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Supreme Court permits wife to challenge undertaking

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Mena Ruparel comments on Birch v Birch [2017] UKSC 53

Mr and Mrs Birch entered into a consent order in July 2010 that stated that the wife would continue to live in the family home, which was jointly owned by the parties and subject to an interest only mortgage. She would live there with the two children of the family and pay the mortgage payments.

The order was in fairly standard terms; the property would be transferred to her, she gave an undertaking to use her best endeavours to release the husband from the mortgage and in any event to indemnify him against any liability.

She then agreed in a recital that if the husband hadn’t been released from his liability by 30 September 2012 that the house would be sold. Under the terms of the agreement the husband would gain no financial benefit from the sale other than his release from the terms of the mortgage.

Mrs Birch was unable to release Mr Birch from his mortgage covenants. So she made an application in November 2011 to vary the terms of the undertaking. Instead of securing his release by 30 September 2012, she wanted to release him on 15 August 2019, the date of their son’s 18th birthday.

The husband’s position was that the court had no jurisdiction to vary the terms of an undertaking. This matter was treated as a preliminary issue by the district judge at Watford County Court. Initially, the court found that the husband was right and dismissed the wife’s application to vary.

She appealed to a circuit judge who upheld the decision of the lower court. The wife then appealed to the Court of Appeal which accepted that the court had a limited jurisdiction. The court stated that it would not exercise that jurisdiction to allow the wife’s application to proceed and the appeal was dismissed for the second time. The matter came to be decided for the third appeal by the Supreme Court.

Procedural matters

When a person gives an undertaking to the court they do so on a voluntary basis. The way in which the application should have been dealt with was to release the wife from the original undertaking and offer an undertaking in its place. The court then decides whether or not to accept the replacement undertaking. The court can’t ‘vary’ a promise to the court given voluntarily.

The lower courts had focussed on the existence of the court’s jurisdiction to release the wife from her undertaking and not the exercise of that jurisdiction. These are the matters that the Supreme Court dealt with.

The result

The court has an established jurisdiction to release a person from their undertaking. The way in which that jurisdiction should be exercised is a matter for consideration in this case.

This case has been remitted to His Honour Judge Waller who dealt with the first appeal in this case to decide if the wife should be released from her undertaking and new terms substituted.

The court will apply the provisions of section 31(7) of the Matrimonial Causes Act 1973 (MCA 1973) when considering the matter, first consideration to be given to the welfare while minor of any children of the family. The court will need to know what prejudice husband has or will suffer by the failure to release him from the undertaking in 2012. Wife will also need to establish a significant change in circumstances since she gave her undertaking.

Open offer

The husband has made an offer to postpone the sale of the home until their son’s 18th birthday if she agrees that he will receive 30 per cent of the net proceeds of sale. The Supreme Court did not judge whether it would be appropriate to attach a condition to the wife’s release from her undertaking.

However, the court noted that if the lower court finds that husband suffered prejudice from the delay in selling the house that: ’it is possible that it might favour compensating him by asking the wife to make provision for him out of the ultimate net proceeds as a condition of release.’

Impact on practitioners

It is not unusual in practice for parties to agree one person’s release from the mortgage covenants by a specific date following which a sale of the property could take place.

In those circumstances it is useful to know that if there has been a significant change of circumstances the court will consider a release from the undertaking and accept other, reasonable terms.

Clients should be advised of this possibility before entering into the terms of a consent order of this nature. At the time of entering into a consent order they should make detailed enquiries about their ability to release the other party from the mortgage covenants. If there is any change in circumstance this needs to be carefully documented.  

In this case the husband has not been called upon to pay the mortgage since the date the order was signed. He will need to show that being tied to the mortgage covenants has impacted on his ability to raise a mortgage and buy a property.

These detailed investigations are yet to take place if the parties proceed to the next hearing.

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