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Paulin v Paulin & Anor [2009] EWCA Civ 221

Appeal by husband against a decision to annul a bankruptcy order, arising in the course of ancillary relief proceedings, made on his own petition and after first having been upheld. Appeal dismissed.

The central grounds considered in this appeal are i) whether the judge could change his mind concerning the annulment of the bankruptcy order having at first declined to do so and ii) whether his reasons for doing so were valid (the facts are reported at Paulin v Paulin [2008] EWCA Civ 900).

Wilson LJ first considered the judge’s change of mind. He concluded that the judge did have jurisdiction to change his mind as the order had not been perfected and that

“if prior to its perfection a county court judge reversed his order, time for appealing against the reversal ran from the date of its oral pronouncement.”

However his exercise of discretion was flawed as he had not properly considered the legal principles and the decision to reconsider was not reasoned. Wilson LJ then goes on to find that the appellant’s statement of affairs was substantially dishonest and that the judge had been right to conclude that on the day the order was made the appellant could pay his debts: his argument that he could not pay those debts because of a freezing injunction failed as the family courts would have relaxed the injunction to enable him to do so.

Neutral Citation Number: [2009] EWCA Civ 221
Case No: B4/2008/1290
LOWER COURT NOS: FD0500977, FD05D05568
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 17/03/2009

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CATIVO LIMITED (in liquidation) (Second Respondent)

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Miss Tina Kyriakides  (instructed by Sprecher Grier Halberstam LLP, London EC3) appeared for the Appellant husband.
Mr Timothy Scott QC and Mrs Victoria Domenge (instructed by Colemans, Chelmsford) appeared for the First Respondent wife.
Mr Shantanu Majumdar (instructed by Francis Wilks and Jones LLP, London EC1) appeared for the Second Respondent, by its liquidators.

Hearing date: 9 December 2008
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Lord Justice Wilson:

1. A tactic now occasionally adopted by a devious husband confronted with an application by his wife for financial relief ancillary to divorce proceedings is to issue proceedings for a bankruptcy order to be made against himself. Following the making of such an order and upon the appointment or other emergence of a trustee in bankruptcy, all the husband’s assets vest in the trustee pursuant to s.306 of the Insolvency Act 1986 (“the Act of 1986”), with the result that the divorce court suddenly becomes disabled from ordering him to make capital provision for the wife. The wife’s response to the tactic is often to apply in the bankruptcy proceedings for the bankruptcy order to be annulled; and a convenient practice has arisen for the bankruptcy proceedings thereupon to be transferred to the court which is conducting the divorce proceedings so that the same judge, at the same time, can determine the wife’s application for annulment of the bankruptcy order and, in the light thereof, her application for ancillary relief.

2. Having duly conducted a substantial hearing of both such applications at the same time, the judge in the present case gave a long, reserved, judgment, by which he explained why he had decided to refuse the wife’s application for the bankruptcy order against the husband to be annulled and had thus decided to adjourn her application for ancillary relief. But, before his order was drawn, the wife’s counsel persuaded the judge to appoint a further hearing at which to receive further argument, following which he changed his mind and gave a second, long, reserved, judgment, by which he explained why he had decided to grant the wife’s application for the bankruptcy order to be annulled and had thus decided to order the husband to make a substantial lump sum payment to her.

3. In this appeal, brought by the husband, two issues arise:

(i) Was it proper for the judge to reverse his decision upon the central question whether to annul the bankruptcy order?
(ii) What principles govern the determination of an application to annul a bankruptcy order made on the bankrupt’s own petition and, in the light of them, did the judge err in ultimately annulling the bankruptcy order?

4. The husband’s appeal is against two of the orders made in these proceedings by Mr Richard Anelay QC, sitting as a deputy judge of the High Court, Family Division, Principal Registry, on 23 May 2008, namely:

(a) an order that the bankruptcy order made against the husband in the Chelmsford County Court on 26 July 2006 be annulled; and
(b) an order that, on a clean break basis and inclusive of her entitlement to costs, the husband should make a lump sum payment to the wife in a sum equal to, and out of, the fund then held to the order of the court, namely £1,088,000 plus accrued interest. Unusually, however, the judge’s order proceeded to direct that, out of that fund, four payments, not all quantified in the order, should first be made to specified persons otherwise than for the benefit of the wife and largely in respect of their costs. So the amount of the lump sum properly so-called was rather less than at first sight the order suggested. It will be convenient to assume that it was £1,000,000.

