A v A: Promises, Promises
30 May 2018
The case of A v A has provided a timely reminder that undertakings given by parties in financial proceedings on divorce can, in effect, be varied by the court if circumstances justify doing so.
In A v A  EWHC 340 (Fam), a wife successfully applied to be released from an undertaking that was integral to the terms of a clean break settlement agreed with her husband and approved by the court some years earlier.
At the time of the settlement in 2011 the parties had agreed that their former family home should be marketed for £8.5m and their Spanish holiday home should be marketed for £3.75m (values which it later transpired were unachievable). It was agreed that Mrs A would receive an equal share of the sale proceeds and a further lump sum of £2m and that she would have no ongoing income (or capital) claims against Mr A.
Before the settlement could be concluded Mrs A found a new home that she wanted to purchase for £2.6m. To enable this to happen prior to the sale of the family home, Mr A agreed to provide the deposit of £260,000; take out a mortgage in the sum of £2.49m; and to pay to Mrs A living expenses in the sum of £12,000 per month by way of a loan until the family home sold. In return for Mr A agreeing to fund the purchase Mrs A gave an undertaking to repay these sums when she received her share of the net proceeds of sale.
Unfortunately, despite a series of reductions to the asking prices, neither property had sold by the time the matter was heard some seven years later. But over the same period Mrs A’s debt to Mr A had grown considerably and would, if the situation continued for another 3 to 4 years result in Mrs A receiving nothing from the sale of the properties once the debt to Mr A had been repaid in accordance with her undertaking. In that case she would have insufficient funds to re-house and meet her income needs. On the flip side, Mr A’s financial position had improved since 2011 as a result of his business, which was the source of the family wealth, going from strength to strength.
To avoid this eventuality, Mrs A applied to be released from her undertaking to repay Mr A. In the first instance the court granted Mrs A’s request, relying on Birch v Birch  UKSC 53 in which the Supreme Court ruled that a person could be released from their undertakings if it was just to do so.
Mr A appealed, arguing that the release of Mrs A from her undertakings to the court would undermine an agreement which had been carefully crafted after months of negotiation through lawyers. To do so, he argued, would defeat the fundamental objective of the court order: to provide the parties’ with a clean break. It would also amount to the impermissible grant of an appeal long after the deadline for such an appeal had expired or the setting aside of a final order in when none of the criteria for doing so – such as fraud or an unforeseeable event which undermined the basis of the order – applied.
Mrs A argued that their mutual failure to sell the properties represented a dramatic change of circumstances and one that she would never have agreed to, should it have been foreseen.
Balancing Mrs A’s financial predicament against the desirability of upholding the integrity of a freely negotiated court order, the court held that the very limited grounds for setting aside a final order do not apply when considering whether to release a party from an undertaking. The court found there had been a significant change in circumstances justifying Mrs A’s release from her undertaking but that fairness to Mr A dictated that any such release would require the provision of replacement undertakings (which have yet to determined). In effect Mrs A’s undertakings will be varied so as to be less onerous although the court did not offer any guidance as to how much less onerous (or more disadvantageous to Mr A).
While undertakings are a useful tool in settlement negotiations for imposing obligations that the court does not have the power to order, the fact that undertakings given in divorce settlements may later be, in effect, varied should be borne carefully in mind by those seeking finality.
Similar caution should also be adopted when agreeing settlements which are contingent on the uncertainties of the residential property market, as so many settlements are.
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