Setting aside property orders: what global financial crisis?

A case decided two days ago by England’s second highest court, the Court of Appeal, has highlighted the impact of the global financial crisis on family law property settlements, and the basis of setting them aside.

In Myerson v Myerson, the husband was and is a fund manager in London. At the time of orders being made in March 2008 as to property settlement, the wife would retain GBP11 million (43%) and the husband would retain GBP14.5 million (57%). The husband had to pay the wife GBP11 million, GBP1.5 million coming from the transfer of a home, and the balance in cash, presumably funded from his shares.

At the time of the making of the orders, the husband’s shares were worth just over GBP15 million, at GBP2.99 per share.

The value of the shares then crashed. The husband, feeling squeezed, applied to the court to set aside the orders. His counsel noted that the shares were now worth less than 10% of their former value, last trading at 27.5 pence per share; and that as a result the division between the parties was no longer 57/43 in the husband’s favour but 14% to the husband and 86% to the wife.

The Court of Appeal rejected the husband’s argument, in part saying:

The order was not imposed but was the product of the will of the parties. The
husband, with all knowledge both public and private, agreed to an asset division
which left him captain of the ship certain to keep for himself whatever profits
or gains his enterprise and experience would achieve in the years
ahead.
…When [his counsel] was asked what would be the
husband’s target if the appeal were allowed, he replied that the husband would
probably seek the repayment of all or part of the first instalment of the lump
sum in exchange for transferring to the wife an unspecified number of his
shares…. That response casts a clear light on the merits of this appeal. When
a businessman takes a speculative position in compromising his wife’s claims,
why should the court subsequently relieve him of the consequences of his
speculation by re-writing the bargain at his behest?

The Financial Times reported that:

Family lawyers said the case would head off a deluge of similar applications
from recently divorced bankers and traders who had been hit hard by the economic
downturn.

Upshot? The husband still has to pay the wife GBP9.5 million. One can only wonder if this were a Pyrrhic victory on her part. If he hasn’t got the money, he hasn’t got it. Although presented by the court as his problem alone, because it is a judgment debt that has to be paid, in reality it is both their problem, and some commercial commonsense might be needed.

Setting aside orders in Australia

In Australia, the basis of setting aside property orders is under section 79A of the Family Law Act, which provides, relevantly:

(1) Where, on application by a person affected by an order made
by a court
under section 79
in property settlement
proceedings, the court
is satisfied that:

(a) there has been a miscarriage of justice by reason of fraud, duress, suppression of evidence (including failure to disclose relevant information), the giving of false evidence or any other circumstance; or

(b) in the circumstances that have arisen since the order was made it is impracticable for the order to be carried out or impracticable for a part of the order to be carried out; or

(c) a person has defaulted in carrying out an obligation imposed on the person by the order and, in the circumstances that have arisen as a result of that default, it is just and equitable to vary the order or to set the order aside and make another order in substitution for the order; or

(d) in the circumstances that have arisen since the making of the order,
being circumstances of an exceptional nature relating to the care, welfare and
development of a child of the marriage, the child or, where the applicant
has caring responsibility for the child (as defined in subsection (1AA)), the applicant,
will suffer hardship if the court does not vary the order or set the order aside and make another order in substitution for the order; or

(e) a proceeds of crime order has been made covering property of the parties to the marriage or either of them, or a proceeds of crime order has been made
against a party to the marriage;

the court may, in its discretion, vary the order or set the order aside
and, if it considers appropriate, make another order under section 79
in substitution for the order so set aside.

(1A) A court may, on application by a person affected by an order made
by a court under section 79 in property settlement proceedings, and with the consent of all the parties to the proceedings in which the order was made, vary the order or set the order aside and, if it considers appropriate, make another order under section 79 in substitution for the order so set aside.

Miscarriage of justice

The Family Court has made plain for the last 30 years that the miscarriage of justice must have occurred at or before the date of making the order. A husband in the same circumstances as Mr Myerson would not be able to rely on this ground.

The other factor that must be considered is that even if the ground is made out, whether the earlier order is set aside is always at the discretion of the court. I recall a case I had some years ago where there was a clear basis for setting aside the court orders. The husband applied to set them aside. The problem for the husband was that if he succeeded in the application, on his own application my client, the wife, would have to be paid more. My client did not want to be paid more, just what she was entitled to under the existing orders. The court did not set aside the orders.

Impracticable to carry out the orders

Eleven years ago, the Family Court said that the test in circumstances where the husband’s financial position had deteriorated after the property settlement orders had been made was:

• It is not enough that circumstances have arisen since the order was made which make it unjust for the order or part of the order to be carried out; the onus is upon the applicant to establish to the reasonable satisfaction of the Court, that in the circumstances that have arisen… it is impracticable for the order or part of the order to be carried out.
• The word `impracticable’ means, gleaning a definition from the Shorter Oxford Dictionary, `not practicable’; `that cannot be carried out or done’; `practicably impossible’; `unmanageable’; `intractable’.’

Therefore it is possible for someone like Mr Myerson in Australia to succeed, where in England he failed to set aside the orders, if he can show that it is impracticable to carry out the payment to the wife.

Act of default

Someone like Mr Myerson could not come to the Family or Federal Magistrates Courts and say: “I’ve defaulted, please change the orders.” He would have a heavy onus of proof to show why the order might need to be varied or set aside.

It is possible that a man in the position of Mr Myerson might be successful on this basis in Australia.