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  3. Birch v Birch [2017] UKSC 53 - (Lady Hale (Deputy President), Lord Kerr, Lord Wilson, Lord Carnwath, Lord Hughes) 26 July 2017

Birch v Birch [2017] UKSC 53 - (Lady Hale (Deputy President), Lord Kerr, Lord Wilson, Lord Carnwath, Lord Hughes) 26 July 2017

Posted: 14 August 2017

The court has jurisdiction to hear W’s application for release from her undertaking. 

The husband (‘H’) and wife (‘W’) entered into a consent order on 28 July 2010. Part of the order provided that H should transfer to W his legal and beneficial interest in the matrimonial home subject to the mortgage so that W could continue to live there with the two children of the family. In return W undertook at para 4.3 of the recitals to discharge all mortgage payments, to indemnify H against any liability under it and to use her best endeavours to release him from the covenants under it. Then, crucially, she undertook at para 4.4 of the recitals that, if H had not been released from his mortgage covenants by 30 September 2012, she would secure his release by placing the home on the market for sale and proceeding to sell it.

On 18 November 2011 W, who had (and still is) duly discharged the mortgage payments, issued an application to ‘vary’ her undertaking at para 4.4. She explained that she had not been able to secure H’s release from his mortgage covenants and would not be able to do so by 30 September 2012. The children were in schools in the vicinity of their home and it would be gravely damaging to their interests for them to have to move home while still at school. In such circumstances she sought a ‘variation’ of the undertaking at para 4.4, so as to postpone for seven years her obligation to secure H’s release from his covenants under the mortgage by sale of the home until 15 August 2019, being the date of their son’s 18th birthday.

H argued that the court had no jurisdiction to hear W’s application and requested that the court rule on that preliminary issue. He argued that W’s undertaking was equivalent to an order for sale under s.24A Matrimonial Causes Act 1973 (‘MCA 1973’). And he relied on the Court of Appeal’s decision in Omielan v Omielan [1996] 2 FLR 306 that jurisdiction to vary an order for sale did not exist where it related to the ‘territory’ of the property adjustment order. Let’s recap on sale of property orders. These orders are contingent on the court making an order for payment of legal services, lump sum provision, property adjustment or secured periodical payments i.e. its purpose is to implement the substantive order that it supports.

A sale of property order can be discharged, varied or suspended (s.31(2)(f), MCA 1973). In Omielan v Omielan [1996] 2 FLR 306, the Court of Appeal refused to vary a sale of property order where the variation would affect vested rights under a property adjustment order. Thorpe LJ held that s.24A is a purely procedural section inserted into the MCA 1973 to clarify the court’s power of implementation and enforcement. Any power to vary a s.24A order must be limited to issues of enforcement, implementation and procedure. S.31(2)(f) gives the court jurisdiction to revisit the 'territory' of the ancillary s.24A order, but not the substantive order that it supports.

At first instance, the court held there was no jurisdiction to vary the undertaking. W’s appeal to a circuit judge was dismissed. She appealed to the Court of Appeal.

Contrary to the lower court decisions, the Court of Appeal held that W’s undertaking was not equivalent to a sale of property order. There was jurisdiction to hear W’s application, but the scope was extremely limited and there was no basis for exercising it. The court reasoned:

  • A sale of property order is limited to matters of enforcement, implementation and procedure and can be varied, but in this case, the undertakings did not aid the enforcement or implementation of the property adjustment order. The property adjustment order was independent of, and separate from, the undertaking for ultimate sale.
  • The MCA 1973 does not contain powers for the court to make an order analogous to the undertaking requiring W to secure H’s release from the mortgage covenants and indemnify him.
  • The proposed variation altered the nature of the consent order. Although the court has jurisdiction to vary an undertaking, it will be exercised rarely and only when variation will not interfere with the objectives of the original order.

W appealed to the Supreme Court.

Held: The Supreme Court by a majority of four to one allowed W’s appeal and held that jurisdiction existed to hear W’s application. Lord Wilson gave the lead majority judgment, with which Lady Hale, Lord Kerr and Lord Carnwath agreed. Lord Hughes gave a dissenting judgment.

The description of the application as being to ‘vary’ W’s undertaking was confusing. An undertaking is a solemn promise that a litigant volunteers to the court. A court has no power to vary the terms of a voluntary promise. The court’s power is only to grant or refuse an application for release from an undertaking. A litigant who wishes to vary an undertaking has to apply for release from it, accompanying their application with an offer of a further undertaking in different terms. So, although the court’s exercise of its power may result in something which looks like a variation of an undertaking, if it decides to accept a further undertaking, it is the product of a different process of reasoning.

