In proceedings brought by the mother under Schedule 1 to the Children Act 1989, the unmarried parties agreed to refer the claim to arbitration. In the arbitration neither party argued that the arbitrator lacked the power to make an award which was predicated on one or other or both parties borrowing money by way of mortgage in order to settle property under Schedule 1 for the purposes of housing the children. The arbitral award, which reflected matters agreed by the parties, provided that the property where the mother and children had been living (owned by the father albeit heavily mortgaged) was to be sold and a fund comprising capital from both parties, plus a joint mortgage, was to be used to purchase another property in the parties’ joint names on a trust for sale, with the father to meet all instalments due in respect of the mortgage as and when they fell due. However, the father subsequently challenged the award on the grounds, inter alia, that the arbitrator had no power to require him to borrow money for the purposes of making a settlement of property under paragraph 1(2)(d) of Schedule 1. The mother issued a cross-application requiring the father to show cause why a court order ought not to be made in the terms of the arbitral award. Being satisfied that the court did not have power to order a parent to borrow money, or to provide property that they did not have, for the purposes of a settlement under paragraph 1(2)(d) of Schedule 1 to the 1989 Act, the judge declined to convert the award into a substantive court order.
On appeal by the mother—
Held, appeal allowed. Although the Children Act 1989 contained no definition of the terms “property” and “settlement”, the case law supported a broad interpretation with “property” being capable of including a beneficial interest in property which was subject to mortgage. Settlements under Schedule 1 were a form of property adjustment order and, in relation to children of unmarried parents, the court was exercising a power similar to the parallel property adjustment power that existed in matrimonial proceedings by virtue of section 24 of the Matrimonial Causes Act 1973. Just as a settlement of property in the matrimonial context could be made even if the property was mortgaged, so it could in the Schedule 1 context, and borrowing capacity by way of mortgage was a “resource” of one or both of the parties to which the court could have regard under paragraph 4 of Schedule 1 in deciding whether to exercise its powers. Not only was it possible to settle pre-existing mortgaged property on trust pursuant to Schedule 1, it was also permissible to provide for a future replacement property within the same settlement of property, although that might well involve new mortgage borrowing. Moreover, the reference in paragraph 1(2)(d) of Schedule 1 to the 1989 Act to settlements of property to which a parent was entitled “in possession or reversion” did not necessarily contemplate that there was an existing property to “settle” or contra-indicate the possibility of a prospective property being purchased with the assistance of a newly obtained mortgage. The Family Court, like the High Court, had wide powers to make orders to give effect to its decision and the fact that there was no specific statutory power in Schedule 1 for a party to raise funds by way of mortgage in order to make one of the defined forms of financial provision for the benefit of children did not exclude that approach. A parent could be compelled into a joint property purchase, into an insurance contract and to discharge or indemnify for debt for which they were not contractually responsible, those being essential ancillary powers for carrying property adjustment into effect, even though none were expressly set out within the statute. While there was no express power within paragraph 1 of Schedule 1 either to order a sale of property, or to direct that a new property be purchased on trust, that provision was overwhelmingly interpreted, and routinely carried into effect, as authorising the payment of a sum of money from one party to the other (usually in one tranche) to purchase a property on trust terms, so that on the purchase of the property, at the point when the payer became “entitled” to the property “in possession or reversion” within the meaning of paragraph 1(2)(d), it was settled on Schedule 1 terms. Such a two-step process to achieve the settlement of property (payment of the lump sum, then identification of the property and settlement of the trust) did not offend against the prohibition on a second payment in paragraph 1(5)(b) of Schedule 1 since the steps taken to achieve the settlement were a matter of form not substance and the statutory language contemplated a future settlement. The mechanism of a trust was merely a device for the performance of the court's objective under Schedule 1, namely, to provide a secure home for the children, and the terms “property” and “settlement” were sufficiently wide as to include the sort of arrangement contemplated in the present case. The standard orders template (Order 2.2) approved by the President of the Family Division contained the appropriate form of wording for the settlement of property subject to mortgage and specifically included the formula for directing one or other party to make all payments of capital and interest on the mortgage. It followed that the judge had erred in her interpretation of paragraph 1(2)(d) of Schedule 1 and its application to the facts, having ignored its essential purpose and the ancillary steps which could be taken to give effect to an order made under Schedule 1 (paras 85, 88, 91, 93, 95, 96, 102, 105, 106, 120, 121, 128).
Tim Amos KC and Samantha Singer (instructed by Keystone Law) (all acting pro bono) for the mother.
Michael Glaser KC and Sophia Gonella (instructed by Mishcon de Reya LLP) for the father.