA Civ 112

Background

The appellant husband (“H”) and respondent wife (“W”) had married in 1989. They had two children together. In 2004, they bought a property in London (“the matrimonial home”), which was registered in H’s sole name. The family lived in the matrimonial home until after the breakdown of the marriage. H moved out in 2014, but W and the children remained living there until it was sold in March 2019.

Following divorce proceedings, decree nisi was pronounced in January 2015. In June 2016, the parties reached a compromise, and a consent order (“the order”) was approved by Holman J in September 2016. Decree absolute was granted in October 2016, shortly after the order was made.

The order provided forthwith for the sale of the matrimonial home (upon the joint instruction of the parties), and for W to be paid a series of three lump sums, to be made up in part from the proceeds of sale of the matrimonial home. Payment of the lump sums would be in full and final settlement of all W’s claims arising out of the marriage. Indeed, the order was drafted to provide that the lump sums would not be adjusted for any reason, and included a paragraph that any change in relation to H’s companies would not be capable of being a Barder event entitling either party to set aside the order.

There was no specific provision in the order in relation to the occupation of the property pending sale, although in the ‘Agreements’ section of the order, provision was made that W would discharge the outgoings on the matrimonial home with immediate effect, and that H would give W at least 24 hours’ notice before visiting the matrimonial home. Neither clause had an end date. In the ‘Undertakings’ section of the order, W undertook to remove the protective notices which had been registered in her favour on the matrimonial home.

When the order was made, the parties were confident that the matrimonial home would sell quickly. The asking price was in excess of £7m. However, as a result of the Brexit referendum in June 2016 and its effect on the high-end property market, the matrimonial home remained on the market until March 2019, when it sold for £5.9m (approaching £2m less than the original asking price). W and the children moved out upon its sale.

Possession proceedings

In March 2017, H served a notice on W requiring her either to vacate the matrimonial home within four weeks, or alternatively to pay rent at the rate of £5,000 per week for her continued occupation. A further notice was served in October 2017. Upon W declining either to leave or to pay rent, H issued proceedings in the County Court seeking possession of the matrimonial home and damages for trespass in the sum of £600,000.

The proceedings came before HHJ Gerald (“the first instance judge”), who had to determine (i) whether the effect of the order was to permit W to occupy the matrimonial home until sale, and (ii) whether, whilst she remained in the property, W’s financial obligation was limited to the payment of outgoings.

The first instance judge decided those issues in favour of H, declaring that from the date of the order, W occupied the matrimonial home as a gratuitous licensee. He held that, as H was the sole beneficial owner of the matrimonial home, W was a gratuitous licensee even before the approval of the order.

W was granted permission to appeal the order of the first instance judge.

The first appeal

The appeal was heard by Fancourt J (“the judge”). The judge allowed the appeal and set aside the declaration made by the first instance judge. He made a fresh declaration that, upon its true interpretation, the meaning and effect of the order was to permit W to occupy the matrimonial home until the sale of the property, with payment by her of the outgoings of the property, but with no obligation to pay occupation rent pending sale.

H was granted permission to appeal the order made by the judge.

The second appeal

The issue on appeal was whether the judge erred in deciding that the reasonable reader, having all the background knowledge which was available to the parties, would have concluded that it was the intention of these parties that W would be permitted to remain living in the matrimonial home, rent free, until it was sold. If she was not, then H would succeed in his claim for damages.

King LJ commented that Lady Hale’s confirmation in Macleod v Macleod [2010] AC 298 that a financial remedy order is not a contract remains good law, although she noted the comments of Sir Stephen Richards in G v B [2016] EWCA Civ 161 that the principles applicable to the construction of a consent order are the same as those applying to a commercial contract. King LJ stated that ‘[i]t follows that the principles of construction to be applied in determining the wife’s rights of occupation, if any, are the same regardless of whether the court is dealing with a contract or an order’ [22].

It was also noted by King LJ that H could have sought possession of the matrimonial home by virtue of a combination of powers under s.24A MCA 1973, which permits a court at any time after the making of an order for the sale of a property to make such ‘consequential or supplementary provisions as the court thinks fit’, which, by FPR r.9.2(2), include an order for possession to ‘any other person’. There is also the power to vary a s.24A MCA 1973 order for sale under s.31(2)(f) MCA 1973.

