Re-inventing the wheel

The new approach to variation of lump sums in financial remedy

Juliet Allen

Pears Readers will be familiar with the collection of draft orders promulgated by Mostyn J, which have for some years now been the required format for final and interim orders in financial remedy, and will recognise the following recital which we all have all obediently been inserting into any final order which requires payment of multiple lump sums:

“Declaration regarding lump sum order(s) The parties agree and declare that the lump sum order set out in paragraph [para number] below should be considered to be [a series of lump sum orders] / [a lump sum order payable by instalments].”

Well, based on a recent Judgment by Mostyn J himself in BT v CU [2021] EWFC 87, it would be reasonable to conclude that the inclusion of any such Declaration in the future may be completely pointless.

BT v CU concerned an application by a Husband pursuant to FPR r. 9.9A to set aside the final financial remedy order on “Barder” grounds.

The facts of the case were straightforward. In October 2019 District Judge Hudd had ordered the Husband to pay to the Wife a total of £950,000 as a series of lump sums: £150,000 initially followed by £200,000 each year thereafter for four years (ending in 2023), plus additional provision by way of pension-sharing and tapering spousal maintenance in lieu of interest on the lump sum. The total assets were £4.75m and the overall capital division was 58/42 in favour of the Husband, who was to retain the most valuable asset, namely the family business, a private limited company providing school meals. The modest departure from equality was said to be justified by virtue of the nature of the asset to be retained by the Husband i.e. a private limited company rather than cash or property (raising the issues of risk and liquidity in a business asset). In addition, there a modest non-matrimonial dimension to the business which was not quantified but was said to have been taken into account in that small departure from equality.

A few months after the final order was made, COVID arrived in the UK and schools were closed, significantly impacting the family business.

On 27 April 2020, the Husband applied on Barder grounds to set aside the order on the basis of the impact of COVID on the business following the school closures.

The issue listed for determination before Mostyn J was whether COVID was capable of being a Barder event and whether the Husband had established grounds to set aside the final order.

Mostyn J delivered a detailed Judgment which covered a range of topical issues, from whether COVID could be a Barder event (TLDR: “probably not”, but will depend on the specific facts of the case) through to the Thwaite jurisdiction (TLDR: Mostyn J plainly disagrees with the recent authorities which have supported the existence of a separate “Thwaite” jurisdiction which enables the court not merely to refuse to enforce an executory order, but to make in its stead a completely different one).

For the purposes of this article, however, it is Mostyn J’s findings about the variability of lump sums which are of interest.

In the Judgment, Mostyn J undertakes a review of the origins of the lump sum provisions in the Matrimonial Causes Act 1973, going back to consider the recommendations of the Law Commission from 1969 which informed the lump sum provisions in the Matrimonial Proceedings and Property Act 1970 Act which is turn was the basis of the equivalent provisions in the 1973 Act.

Having reviewed all the original material, Mostyn J concludes that contrary to the longstanding conventional wisdom, lump sums by instalments are not variable as to quantum, only as to the timing of the instalments.

He goes on to say, at para 86:

“On this analysis, there is not much difference between the variability of a lump sum payable by instalments and the variability of a series of lump sums. The timing of the payment of individual lump sums in a series can be altered under the inherent jurisdiction of the court as explained in Masefield v Alexander. However, the amount of the instalments cannot be altered. It is not possible later to vary the payment schedule to provide for the overall amount to be spread over a longer period in smaller instalments. In contrast, a lump sum payable by instalments can be varied in that way…

Mostyn J goes on boldly to conclude that “there have been a number of cases which I respectfully suggest have misread the relevant provisions and have assumed that an order under s 31(1) and (2)(d) Matrimonial Causes Act 1973 could vary the overall quantum of a lump sum which is payable by instalments” and comments that “.. a practice has developed of framing what to all intents and purposes is a lump sum payable by instalments, as a nonvariable series of lump sums.”

Mostyn J goes on to indicate his view that the question of whether the order is for a lump sum by instalments, or for a series of lump sums, has to be decided objectively by looking at the nature of the lump sums, rather than simply accepting at face value what the court and the parties have called it: i.e. you cannot change the fundamental nature of the lump sum via the inclusion of a Declaration in the Recital:

“Objectively, and notwithstanding the camouflaging language, this was a lump sum payable by instalments. If the award is a pay-out under the sharing principle, but spread over time to soften the blow to

the payer, then it will surely almost always be a lump sum by instalments, regardless of how it is dressed up. If, however, there are different payments on different dates for different purposes, as described by Sir George Baker P in Coleman, then that arrangement will be a series of lump sums. Mr Chandler submits that the law should look to effect and not semantics; and cites Lord Templeman’s famous aphorism in Street v Mountford [1985] AC 809 (albeit in a different context):

‘...The manufacture of a five-pronged implement for manual digging results in a fork even if the manufacturer, unfamiliar with the English language, insists that he intended to make and has made a spade.’ I agree.”

In respect of the case at hand, Mostyn J decided that notwithstanding the fact that DJ Hudd had characterised her own order as a “non-variable” series of lump sums, it was objectively a lump sum payable by instalments. However, on the basis of his conclusions about the non-variability of such lump sums, he found that the award was not variable as to overall quantum under s. 31 Matrimonial Causes Act 1973: “the overall quantum can only be set aside or altered under the Barder doctrine. Under s. 31 all that can be achieved is recalibration of the payment schedule.”

So, it seems the only remaining question for Mostyn J in view of what he now says in BT v CU, is why was the Declaration (as set out above) ever included in his Precedent Draft Orders in the first place?

For my part, I will continue to insert the Declaration in cases involving multiple lump sums to make clear what the parties intended with regards the lump sums. I have in recent orders simply expanded the Recital to fit within the analysis of Mostyn J wherever possible, e.g:

“The parties agree and declare that the lump sums provided for at paragraph X of this order should be considered to be a non-variable series of lump sum orders, on the basis that the lump sums provided for therein are intended for different purposes, the first being a lump sum payment to enable the applicant to meet her liabilities and the second being a lump sum in respect of the applicant’s interest in the Company.”

Indeed, there has already been some doubt cast as to whether Mostyn J is correct in his new analysis which seeks to displace the received wisdom about the variation of lump sums: e.g. see the decision of His Honour Judge Hess in T v T (variation of a pension sharing order and underfunded schemes) [2021] EWFC B67.

It seems likely that certainty on this point will only be achieved if a case reaches the Court of Appeal in the future.

On that basis, the advice to be given to clients as to the possibility of a future variation of a lump sum by instalments (or indeed variation of what is described as a series of lump sums if it may objectively be considered one lump sum payable by instalments) remains far from clear.

Juliet Allen

St Philips Chambers Birmingham