Wood v Rost

A consent order compromising ancillary relief proceedings must be construed according to the parties’ intention as expressed in the order and the admissible surrounding circumstances. A term should not be implied merely because an unforeseen event produces an unattractive result. Where an order provides for a rateable reduction, the provision should be construed so far as possible to preserve the parity forming the basis of the approved settlement. A shortfall provision applies only to liabilities for which a party is personally liable. Disputes about implementation should be resolved promptly and economically.

The parties, formerly husband and wife, had compromised ancillary relief proceedings concerning assets realised from the sale and winding-up of a software business. Their agreement was incorporated into a consent order approved in 2001. The husband later resigned from employment with the purchaser and thereby lost entitlement to a further tranche of consideration. The wife claimed a further lump sum, while the husband claimed an equal share of an alleged shortfall arising on the winding-up of the business.

The court had to construe the provisions governing the contingent lump-sum payments and the sharing of residual liabilities, and determine whether the alleged shortfall fell within the personal-liability provision.

1. Construction of the consent order. The agreement derived its enforceability from its approval and incorporation into the court’s order. The order had to be construed by identifying what the parties intended it to achieve, having regard to the order and admissible surrounding circumstances. The court could clarify its meaning and intention under its inherent jurisdiction and CPR Part 40B, beyond correcting an accidental slip.
2. Contingent lump sums. Clause 5 made the husband’s liability contingent on his receiving the relevant consideration. The court rejected the submission that a term should be implied limiting that contingency to circumstances beyond his control. His voluntary resignation therefore relieved him of liability for the full final lump sum.
3. The provision for a rateable reduction could not sensibly be treated as applying only to the unpaid tranche, since that would leave the wife with materially less than the parity which the approving judge had been told was intended. The proper construction was to adjust the husband’s overall liability so as to restore parity. He was directed to pay £81,752 plus interest from 28 November 2002.
4. Residual shortfall. “Liquidation” was used in a non-technical sense to describe the winding-up process. The clause nevertheless required personal liability. A director’s loan account did not itself create personal liability for company debts, and the principal Revenue debt was one which the husband knew about and should have disclosed. The remaining penalties and winding-up expenses involved no personal liability. The husband’s claim under clause 8 was dismissed.
5. The prolonged satellite litigation demonstrated the need for expedition and economy. Such disputes should ordinarily be referred urgently to the judge who approved and made the order. If necessary, mediation or a hearing akin to an FDR could be considered.