Although it was undoubtedly the case that the County Court had jurisdiction to determine this application, notwithstanding that the order with which the court was concerned was not a contract, in the judgment of King LJ ‘any dispute as to the interpretation of a financial remedy order made following the breakdown of a marriage should be put before the specialist Financial Remedy Court or a High Court Judge of the Family Division. The Family Court not only has the power under the Matrimonial Causes Act 1973 to resolve any conflicts which may arise in relation to orders that it has made, but also the expertise that comes from exercising their specialist jurisdiction’ [23]. King LJ felt that the route taken by H by way of possession proceedings was inappropriate, and that the proper course would have been ‘for him to have made an application for enforcement or variation of the Order not to the County Court but to the Family Court’ [23]. Asplin and Arnold LJJ, however, preferred to leave open the question of the propriety of bringing a claim for possession in the County Court.

Was W a gratuitous licensee?

The judge held that the conclusion of the first instance judge that W was a gratuitous licensee had no proper legal foundation, and that if it was correct, then W would automatically have become a trespasser (and liable to pay damages) on decree absolute being pronounced. The judge also held that the first instance judge was wrong to conclude that W was a gratuitous licensee before the order was made, since until decree absolute, W had statutory home rights to remain in occupation.

King LJ, with whom Asplin and Arnold LJJ agreed, agreed with the judge that there was ‘no factual foundation for saying that the wife was granted a licence, and consequently upon the husband’s case the wife became a trespasser upon the granting of decree absolute and liable to pay damages’ [38]. She also stated that the solution to the case ‘does not essentially lie in an examination of the legal ownership of the property and whether the wife was in law a gratuitous occupier, but upon a conventional construction of the Order conducted in accordance with the well-known judgment of Lord Neuberger in Arnold v Britton [2015] AC 1619 at [15]’ [39].

Construction of the order

In his judgment, the judge stated that in Arnold v Britton Lord Neuberger indicated that the meaning of a relevant clause, in that case in a lease, had to be assessed in the light of:

1. The natural and ordinary meaning of the clause;

2. Any other relevant provisions of the contract;

3. The overall purpose of the clause and the contract;

4. The facts and circumstances known or assumed by the parties at the time the document was executed;

5. Commercial common sense; and

6. A disregarding of subjective evidence of the parties’ intentions.

The judge also cited the judgment of Lord Hoffman in Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 110. In that case, Lord Hoffman said that the meaning of a contract was to be assessed by reference to ‘what a reasonable person, having all the background knowledge which would have been available to the parties, would have understood them to be using the language in the contract to mean’.

H’s position

H submitted that factors such as the joint conduct of the sale, the agreement that he would give 24 hours’ notice before attending the matrimonial home, and the transfer of all the standing orders for the running costs of the property to W did not indicate a right on the part of W to occupy the property. He argued that the judge failed to take into account the impact of the undertakings W gave to remove the notices registered in her favour against the matrimonial home. He also said that the fact that the property was in H’s sole name, together with the combined effects of the clean break provisions included in the order, demonstrated that upon a proper construction of the order, W had no rights of occupation after the granting of decree absolute.

W’s position

W stressed the importance of looking for signposts in the order. She argued that the reasonable reader would have known that the matrimonial home was bought in 2004 and was the main family home, that H had left in 2014, leaving W and the children in occupation, that the parties had come to an agreement in June 2016, the terms of which would lead forthwith to the sale of the matrimonial home upon the joint instruction of the parties, and that from the date of the agreement, H would cease to be responsible for all the outgoings. W queried why the parties would have gone to the trouble of swapping all the standing orders into her name if she could have been required to leave the property at short notice at the behest of H.

Furthermore, at the date of the order, the established living arrangements were that W and the children had been living in the house for almost two years. In order to bring the order into effect, it was necessary to apply for decree absolute, and the fact that W applied for decree absolute had no relevance to her continued occupation of the property under the order, but was simply the necessary vehicle in order to put the agreed order into effect.

