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Home > Judgments > 2008 archive

Paulin v Paulin [2008] EWCA Civ 900

Application by husband for permission to appeal decision to annul a bankruptcy order in the course of ancillary relief proceedings. Application granted.

The wife was seeking a lump sum payment out of the proceeds of sale of property that had been registered on the name of an IoM company. However in the course of the ancillary relief proceedings the husband filed for bankruptcy and claimed that the proceeds were required to pay a debt by the IoM company which was the subject of a judgment. The order was made but as matters progressed it was found that the IoM company was the alter ego of the husband and that the debt was bogus so it was set aside: that was not disputed here. The wife had also applied for the bankruptcy order to be annulled.

At a hearing in March 2008 the judge read out his judgment and decided not to annul the bankruptcy order but subsequent discussions in court after the judgment was read out, and subsequently between the parties, resulted in a further hearing at which the judge reversed that decision, although no new evidence was heard. In allowing the application Wilson LJ decided on the court’s own motion that there should be clarity on the point of whether the judge had jurisdiction to “make a volte-face so vast and so central” and that it was arguable that the logic of the judgment was flawed.
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Case No: B4/2008/1290
Neutral Citation Number: [2008] EWCA Civ 900
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
PRINCIPAL REGISTRY OF THE FAMILY DIVISION
(MR RICHARD ANELAY QC)
LOWER COURT Nos: FD/0500977/FD05D05568

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: Thursday, 26th June 2008

Before:

LORD JUSTICE WILSON
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Between:

WILLIAM LAWRIE PAULIN     (Applicant)

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NANCY FRANCIS PAULIN       (Respondent)
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(DAR Transcript of
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Miss Tina Kyriakides (instructed by Sprecher Grier Halberstam) appeared on behalf of the Applicant ‘Husband’.

Mrs Victoria Domenge (instructed by Colemans) appeared on behalf of the Respondent ‘Wife’.

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Judgment
(As Approved by the Court)Crown Copyright©

Lord Justice Wilson

1. A husband applies for permission to appeal against an order for ancillary relief made in favour of his wife by Mr Richard Anelay QC, sitting as a deputy High Court judge, Family Division, Principal Registry, on 23 May 2008.  At the hearing before the judge, which took place over three and a half days in January/February 2008, on 18 March 2008, on 11 April 2008 and on 23 May 2008, the husband appeared in person.  The wife was represented by counsel.  There were no less than five other parties to the application.  One’s sympathy goes out to the judge for having to wrestle with a highly complex situation both in law and in fact, engineered, according to findings by the judge which the husband cannot and does not seek to be overturned in this court, by a series of manoeuvres on his part in order to obstruct the wife in her application for ancillary relief and to obstruct the court in making an award to her reflective of her just entitlement following the end of married life. 

2. The only obvious asset deployable or arguably deployable in satisfaction of the wife’s financial claims was all or part of a sum of about £1,088,000 held by her solicitors to the order of the court pending determination of her substantive application for ancillary relief.  The sum represented the proceeds of sale of a property known as “Pleachfield”, Pleshey, near Chelmsford.  The property had been sold, at the instance of mortgagees, late in 2006.  Prior to that sale, and when used briefly as a matrimonial home and then, following the husband’s departure, by the wife and children as a home, the property had been owned by an Isle of Man company known as Cativo Ltd.  By the time of the substantive hearing before the judge Cativo was in liquidation.  It was in liquidation because it was apparently unable to pay an alleged debt owed by it to a company known as Dramaflight Ltd, in respect of which the latter had secured judgment against the former in the Chelmsford County Court in January 2007 for the sum of £1,243,000.  It was the husband’s case before the judge that such was a genuine debt, which had given rise to that genuine and thus unchallengeable judgment; that the only asset of Cativo was the sum presently held to the order of the court by the wife’s solicitors, namely of course a sum less than that owed to Dramaflight pursuant to the judgment; and that the sum thus held by the wife’s solicitors was already spoken for in the sense of being an asset which had vested in the liquidators of Cativo and which would have to be deployed by them in substantial but incomplete discharge of its obligation to Dramaflight.

3. But the wife had applied in the Chelmsford County Court on 19 December 2007 to set aside the judgment entered against Cativo in favour of Dramaflight; and that application had been transferred by the county court to be heard alongside the wife’s application for ancillary relief.  Thus it figured as one of the matters which the judge had to determine.  His determination was that the alleged debt owed by Cativo to Dramaflight was bogus and that the husband had engineered it in order to eliminate from the reach of the family court an asset which might be applied towards discharge of his obligations towards the wife under matrimonial law.  Thus one of the judge’s decisions was to set aside the judgment against Cativo in favour of Dramaflight.  In the light of the judge’s further finding that Cativo was the alter ego of the husband, it followed that, subject to the matter to which I will shortly refer, the sum held by the wife’s solicitors to the order of the court was in principle available for the discharge of the husband’s obligations to the wife in terms of ancillary relief.

