B v B

In this case the parties began divorce proceedings in 2000. There was significant delay until September 2005 because of satellite litigation. However an overall financial agreement was subsequently reached, and a consent order was made by Deputy District Judge Willbourne in chambers, which was finally sealed on 3 February 2006.

The order was for a lump sum, in which the provisions centred upon division of the parties principal asset, the former matrimonial home at 12 New North Street, London WC1 (“the property”) and the office suite next door.

For the purposes of the order, the market value of the property (which the husband still occupied) was taken on the basis of an agreed independent valuation to be £1.25 million, yielding an equity after redemption of the mortgage and costs of sale and legal fees of £587, 231.00 of which the wife was to receive half. The value of the office suite was agreed to be £300,000.00 with an equity of £264,081.00. The office suite was held in a pension fund and the parties agreed on a division of the equity on the basis that the husband would retain the pension and pay to the wife her half share of £132,041.00. On that basis, the wife was due to receive the sum of £360,000.00, as to which there was a timetable for payment.

Under the terms of the order the husband, who throughout the marriage was a property developer by occupation, was to attempt to re-mortgage the property to pay the wife the lump sum of £360,000.00 in two instalments by 30 April (£270,000.00) and 1 December 2006 (£90,000.00). If the husband did not receive a loan of £900,000.00 from Northern Rock on or before 30 April, the property was to be sold forthwith on the open market, the husband having the conduct of the sale, including the appointment of appropriate estate agents and solicitors, the proceeds being applied to pay the wife her lump sum of £360,000.00, with the balance to the husband.

The husband’s mortgage application to Northern Rock was rejected on 13 February 2006 and, on 21 March 2006, he advised the wife that the property was going on to the market without stating what price would be asked.

On 15 April 2006, the wife saw the property advertised in the window of an estate agent at a price of £1,85 million and she was subsequently advised that an offer was made on 11 May 2006 for £1.6 million. It appears that, in the period between mid-February and mid-April 2006 the husband, rapidly put in hand, some £60,000.00 – worth of work, consisting of roof repairs, creation of a roof terrace and other works of redecoration, refinishing and cleaning, thus enabling the property to be marketed in an attractive state. Of the cost of the works effected, he paid out some £12,000.00 to the workmen whom he employed directly on the works, and postponed payment of some £46,000.00 to main suppliers until the sale proceeds were available. He also contracted in the sale to obtain and assign the benefit of the freehold of the property, a 3 year parking agreement at a local parking garage, and an indemnity in respect of roof repairs.

In seeking leave to appeal out of time against the Deputy District Judge’s order, the wife puts forward three grounds on the basis of which she asserts leave should be granted. First, she asserts an error of valuation at the date of the agreement. Second, misrepresentation by the husband of the value at the date of agreement. Third, a supervening Barder event by reason of a sudden “unforeseen and unforeseeable” increase in value such as to justify invocation of the court’s jurisdiction to revisit the consent order of the Deputy District Judge.

The way the case is put merits a look at the course of events in a little more detail. The situation as to valuation appears to be as follows.

In July 2005, by agreement, the wife commissioned a surveyor’s report on the value of the property. It was in a shabby condition, as a result of both wear and tear and a leaking roof. As a property professional, the husband did not consider the valuation realistic and obtained for himself two estate agents’ market appraisals to establish whether he should go to the trouble and expense of commissioning his own valuation report. Those two later appraisals, dated 25 October and 14 November 2005 respectively, were for £1.2 million, (with offers expected in the “region of £1.1 million”), and £1.25 million (“to achieve a price of £1.15 million”).

In the light of the price subsequently obtained on sale, I quote one passage from the second estate agent’s report as follows:

Given the small difference in figures between the husband’s reports and the wife’s valuation, the husband did not proceed to obtain his own valuation but negotiated the lump sum agreement on the basis of the wife’s valuation.

Having failed to obtain a mortgage to pay off the wife’s share, the husband, with a view to speedy sale, immediately had the roof repaired and commenced a comprehensive schedule of largely cosmetic works as already described (see para 6 above). He kept the wife informed of what he was doing. As soon as the roof had been put in order, and most of the work completed, he went to well-known agents in the area, Hurford Salvi and Carr, who on 24 March 2006, having discussed the marketing in their expert team, advised:

It is common ground between the parties that the outcome of this application should depend upon the likelihood of success in the appeal itself. The test is whether the appeal would be certain, or very likely, to succeed: see Barder v Barder (Caluori intervening)[1987] 2 FLR 480 at 495. That was a case in which, on very different facts, a husband who had entered into a consent order in full and final settlement of all claims between the parties following the break-up of the marriage, was permitted to appeal out of time on the basis of the changed circumstances arising from the suicide of the wife following her killing of the children. The relevant passage from the judgment of Lord Brandon of Oakwell in the House of Lords reads as follows:

The principal issue in this case is whether or not the first condition in Barder is met, though Mr Thorpe for the husband also argues that the wife so delayed her application that the third condition is also not satisfied. In the event, I am satisfied that the matter turns upon the principal issue and the question of delay need not be addressed.