King LJ agreed with W that those factors were relevant terms of the order which shed light on the intentions of the parties, and favoured the judge’s interpretation of the order. The question remained whether W’s undertakings to remove the notices, or the fact that H was the sole beneficial owner of the property taken with the clean break provisions, undermined the judge’s conclusions.

Analysis

King LJ set out that Lord Hoffman’s approach required the court to consider what a reasonable person, having all the background knowledge which would be available to the parties, would have understood the contract to mean. In her view, that background knowledge would include the fact that this was an order made in financial remedy proceedings which had been approved by a judge who would have considered all the circumstances of the case, including the s.25 MCA 1973 factors.

King LJ was ‘entirely satisfied that the judge’s judgment neither sets a precedent nor implies a licence to occupy into the Order’ [50]. The factors to be taken into account when construing a contract were, as agreed between the parties, those found in Arnold v Britton. The judge had carried out this exercise, and ‘unless he had fallen into error in the interpretation of the Order which had led him to conclude that “the terms of the order strongly indicate that the parties’ agreement had the effect that the appellant was entitled to stay in occupation until the house was sold”, there was no necessity for him to move on to consider whether he could properly imply a right of occupation as a term of the contract’ [53].

However, H submitted that a proper application of Arnold v Britton would not support the construction found by the judge. If H’s submissions were correct, the only basis upon which the judge could conclude that W had a right of occupation was by his imputation of such a right into the body of the order.

It was therefore necessary to consider whether the judge was in error in concluding that, under the terms of the order, W was entitled to remain in the property until sale. H submitted that the judge effectively wrote into the order a provision akin to implication, and applied the benefit of hindsight when imposing his view as to what the parties might have negotiated had they known the sale would take so long. However, King LJ considered that it could be inferred that it was H who was seeking to apply the benefit of hindsight to the interpretation of the order, and that it was H who sought to be relieved of the consequences of the Brexit referendum and the impact it had on the sale of the matrimonial home.

The court can only take into account the facts or circumstances known or assumed by the parties at the time the document was executed. What was known to the parties, and reflected in the order, was that:

· They were husband and wife.

· The agreement had been reached in the context of their divorce.

· The matrimonial home was to be put on the market at a price agreed by both of them.

· W would take over the running costs of the matrimonial home.

· They anticipated that the matrimonial home would sell relatively quickly, and that after its sale, W would receive a substantial lump sum.

It was not known that the referendum result would have serious consequences for the housing market, and the court could not take into account the fact that the property in fact remained unsold for two years. Neither could the court take into account the fact that H had made a ‘bad bargain’ to the extent that he had to provide W with rent free accommodation up to a value of £5,000 per week for two and a half years.

Furthermore, H’s interpretation of the order would serve to undermine the clear intention of the order to prevent either party varying the lump sum, in that the lump sum payable by H to W would be reduced by £600,000 if H was correct, since W would have no other means to satisfy H’s demands for rent of £5,000 per week.

In terms of the relevance of H’s sole ownership of the property, the judge stated that the removal of W’s notices was ‘self-evidently’ to facilitate the sale of the matrimonial home with vacant possession, and because such notices were no longer required as a result of the terms of the order and the impending decree absolute. In the judgment of King LJ, W’s agreement to the removal of the notices ‘does not, when considered against the totality of the contract, indicate an acceptance that she no longer had any right to occupy the matrimonial home arising out of the terms of the Order’ [65]. Those undertakings were administrative provisions, as W submitted.

The judge therefore took properly into account both the fact that the matrimonial home was in the sole name of H, and that W agreed to withdraw the notices.

Conclusion

This case turned solely on the proper interpretation of the order. The judge applied the law correctly, and was entitled to conclude that the effect of the parties’ agreement was that W was entitled to stay in occupation of the matrimonial home until such time as the house was sold. The appeal was therefore dismissed.

King LJ added that it may be that, in the future, ‘parties will choose to be more specific as to the precise terms under which a party remains in occupation of a matrimonial home pending sale’ [68].

Henrietta Boyle, Barrister at 1 Hare Court