4. When on 2 June 2008 he issued his Appellant’s Notice the husband remained acting in person.  To his notice he appended a ten page document, above which was hand written, by somebody (perhaps himself), “Grounds For Appeal”, in the course of which, among numerous other complaints, the husband purported to challenge the judge’s findings that the debt from Cativo to Dramaflight had been bogus, that accordingly the judgment in favour of Dramaflight should be set aside and that Cativo had been his alter ego.  Happily, however, matters have moved forward.  In particular, very wisely, the husband has, albeit belatedly, instructed lawyers to represent him, in particular Miss Kyriakides, who has filed a skeleton argument on behalf of him in the course of which, at [23], she has refined the grounds of proposed appeal.  There is no longer, and in my view wisely, any attempt to challenge in this court the judge’s findings in relation to Cativo or to its alleged debt to Dramaflight; and thus there is no continuing challenge to the judge’s order that the judgment in favour of Dramaflight against Cativo entered in the Chelmsford County Court be set aside. 

5. I should here add that one of the further respondents to the wife’s application had been Cativo in liquidation and that, by its joint liquidators, it had participated, at least to some extent and apparently very helpfully, before the judge.  Unaware that the husband had recently instructed counsel to appear for him today and in particular to refine his grounds of appeal, counsel for the joint liquidators, Mr Majumdar, has sent written submissions to the court in the light of his knowledge that this hearing was to proceed today.  By his document the liquidators make clear that neither they, nor, so they understood, Dramaflight, were or are concerned to challenge the judge’s finding that the debt upon which the judgment of the Chelmsford County Court had been based was bogus; and, unaware of the refinement of the grounds of appeal to which I have referred, Mr Majumdar has expressed great concern that, in circumstances when neither the alleged creditor nor the alleged debtor was seeking to challenge the judge’s finding as to the genuineness or otherwise of the debt, the husband should apparently be seeking to do so.  As I have explained, there is no remaining concern on that front.  For Ms Kyriakides has refined the grounds of appeal in quite another way. 

6. A tactic now not uncommonly employed by some devious husbands intent upon obstructing the claims of their wives following divorce is speciously to make themselves bankrupt.  The husband will certainly be unable to dislodge the findings that he is devious.  On 26 July 2006, on his own petition filed on that day, the Chelmsford County Court adjudicated him bankrupt.  By then the wife’s application for ancillary relief was well under way: she had issued her petition for divorce in September 2005, had obtained freezing orders against the husband and indeed, twelve days prior to the presentation of his petition for his own bankruptcy, a judge had ordered him to pay interim maintenance pending suit to her.  In November 2006 the wife applied to the Chelmsford County Court for annulment of the order for bankruptcy and that application was also transferred for hearing alongside the wife’s application for ancillary relief.  It is clear that, as in other applications by wives for annulment of their husband’s bankruptcies transferred to the family courts, it was of prime importance for the wife, if she could, to persuade the court to set aside the order for bankruptcy under s. 282(1)(a) of the Insolvency Act 1986, which provides that the court “may” annul a bankruptcy order if at any time it appears to the court that, on the grounds existing at the time when the order was made, the order ought not to have been made.  Subsequent authorities, to which the judge referred, seem to make clear that an order for bankruptcy ought not to have been made if, at the time when it was made, the person adjudged bankrupt was able to pay his debts as and when they fell due.  It was the contention of the wife at the hearing before Mr Anelay QC that, properly analysed, the circumstances were that on 26 July 2006 the husband had been able to pay his debts as and when they became due and that the court should exercise its resultant discretion to annul the bankruptcy order.  Mrs Domenge, who appears today for the wife in response to my setting up this hearing on notice to her, has in her short and helpful submissions to me explained that she also cast her case for annulment on a wider basis in submitting, perhaps boldly, that even if the judge was of the view that on the date of adjudication the husband was not able to pay his debts as and when they fell due, the words of the subsection were so wide, and in this case the abuse of the bankruptcy process had been so gross, as to entitle the judge to set aside the order.  In fact the judge’s ultimate conclusion about the bankruptcy order, namely that it should be set aside, was not based upon any such wide interpretation of the subsection.  Accordingly, in that as I will explain I propose to grant permission to appeal in this case, Mrs Domenge will have to consider whether to enter a Respondent’s Notice if she considers that so wide a construction of the subsection might find favour.

