When in divorce proceedings an order for a transfer of property from joint names to one name is made and there is a mortgage, it is normal for there to be an undertaking for the acquiring spouse to undertake (or promise) to use their best endeavours to obtain the ex’s release from the mortgage and an order made for sale in default. As mortgage lenders become increasingly reluctant to release spouses this issue is one I am frequently asked to advise on. Varying such an undertaking has recently been considered by the Court of Appeal in the case of Birch v Birch 2015 EWCA Civ 833.
Case Summary: Birch
In 2010 the husband (H) and wife (W) resolved their claims for financial relief by way of a consent order which was approved by the court on the 26th July 2010.
In the order the W undertook to discharge the mortgage on the former matrimonial home (FMH) and had to use her best endeavours to secure the release of her H from any liability under the mortgage; or had to secure his release from the mortgage by sale of the property.
Unfortunately W was not able to obtain H’s release. In November 2011 W applied to vary the undertakings so that the husband would only be released from his mortgage when the youngest child attained the age of 18 or completed full time education.
The District Judge who heard the W’s application initially held that an earlier case of Omielan v Omielan 1996 2FLR 306 prevented the court from considering W’s application. The Circuit Judge who heard the first appeal agreed.
W said that this was not an application to vary an order under Section 31 of the Matrimonial Causes Act but rather an application to vary an undertaking to which a more general discretion applied.
W’s barrister argued that the application was in effect an application for an order for sale under Section 24A of the Matrimonial Causes Act 1973 (MCA) to which the power of variation under Section 31(i) and (ii) (f) applied. Thus the court would have to give first consideration to the welfare of the minor children as is required by the MCA. W tried to advance a highly technical argument on the basis that the variation in the Omielan case sought to revise interests which had been acquired by the children when the wife had cohabited with a new partner. W argued that in this case the variation would not affect the beneficial interest all that would alter would be the period for postponing the sale.
H’s barrister argued that this argument ignored the fact that the consent order was designed as a final settlement of the parties’ financial claims. The variation sought would be to convert the order into an entirely different type of property adjustment order (that is often known as a Mesher Order) where the power of sale is postponed on the occurrence of certain events, normally the attainment by the children of majority or completion of tertiary education.
McCombe LJ who gave the leading judgment in the Court of Appeal said at para 26, as Thorpe LJ said in Omielan, when capital adjustments have been incorporated into a final order, whether or not by consent, the court has no jurisdiction to “revisit the territory of those adjustments, in the absence of a vitiating factor such as fraud, misrepresentation or material non-disclosure”
What is an undertaking?
The judge drew a distinction between ancillary orders and undertakings. An undertaking is a solemn promise to the court that can be enforced by committal to prison or as if an order had been breached. Undertakings and orders are very different legally and the power of variation is different. The range of orders under the MCA are limited. Undertakings or promises are used where the court does not have power to order something. The Judge did not accept that the undertakings in this case were in effect orders to discharge the mortgage on the FMH and use best endeavours to obtain H’s release could not have been ordered. The undertaking in paragraph 4.4 was not an undertaking equivalent to a section 24(a) order. The Judge went through the circumstances in which a full ancillary relief order may consent can be reviewed by the court.
The judge in Birch went on to consider the circumstances in which whether an undertaking could be varied. This had been considered in an earlier case of L v L 2008 FLR26 and concluded that “the court did not have any general and un-fettered power to adjust a final order – let alone a final consent order – merely because it thinks it is just to do so”.
The judge said that it might be that W would have been able to secure an extension of time in which to make enquiries about a new mortgage and obtain a release. What she could not do was vary the order by the back door. The wife’s appeal was dismissed.
What can I do to avoid this problem?
It is therefore very important that lawyers acting for parties seeking to obtain the other parties’ release advise their clients to make enquiries about whether a release will be possible and obtain a mortgage offer prior to the making of a consent order.