5. At the hearings before the judge Mrs Domenge of counsel appeared for the wife and the husband appeared in person. When filing his Appellant’s Notice in this court, the husband, then still acting in person, put forward numerous grounds of appeal, including in effect against a third order made by the judge on 23 May 2008, namely (as I will call it) “the Dramaflight order”, which I will explain in [20] below. Thereafter, however, the husband instructed solicitors and Miss Kyriakides of counsel to represent him in the proposed appeal. On 26 June 2008 I conducted a hearing at which Miss Kyriakides sought permission to appeal on much narrower grounds than those which had been put forward by the husband; in effect she confined the focus of the proposed appeal to the validity of the grounds for annulling the bankruptcy order set out in the judge’s second judgment. In giving permission to appeal, however, I gave permission for the grounds to be amended in order also, and in the alternative, to reiterate in better terms a complaint in the husband’s original grounds to the effect that in any event the purported order for annulment represented an impermissible reversal of what the judge had already determined. In the course of my judgment, numbered [2008] EWCA Civ 900, I expressed, at [11], such surprise at the judge’s “volte-face so vast and so central” that the reiteration on behalf of the husband of this alternative ground should, in fairness to Miss Kyriakides, be regarded as having been included with my encouragement.

6. Miss Kyriakides and her instructing solicitors have represented the husband admirably. It is, in retrospect, highly unfortunate that he did not instruct them to represent him before the judge. To the extent that I will be criticising some of the judge’s determinations, the inherent complexity of the case and the lack of any legal assistance given to him on behalf of the husband must be borne in mind.

7. It follows that there is no subsisting appeal against the Dramaflight order and that two further important aspects of the judge’s judgments are not now in issue in this court. Firstly, his profoundly adverse findings about the husband’s honesty, which (I have no doubt) this court would not have set aside even if asked, are no longer the subject of challenge. Secondly it is no longer in dispute that, if it was open to the judge to annul the bankruptcy order, it was open to him to proceed to award a lump sum of £1,000,000 to the wife on a clean break basis inclusive of costs.

8. During the marriage, which began in 1999, and indeed during the preceding cohabitation, which began in 1994, the husband had been an entrepreneur. In effect the judge accepted the wife’s evidence that he was an asset-stripper. The judge stated:

“His financial dealings, prior to his bankruptcy, took place through a web of companies, most of which now are either dissolved or in administration or liquidation. He appears never to have owned anything in his own name … There was little paperwork which showed that he was the owner of property or other company assets.”

Between 2000 and 2004 the husband’s main company was Croftacre Holdings Ltd (“Croftacre”). Through Croftacre he bought a number of companies, dealt with their assets and disposed of the companies. One such company was Premier Screw and Repetition Co. Ltd (“Premier Screw”). Following its purchase by Croftacre the husband became a director of Premier Screw and so assumed a fiduciary duty towards it. But in breach of it he caused its assets to be transferred to Croftacre and to two other companies without consideration and thus to the prejudice of a creditor of Premier Screw. The result was that in December 2004 a registrar in bankruptcy of the High Court ordered the husband to be disqualified from acting as a director of a company or being concerned in its management, without leave of the court, for seven years under the Company Directors Disqualification Act 1986. The registrar described the husband’s breach of duty as flagrant and very serious. In May 2005 Sir Andrew Morritt V.C., as he then was, dismissed the husband’s appeal against that order.

9. Following his disqualification, the husband acted as a business consultant, in particular for a company operated by his brother, from which he earned £100,000 gross per annum. Upon the husband’s bankruptcy that income ceased. But his oral evidence to the judge at both the hearings was that he remained working for two days each week at a fee of £1000 per day, i.e. £104,000 gross per annum; and at the second hearing he added that he was capable of earning more if he chose to do so. He also had the use of a Rolls Royce Phantom Drophead Coupé motor car as part – so the judge found – of a generally lavish lifestyle, including several skiing holidays each year which he said were funded by friends. His case was that, once he had been discharged from bankruptcy in ordinary course, he should during the following two years be able to amass £500,000 with which to satisfy the wife’s claims.

10. It was, however, the wife’s contention before the judge that the husband remained the de facto owner of substantial undisclosed assets. In particular she relied on evidence by her father, disputed by the husband, that in February 2005 the husband had told him that he held £8,000,000 in a bank account. The judge accepted the father’s version of the conversation; described the husband as not being a straightforward or reliable witness; accepted the wife’s evidence that the husband had threatened that, were she to take him to court, he would hide his assets and ensure that she got nothing; and found that the husband had been determined to put beyond the reach of the court all his valuable assets in order to defeat her claims. Nevertheless, suspicious though he declared himself to be, the judge concluded that he was unable positively to find that the husband held undisclosed assets whether of the size of which he had spoken to the wife’s father or of any substantial size.

