Covid-19 represents a public health emergency of unprecedented proportions, and its impact goes far beyond the health and wellbeing of the population. This extends to family law, which is being affected in numerous ways by Covid-19. One example of its impact on family law is on concluded financial settlements.
The family law world is avidly speculating about whether the courts may be willing to set aside financial orders made on divorce as a result of Covid-19. In this article, Senior Associate Charlotte Sanders and Olivia Gaunt, a paralegal in our Divorce and Family team, discuss whether Covid-19 could be a ‘Barder event’ and the possible reaction from the courts.
Financial orders and Barder events
The outcome of financial remedy proceedings, whether ordered by the court or agreed between the parties, is recorded in a court order. The order becomes final and binding once the court pronounces decree absolute, the final stage of divorce that ends the parties’ marriage once and for all.
Although a court order achieves finality for the parties, it is important to note that some court orders are capable of being varied as a result of a change in circumstances. The amount of maintenance paid, for example, can be increased or reduced, and the term for which it is payable can be shortened or extended.
By contrast, the fundamentals of court orders dealing with capital, namely the payment of lump sums and asset transfers, are ordinarily incapable of variation. However, in extreme circumstances the court may be willing to set aside those orders, for example, where:
- a significant mistake has been made,
- there has been material non-disclosure, or
- an unforeseen and unforeseeable event has occurred since the order was made that has fundamentally undermined the order. This is known as a Barder event, as identified in the case of Barder v Barder [1987] 2 FLR 480 and further defined in the case of Cornick v Cornick (No 1) [1994] 2 FLR 530.
In Barder v Barder, the family home was transferred to the wife pursuant to a court order so that she could live there with the children. Five weeks after the transfer, she killed the children and took her own life. As a result, the husband applied to reverse the transfer. This was granted by the court as the removal of the key purpose of the order, namely the requirement to meet the needs of the wife and children, invalidated the assumption on which the order was made.
Criteria for a Barder event
Barder v Barder established that a court may allow a challenge to the otherwise non-variable capital elements of an order if the following four conditions are satisfied:
- New events have occurred since the order was made that invalidate the basis or fundamental assumption on which it was made;
- The new events occurred within a relatively short time of the order being made;
- The application for leave to appeal out of time is made reasonably promptly in the circumstances of the case; and
- The grant of leave to appeal out of time would not prejudice third parties who have acquired interests in property which is the subject matter of the order.
Furthermore, as defined in Cornick, when dealing with changes in financial circumstances, the ‘new event’ must be unforeseen and unforeseeable. Plus, it must have altered the value of the assets enough to bring about a substantial change in the balance of the assets brought about by the order.
To what extent could the Covid-19 pandemic be a Barder event?
It is notoriously difficult to succeed with a Barder application. A useful comparison would be with applications made in the wake of the financial crisis in 2008. Despite a spate of applications being made to set aside orders, none were successful (see, for instance, Myerson v Myerson (No 2) [2009] EWCA Civ 282). The court considered that the 2008 financial crisis was part of a natural process of price fluctuation, however dramatic, and therefore did not constitute an unforeseen and unforeseeable event.
It could be argued that Covid-19 is not in the same category. While the impact of the 2008 crisis was substantial, it was an endogenous event to the economy and credit cycle, and so was considered to be foreseeable (indeed many commentators predicted the economy’s collapse). With Covid-19, by contrast, the economic shock is exogenous, and the virus could not sensibly be described as part of normal economic cycles. Nor could the sudden, significant and structural effect on the economy caused by the unprecedented level of global government intervention.
The impact of the pandemic on household finances is likely to be far more significant than the 2008 global financial crisis. Further, while viruses are part of our normal lives, a global virus like this has not been seen since the Spanish flu over 100 years ago (since when there have been vast medical advances). Arguably, therefore, both the cause and effect of the likely 2020 economic crash will have been unforeseeable.
That said, even if the impact is bigger and Covid-19 itself was unforeseeable, the effects of it (i.e. market fluctuation) may still be viewed by the courts as foreseeable, just like in the wake of the 2008 crash. Establishing whether or not an event is a Barder event is highly fact-specific and simply suffering financial loss as a result of Covid-19 will not necessarily reopen a final financial order. Judges will be wary of opening up the floodgates to a wave of cases, and will also be reluctant to reopen and set aside financial orders as finality in litigation remains a core principle.
Therefore, Barder applications made on this basis may still fail.
Applications are already being made arguing that orders should be set aside as a result of Covid-19 and the legal profession eagerly awaits the first case considering the issue.
Finally, timing is vital. For an application to have a chance of success, the Barder event ought to have occurred within months and probably no longer than one year from the date of the order. This would suggest that the window for making an application applies to those who entered into an order between mid-2019 and February 2020. Additionally, even if the court considers Covid-19 to be a Barder event, it may also need to determine at what point the effect of Covid-19 became foreseeable. For example, if an order was made in early March it would be difficult to argue that the global effects were unforeseeable at that stage.
Stephen Foster, Head of the Divorce and Family Department at Stewarts, recently considered this thorny topic in an article in The Times, describing it as a classic ‘Catch 22’. He argues that whilst the impact of coronavirus was unforeseeable, market fluctuation itself is not. As such, parties could be in a position where, even though they could not have been expected to foresee the impact of coronavirus, they are unable to set aside their financial settlements because market volatility is a fact of life.
Covid-19 is impacting individuals and companies around the world in an unprecedented way. We have collected insights here to help you navigate the key legal issues you may be facing at this time.
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