The leading authority governing applications of this kind relating to a change in asset value is the decision and comprehensive analysis of Hale J (as she then was) in Cornick v Cornick[1994] 2 FLR 530. The position in Cornick was that it was accepted on the facts that the change in value relied upon was unforeseeable, there having been a sudden and dramatic rise in the value of shares belonging to the husband and forming a substantial part of his assets. In reviewing earlier decisions, Hale J pointed out that the principle which permits an order to be set aside because new events have occurred since the making of the order which invalidate the basis or fundamental assumption upon which it was made, is more akin to the doctrine of frustration than mistake. She repeated the observation of Lord Brandon in Barder that it raises a difficult issue because it involves a conflict between two important legal principles, namely that it is the public interest that there should be finality to litigation on the one hand and that justice requires that cases be decided so far as practicable on the true facts and not on assumptions or estimates that are later shown to be erroneous. Having reviewed the authorities, Hale J summarised the position as to a sudden rise in asset value in this way:

Later, in rejecting the application, Hale J sated:

In Cornick, the wife failed because it was plain that the asset was correctly valued at the date of the hearing and Hale J was not persuaded that the unforeseen and unforeseeable rise in the value of the assets was so great that it required the court to disregard the principle that the natural processes of prices fluctuation, even if dramatic, do not entitle the applicant to relief. The result may be contrasted with that in Warren v Warren (1983) 4 FLR 529, a decision relied upon in Barder and reviewed by Hale J. In that case, a final order had been made in November 1981 upon a valuation of the former matrimonial home (derelict at the time) of £52,000.00. The wife received an order of £16,000.00, representing about a third of the assets under the “one-third rule” prevailing at the time. Subsequently, unbeknown to the wife, the husband set about doing up the property and putting it on the market. It subsequently sold in July 1982 for £92,000.00 (a 78% increase in eight months). The appeal was allowed on the basis that, in view of the substantial discrepancy between the valuation and the sale price of the matrimonial home, there had been a gross error and the judge had computed the lump sum order on a wholly erroneous basis which rendered it just and proper to re-open the matter. Sir Roger Ormerod observed that, “where there is a gross discrepancy as it turns out between valuation and fact, this court should be prepared in a proper case to exercise its discretion to re-open the matter”.

Griffiths LJ, sought to close the door firmly upon any “floodgates” element which might follow the court’s decision when he stated:

In S v S (Ancillary Relief: Consent Order)[2002] 1 FLR 992, in the different context of a case concerned with the effect of a change in the law, Bracewell J summed up the effect of the authorities in this way at paras [48] – [50] as follows:

It is also relevant to mention Thompson v Thompson [1991] 2 FLR 530, a case in which a business was sold two weeks after the order was made at twice the sum estimated at the hearing and upon which Mr Ewins for the wife places much reliance. In that case, the Court of Appeal, as analysed by Hale J in Cornick, distinguished between two situations: first, where the change consists of a discovery that the estimate or valuation was unsound when made, in which case a court must inquire whether the applicant was in some way responsible for the erroneous valuation and, second, where later events falsify an estimate or valuation which was reasonable at the time. In Thompson it was held that everyone at the hearing had acted reasonably on the assumption that the business was worth £20,000.00 at most and that the unexpected sale of more than twice that sum was a “new event” within the Barder principle, demonstrating the falsity of the parties’ mutual assumption and mistake whereby the court’s intentions were frustrated. She made clear that such a mistake in valuation can fall within the Barder principle, provided that the applicant is not in some way to blame for the mistake, for example by failing to investigate properly and to put his/ her evidence before the court.

By way of further authority, I have been referred to the case of Kean v Kean[2002] 2 FLR 28, a case in which Charles J found on the facts that the valuation of a flat which was sold for a far higher price than had been estimated by either party when the consent order was made but refused leave on the grounds, inter alia, that on the facts the valuation of the flat had not been at the centre of the thinking of either side when the order was made. Surprisingly, whilst referred to the cases of Thompson and Warren, he was not referred to Cornick. I have also been referred to the decision of the Court of Appeal in Burns v Burns[2004] EWCA Civ 1258 and [2004] 3 FCR 263 at 271 in which Thorpe LJ approved the summary of Cornick in the 4^th edition of Jordan’s Handbook on Ancillary Relief as follows:

In his skeleton argument Mr Ewins for the applicant put his case under three heads. First under paragraph (2) of Hale J’s analysis in Cornick (see paragraph 15 above), namely that this is a case where a wrong value was ascribed to the asset at the hearing which, had it been known about at the time, would have led to a different order. His argument is effectively put upon the basis of res ipsa loquitur. The order was made on 3 February 2006 on the basis of a valuation of £1.25 million; yet within seven weeks the husband had consulted estate agents and obtained advice to market the property at £1.85 million with a view to achieving a sale price of £1.5 million to £1.6 million. Mr Ewins accepted that the latter “valuation” was on the assumption that the husband’s programme of works was completed; however he submitted that the extent of the uplift of £350,000.00 in such a short space of time plainly indicated a substantial mistake in valuation at the time of the consent order.