The lower courts had wrongly concluded that they did not have jurisdiction to release W from her undertaking. They had failed to distinguish between the existence of the court’s jurisdiction to release W from the undertaking, and the exercise of the jurisdiction. The lower courts had conflated the ambitious nature of W’s application (potentially to postpone the FMH’s sale for seven years) as a basis for concluding there was no jurisdiction to hear it. In fact, the case law indicated that there was jurisdiction to hear W’s application. However, in considering the exercise of the jurisdiction to grant release from an undertaking, Wilson LJ noted the guidance in Mid Suffolk DC v Clarke [2006] EWCA Civ 71 that it is hard to conceive of grounds for release, unless there has been a significant change of circumstances since the undertaking was given.

Contrary to the Court of Appeal’s view, W’s undertaking could have been framed as a sale of property order, variable under s.31(2)(f) of the MCA 1973. Again, unless there was a significant change of circumstances, it was hard to conceive of grounds for variation.

In these circumstances, it would be illogical for questions about the existence and exercise of the jurisdiction to grant release from the undertaking to differ from those about the variation of a sale of property order (see L v L [2006] EWHC 996 (Fam)). The equivalence of W’s undertaking to a sale of property order variable under s.31(2)(f), confirmed the existence of the court’s jurisdiction to hear her application for release from it.

Wilson LJ found that in Omielan , the Court of Appeal had been right to dismiss the application to vary a sale of property order. However, he did not agree with the Court of Appeal’s analysis that the jurisdiction to do so did not exist. Instead, his approach was that the court should have refused to exercise its jurisdiction to vary. Thorpe LJ had been concerned that varying the sale of property order might amount to variation of the property adjustment order that it supported. However, it was inappropriate to hold that although Parliament had provided an essentially unrestricted jurisdiction to vary a sale of property order (s.31(2)(f), MCA 1973), that jurisdiction was in fact restricted to the ‘territory’ of the sale of property order, not the ‘territory’ of the property adjustment order.

The terms of a financial order are often interlinked and it is difficult to apply the concept of different territories to such an order. The demarcation of territories within a financial order is no proper criterion for identifying the existence of a jurisdiction.

It being confirmed that the court had jurisdiction to hear W’s application, it was remitted to a circuit judge (HHJ Waller). The judge was to determine the application under s.31(7) MCA 1973, having regard to all relevant circumstances including the welfare of the two children. In particular, consideration will be given to whether there had been a significant change of circumstances since the undertaking was given, and the extent to which H had suffered or would suffer prejudice by remaining liable under his mortgage covenants.  If the court finds that H has suffered, and/or would be likely to suffer, prejudice as a result of delay in selling the home, the court might favour compensating him by asking the wife to make provision for him out of the ultimate net proceeds as a condition of release.

Lord Hughes gave a dissenting judgment, not on the existence of the jurisdiction to vary a s.24A order for sale, or its equivalent achieved via an undertaking, but on the principles for its exercise. It must be kept in mind that the s.24A order is ancillary to a capital order and that final capital orders cannot be varied in their substance (whether or not there is a change of circumstances). Lord Hughes states that the acid test should be whether the application is in substance (impermissibly) to vary or alter the final order or whether it is (permissibly) to support it by working out how it should be carried into effect. The application in the present case, he says, is one which attempts to vary, not to carry into effect, the originally agreed and court-endorsed order and therefore the Court of Appeal was right to hold that it was bound to fail.

Comment

The Supreme Court’s decision clarifies that an undertaking cannot be varied. The correct approach is for an applicant to apply for release from an undertaking. That application may be accompanied by an offer of a further undertaking in different terms.

Courts and practitioners should be careful to distinguish between the existence of the court’s jurisdiction to release a party from an undertaking and the exercise of that jurisdiction. In this case, the lowers courts had conflated the ambitious nature of W’s application (potentially to postpone the FMH’s sale for seven years) as the basis for concluding there was no jurisdiction to hear it.

Where an undertaking can be framed as a sale of property order (as was the case here), the decision confirms that any application for release should be considered under s.31(7) MCA 1973. Although not specified as a condition for variation in s.31(7), the focus should be on whether there has been a significant change of circumstances since the undertaking was given.

The decision overturns the narrow approach in Omielan that the jurisdiction to vary a sale of property order is restricted to its own ‘territory’, and limited to issues of enforcement, implementation and procedure. Wilson LJ emphasised that the terms of a financial order are often interlinked, and the demarcation of territories within a financial order is no proper criterion for identifying the existence of a jurisdiction. He placed greater emphasis on whether a variation can be justified because of a change in circumstances. However, as Hughes LJ identified, this broader approach may well lead to further legal arguments about the impact of varying sale of property orders on underlying capital orders that cannot be varied, and the clean break provisions they are often designed to serve.

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