7. It is in relation to the issue whether the bankruptcy order be annulled that the judge’s determination took an unusual turn.  Having reserved judgment on 4 February 2008 and having written his judgment out and disseminated the written judgment to the parties, the judge read it out at the hearing on 18 March 2008.  Nothing turns on why he decided to read out a judgment which, in written form, indeed in an apparently final approved form, was already in the possession of the parties.  I have already indicated his findings in respect of the alleged debt by Cativo to Dramaflight and his order in relation to the judgment subsequently obtained by the latter against the former.  What, however, did the judge do in relation to the application to annul the order for the husband’s bankruptcy?  Between paragraphs 92 and 113 of his judgment the judge explained why, as he finally announced in paragraph 144, he ‘dismissed’ the wife’s application to annul the husband’s bankruptcy.  He gave reasons for his conclusion that, as of 26 July 2006, the husband had not been able to pay his debts as they fell due.  He proceeded to address the discretion which would have arisen had his finding been otherwise.  In that respect he determined, of course obiter, that even on that basis it would not have been appropriate to exercise his discretion to annul the order.  Thus the final words of the judgment were “I adjourn the wife’s application for a lump sum pending final determination of the bankruptcy proceedings.”  Mrs Domenge, who was present in court on 18 March 2008, tells me that, following the judge’s reading out of that judgment, there was dialogue between him and her, and also between him and the husband, which perhaps lasted for 15 or 20 minutes, whereupon the judge rose.  It seems to me that it might be relevant to see precisely how matters were left at the end of the hearing on 18 March 2008; and thus that one or other party might find it worthwhile to bespeak a transcript of that short part of the proceedings on that day.  Let me emphasise however there is no need for a transcript of what the judge read out. 

8. However the matter may have been left at the end of the hearing on 18 March, the fact is that, by a note sent to the judge by email on 19 March 2008, counsel temporarily representing the wife (in the light of the temporary unavailability of Mrs Domenge) attempted, in his own words, “to persuade the Court to reconsider its decision on the question of the annulment.”  The husband responded with a note that the court should not reconsider its findings on that point.  By e-mail in reply to the wife’s counsel, the judge, who seems not by then to have received the husband’s note of protest, indicated that he was prepared to list the issue of annulment of the bankruptcy order for his reconsideration.  Thus it was that there was a further hearing before the judge on 11 April 2008.  On that date the judge appears to have received full argument (albeit that no new evidence was placed before him nor, I believe, was sought to be placed before him) upon whether he had been right to have ruled, or (as the wife would presumably have it) to have proposed to rule, that the order for bankruptcy should not be annulled.  At the end of that hearing the judge again reserved judgment and, at the final hearing on 23 May 2008, the judge, as before, read out a written “Amended Judgment”, running to 55 paragraphs across 13 pages, which, as before, had in fact already been disseminated to the parties. 

9. By that judgment the judge reversed his previous decision or (as the wife would presumably have it) proposed decision and ruled that the bankruptcy order should be annulled.  In the Amended Judgment he explained why he had concluded that he had been wrong in March to find that the husband had not been able to pay his debts on 26 July 2006 as and when they became due and, furthermore, why he had been wrong to consider that, even if the husband had been able to do so, it would not have been appropriate to exercise discretion to annul the order.  So, instead of adjourning the wife’s application for ancillary relief, the judge made a substantial lump sum order in her favour: he provided that, subject to specific, relatively small, payments to third parties primarily in respect of costs, the entire sum held on deposit by the wife’s solicitors to his order should be paid to her in respect of her costs of the application and by way of a lump sum payment. 

10. As refined by Ms Kyriakides, the grounds of the proposed appeal to this court on behalf of the husband would now be, and subject to one further matter would now only be, that the judge was wrong to find that the husband had been able to pay his debts as and when they fell due and that, even if such a finding was open to him, he was wrong to conclude, as a matter of his discretion, that he should annul the bankruptcy order. 

11. In the light of the highly unusual history to which I have referred, it seems to me that, whatever the husband’s lack of merit in these proceedings, his grounds, as refined, have to be adjudged to be arguable.  The judge was persuaded, in particular by reference to a decision of this court in Re: T (Contact: Alienation: Permission to Appeal) [2003] 1 FLR 531, that he had power to reverse his earlier judgment.  Re: T is a decision well known to me for in that case I was the trial judge whose reasons this court held to be deficient; and there was apparently extensive discussion in this court upon that appeal as to the hypothetical facility for me, had I been asked to do so, to have expanded my reasons for the course of action which I had directed for the sake of the child.  It seems to me arguable that, notwithstanding his reliance on that decision, the judge fell into error in concluding that he could, following delivery of the judgment on 18 March 2008, make a volte-face so vast and so central as that which he made in the Amended Judgment.  In her skeleton argument and refined grounds of appeal, Miss Kyriakides has not taken this point.  But it seems to me that, in that it goes to the judge’s jurisdiction in April 2008, this court might wish to consider it of its own motion; and that there should at least be clarity as to whether it is open to a judge to act as this judge did.  As the dialogue has proceeded in court this afternoon, Miss Kyriakides has indicated that she might wish to consider whether to add to the two existing grounds of appeal in her skeleton argument a third ground relating to the jurisdiction of the judge to act as he did.  Quite apart, however, from whether he did have jurisdiction to act as he did, the obverse reasoning in the judge’s earlier judgment seems to me, almost as a matter of logic, to afford to the husband arguable grounds for contending that the reasoning in his later judgment is flawed. 

12. Accordingly I grant permission to appeal, albeit only on the grounds set out in paragraph 23 of the skeleton argument of Miss Kyriakides and on any ground which she wishes to add referable to the judge’s jurisdiction to conduct the reconsideration on 11 April 2008.

Order: Application granted