Upon the facts of the case as I have recounted them, I found that submission unconvincing. Valuation, particularly in a rising market, is an inexact science and, in the case of a tired and poorly maintained property in a problematic location, much depends on the impression a discerning purchaser may receive of its potential. On the other hand, if, prior to sale, that property is put into an “as new” or “walk in” condition, the price obtainable may increase well out of proportion to the costs of works of refurbishment. The extract from the estate agents’ letter set out at paragraph 10 above, makes clear that the property was not one which would be instantly attractive to a high price purchaser, either by reason of its situation or its then condition. However, the property market was on the move, substantial and effective works were carried out by the husband to achieve a better price, and he also entered into obligations to obtain the freehold and improved facilities for the new owner such as a parking space. In those circumstances, following questions from the court in argument, Mr Ewins conceded that the doctrine of res ipsa loquitur was not available and that he could not show any good reason to suppose that the valuation adopted by the parties and the court at the time of the consent order was wrong, let alone subject to some fundamental error.

The second head under which Mr Ewins has put the case is that of Misrepresentation, namely a misrepresentation by the husband of his intentions in relation to the flat during the negotiations leading up to, and at the time of, the consent order. Since it is conceded that no express misrepresentation was made, and because the formulation of the wife’s case under this head has shifted somewhat in the course of the proceedings, it is appropriate to refer to the evidence in this respect.

In paragraph 15.2 of her first affidavit, the wife put it simply in this way. Having first recited her case upon the basis of a mutual mistake as to value at the time of the court order, she stated as an alternative

In the husband’s affidavit dated 12 October 2006, having set out the history of the valuations, he stated as follows

In her further statement in the trial dated 19 January 2007 the wife put her case upon misrepresentation in this way:

In a further short statement from the husband in reply; he stated at paragraph 2:

In relation to the allegation of misrepresentation and the question as whether or not the wife was deceived, it is also pertinent to have regard to the terms of the correspondence following the wife’s learning that the property had been sold for £1.6 million.

On 26 June 2006 the wife’s solicitors wrote to inform the husband’s solicitors of what they termed “a surprising development” having set out the figures they wrote:

Following some correspondence about the figures generally and the amount of the work done, during which the wife’s solicitors received a copy of the husband’s application to Northern Rock, it appeared that the husband had in his application form asserted his income as being £155,000.00 per annum, whereas the consent order had been agreed on the basis that he was earning £50,000.00 net per annum. Before me, that discrepancy has not been relied upon in support of the allegation of misrepresentation, it being unchallenged that the figures supplied to Northern Rock were “gross” income figures prior to deductions for expenses and tax from the husband’s business as a property developer. However, that was not appreciated at the time and the wife’s solicitor wrote as follows:

In answer, the husband’s solicitor dealt with the matters put and, at the fourth paragraph, of her letter wrote:

Furthermore, in an e-mail letter from the wife to the husband on 11 July 2006 the wife wrote as follows:

There is no suggestion in that letter that the wife was unaware of, or deceived as to the husband’s intentions to refurbish. The essential assertion was the “unconscionable” position which would arise if the increase in the equity (subject to an allowance to the husband for his works) were not to be shared between the parties.

In those circumstances, there is nothing upon the face of the evidence before me which can sustain the charge of misrepresentation on the part of the husband.

The highest at which it can be put, and indeed the way it was belatedly put in the wife’s second statement and urged by Mr Ewins in argument, is that at the time of the Order the husband intended swiftly to refurbish the property for a speedy sale but that he deliberately concealed such intention from the wife, so that, she was deprived the opportunity to participate in the increased equity thereby obtained.

I do not consider that the evidence demonstrates such deliberate concealment on the part of the husband. Certainly, it is clear from the evidence which I have set out that nothing which the husband said or did justified any assumption by the wife or her advisors that he lacked the intention to refurbish and enhance the purchase price of the property so far as he might be able. Rather it shows that, in the event of a sale, the husband would if he could improve the condition of the flat whilst the wife assumed he was in no position financially to do so. Much argument has been directed by Mr Ewins to demonstrate that the wife and her advisors acted reasonably in assuming that to be the position and that they were entitled to proceed on that basis because, on the figures, if the husband carried out his obligations under the consent order, he would lack any ready funds to carry out immediate works of refurbishment. Upon that basis, they discounted the likelihood of any sale at a substantially enhanced value, preferring to secure the wife’s entitlement to a risk-free fixed sum with a deadline for its payment by the husband, thus leaving to him the burden and risk of later sale.