11. In March 2003 the husband bought a substantial property near Chelmsford (“the property”). His intention and that of the wife was that, following extensive refurbishment, it would become their home and that of their children. At that time they had two children, born in 1996 and 2000; a third was to be born in 2004. The property cost £850,000, of which £650,000 was advanced on mortgage by RBS. The husband had acquired Cativo Ltd, a company registered in the Isle of Man, as a vehicle for his ownership of the property; and it was duly placed into Cativo’s name. In the early stages of the divorce proceedings the husband was to accept that at all material times he held the only share in Cativo.

12. The works of refurbishment of the property proceeded from March 2003 until February 2005. Their cost was substantial but the judge was unable to quantify it. He found that the deposit of £200,000 for the purchase had been funded by the husband out of Croftacre and that the cost of the works had been funded by him and the wife from other sources.

13. In February 2005 the family moved into the property. But by then the marriage was breaking down. After three weeks the husband left. In May 2005, while the wife and children were on holiday, he moved back into it. The wife and children thereupon moved to another, much more modest, house in Chelmsford which, subject to mortgage, the husband had bought for her prior to the marriage and where they still remain.

14. In September 2005 the wife issued the proceedings for divorce. Without notice to the husband, she thereupon obtained a freezing order against the husband; and the order was continued following hearings on notice to him. In the light of his claim to her father of owning £8,000,000, the wife persuaded the court to freeze assets of the husband up to £4,000,000. But, in that the most easily demonstrable asset of the husband was the substantial equity in the property, she also obtained specific orders against both the husband and Cativo (which was made a second respondent to the proceedings) that the property be not disposed of nor further charged.

15. Later the property was sold with the wife’s consent. At some stage in 2005 or 2006 the husband had ceased to pay the mortgage instalments to RBS. Although the judge did not expressly so find, it is implicit in his judgment that the husband deliberately ceased to pay the instalments in order to engineer a forced sale of the property. RBS duly issued proceedings for a possession order but, before it obtained the order, the husband and wife in effect agreed to preempt a forced sale by effecting a sale of the property themselves on behalf of Cativo. RBS appears to have agreed that they should do so upon condition that, in the first instance, the entire net proceeds should be remitted to itself. In an affidavit sworn on 8 November 2006 the wife confirmed that the property was by then already under offer at a price of £1,950,000; and in December 2006 the sale was duly effected at or at about that price. On the application of the wife, successive orders were made by way of variation of the freezing order, first that RBS and its solicitors should not dispose of such proceeds as represented the equity in the property and later that they should pay them to the wife’s solicitors, to be held to the order of the court. Thus it was that, by the time of the hearings before the judge, a fund of £1,088,000 was held to the order of the court: it represented Cativo’s equity in the property.

16. Meanwhile, however, the husband had taken elaborate steps designed to disable the court from awarding the wife any part of that equity. In this respect he favoured a belt as well as braces. The belt was to purport to transfer ownership of Cativo to a third party. The braces were to manufacture a debt payable by Cativo of a size at least equal to that of its equity in the property with the result that, irrespective of the identity of its owner, Cativo was valueless.

17. The husband’s purported transfer of his share in Cativo took place on 11 July 2006, fifteen days prior to his presentation of the petition for his bankruptcy. If it was a genuine transfer, it was in breach of the freezing injunction. It was to The Property [Europe] Partnership, based at that time in the Isle of Man and subsequently in Cuba, which was made a further respondent to the proceedings before the judge but which elected to take no part in them. There was no consideration for the transfer because – so the husband contended by reference to the manufactured debt – Cativo was valueless. The judge found that the transfer was probably a sham and ordered that, if alternatively it was genuine, it should be set aside under s.37(2)(b) of the Matrimonial Causes Act 1973. He found that Cativo remained the alter ego of the husband and that, subject to the bankruptcy, he could treat any assets belonging to it as belonging to him.

18. The husband’s manufacture of the debt began earlier, shortly prior to presentation of the wife’s petition. In December 2004, following his disqualification as a director, he sold Croftacre to a company operated by his associates called Investment Equity Ltd. In May 2005 Croftacre purported to assign to Investment Equity the benefit of a debt of £988,000 allegedly owed to Croftacre by Cativo; the consideration for the assignment was said to be the waiver of a debt of equal size owed by Croftacre to Investment Equity. In March 2006 Investment Equity purported to re-assign to an associated company, namely Dramaflight Ltd, the benefit of the debt allegedly owed by Cativo; the consideration for the re-assignment was said to be the waiver of a debt of equal size owed by Investment Equity to Dramaflight. By letter to Dramaflight dated 29 March 2006, apparently signed by the husband’s father who had become one of its directors, Cativo acknowledged the debt thus then payable to Dramaflight but protested that Cativo was unable to pay it. Dramaflight sued Cativo upon the debt in the Chelmsford County Court and in January 2007 obtained judgment in default in a sum which, in accordance with the terms allegedly referable to the debt, had risen to £1,243,000.