If it was indeed the fact that the husband always intended to carry out substantial refurbishment in the hope of improving his position, the highest it can be put is that, in failing so to inform his wife of such firm intention, he failed to fulfil the obligation of frankness required of parties to an ancillary relief application to disclose all those matters which go to the court’s task of fairly dividing the assets under s.23 of the Matrimonial Causes Act. In such circumstances, if the court is satisfied that an element of bad faith or non-disclosure has been involved in relation to matters which were not foreseeable by reasonable anticipation or enquiry at the time the order was made, that may properly be treated by the court as the prism through which it should view the question whether the discrepancy between the valuation and the subsequent sale price achieved is so great that events have invalidated the fundamental assumption on which the original order was made. However, such non-disclosure will not be sufficient if the event or events which have since occurred were foreseeable, or if the effects of the non-disclosure were avoidable by reasonable enquiry.

In the light of those observations, I turn to the submission of Mr Ewins that the subsequent sale of the property at £1.6 million amounts to a supervening Barder event by reason of the increase in value. Whether or not the case involved an element of non-disclosure on the part of the husband as to his immediate intentions, I do not consider that, on the evidence before me, the Barder requirements have been made out or that, on appeal, the wife is likely, let alone certain, to succeed.

It is clear that the increase in the value of the property at the time of its sale was essentially the result of two factors, firstly an increase in the value of the property since it was valued in July 2005 as a result of the rising property market and, second, H’s refurbishment of the property which increased its value to an incoming buyer by far more than the costs of the refurbishment. Whether or not these matters were foreseen, they were certainly foreseeable. [I leave aside the undoubted additional attraction to a purchaser of a share in the freehold and a 3-year garage space]. As to the first factor, the rising property market was a matter of common knowledge. As to the second factor, there is no reason to suppose that, if inquiry had been made of him, the husband would not have made clear his intention to refurbish prior to sale by use of direct labour in a project which, as an experienced property developer, he was in a position to manage personally, whilst deferring payment of such supplies as he could.

A significant element in the background to the negotiations was the desire of the wife for satisfaction of her claim after a delay of some years, thanks to litigation affecting the property as a result of claims made by the husband’s father. Her desire was for speed and certainty in relation to the sum she was to receive. This is apparent from the terms of the order itself. The husband was to be given an opportunity to raise a mortgage on the property, failing which the property was to be sold and the wife was to receive her share in preference to the husband. The order protected her from the “downside” of a sale at less than the valuation agreed. To that extent the risk lay with the husband. On the other hand, he was a property developer who, in the event of a failure to obtain the anticipated mortgage would naturally seek to take all the steps he could to secure a price on the sale required under the agreement which would improve his position. Certainly, when he embarked on that course and told the wife of his intention following rejection of his mortgage application, she raised no objection and, at the time, made no assertion of entitlement to any share in a result which might yield the husband a larger amount than originally anticipated.

Whilst I accept that the price obtained following refurbishment was plainly higher than any anticipated by the wife (and it may well be the husband) it was by no means inordinate given the value of the works effected by the husband, particularly if, as the wife was prepared to concede, a sum falls to be included for his own time and labour in directly managing the project. This case yields figures which notably contrast with those in Warren v Warren where, due to the exceptional circumstances, the property had increased in value by 78%. Mr Thorpe has submitted an HBOS house price calculation which suggests that, between July 2005 (the date of the agreed valuation) and May 2006 (the sale of the property) the actual increase in property prices over the period was some 11%. If one adds £90,000.00 for the costs of works and the value of the husband’s labour to the £1.25 million valuation prior to calculation of the increase, the increase in the value of the property over the course of the year was some 19%. On that basis, there was a “bonus” over reasonable market expectation of no more than 9%. Mr Ewins has argued that these figures are too generous to the husband’s case and he may well be right; but not to an extent which substantially affects the issue in the round.

It seems clear to me from the authorities I have quoted that the wife has no reasonable prospect of establishing conditions calling for favourable application of the Barder principle. As commented by Hale LJ in Cornick, the circumstances in which the principle falls for application are very few and far between and it is plain to me that they are absent in this case. I therefore dismiss the wife’s application.

Having considered the written submissions of counsel as to the costs of this application following their receipt of this judgment in draft, I also order that the applicant pay the respondent’s costs, such costs to be assessed if no agreed.