19. On 6 December 2007 Cativo placed itself into a creditors’ voluntary liquidation. At about the same time, however, the wife applied in the proceedings brought by Dramaflight against Cativo for the judgment entered therein to be set aside; and those proceedings were, like the husband’s bankruptcy proceedings, transferred to the High Court, Family Division, so that the wife’s application could be determined by the judge together with her applications in the divorce and bankruptcy proceedings. Cativo was already a party to the proceedings before the judge and Dramaflight therefore became yet a further party to them. Cativo, by its liquidators, instructed Mr Majumdar to appear both at the second substantive hearing before the judge and also before this court. Through him the liquidators struck a careful neutrality but gave considerable constructive assistance to both courts in relation to some of the legal ramifications of the tangled situation. Dramaflight, by contrast, elected not actively to participate in the proceedings although one of its directors gave evidence on behalf of the husband.

20. In the event the judge found that Cativo had never been indebted to Croftacre whether in the sum of £988,000 or otherwise; that the sums applied by the husband and wife to the purchase and refurbishment of the property additional to the mortgage loan had been disguised by the husband as a loan from Croftacre to Cativo in order that he might parade the latter as insolvent; that there was no evidence that either Investment Equity or Dramaflight provided the alleged or any consideration for the successive assignments of the benefit of the so-called debt; that its assignment to Dramaflight was a sham; and that, in the light of evidence from the husband’s father that the signature upon it had not been written by him, the husband had forged his signature on Cativo’s letter dated 29 March 2006. So, acceding to the wife’s application, the judge made the Dramaflight order, by which he set aside the judgment entered against Cativo in favour of Dramaflight and dismissed Dramaflight’s claim. The result has been, of course, that, after all, Cativo is not insolvent and that it is now open to its liquidators to apply to the Manx court for a “stay” of the liquidation, which would bring it to an end.

21. In May and June 2006 two bona fide creditors of the husband, namely the Inland Revenue and BPB Paperboard Ltd, obtained judgments against him for £78,000 and £21,000 respectively. There was no evidence that the husband had made any effort to pay either of the debts; and it is reasonable to infer – at any rate from the second judgment – that he had been content for the judgments to be entered against him. On 28 June and 19 July 2006 the two judgment creditors served statutory demands for payment upon the husband as an apparent prelude to issuing bankruptcy proceedings against him. The husband no doubt considered that these events provided an ostensibly convincing platform for his own issue of a petition in the Chelmsford County Court on 26 July 2006 for a bankruptcy order to be made against himself on the ground that he was unable to pay his debts. The timing of the issue of his petition may also have been related to the fact that, 12 days earlier, the wife had obtained an order against him for interim maintenance pending suit. On the day of issue of his petition a district judge duly made the bankruptcy order, the result of which was that the Official Receiver became first the receiver and manager, and subsequently the trustee, of his estate.

22. In the Statement of Affairs filed in support of his petition the husband alleged that his debts, including the two judgment debts, amounted to £191,000. Of this, £55,000 was a debt allegedly owing to his brother-in-law. The judge in the present proceedings was not satisfied that the latter debt was genuine but he accepted that the balance of £136,000 had been – and remained – genuinely owed; and indeed that there were some further liabilities of the husband to the Inland Revenue both as at July 2006 and at the time of the hearings before himself but which the husband had not satisfactorily quantified.

23. In the Statement of Affairs the husband alleged that his assets amounted only to £13,000. He deposed as follows:

(a) he had no interest in any freehold property;
(b) he owned no property abroad;
(c) he owned no shares;
(d) he had not transferred any assets for less than their true value during the preceding five years; and
(e) he was residing in the property but it was owned by Cativo and let to him at a peppercorn rent on the basis that he was “house-sitting”, i.e. protecting it for Cativo by being in residence there.

24. Following a hearing on most of four days in January and February 2008 the judge delivered his first judgment on 18 March 2008. It was in writing and extended to 144 paragraphs. He had provided copies of it to the parties beforehand and so it is not entirely clear why, as with the second judgment, he read it out in court. Such is generally an unnecessary expenditure of court time but the judge must have considered that, exceptionally, there was good reason for him to do so.

25. I have already explained the basis for the judge’s conclusion – in both judgments – that in July 2006, the husband, through Cativo, was the owner of the substantial equity in the property. The judge held nevertheless that he could annul the bankruptcy order only if the wife established that on its date the husband could pay his debts at the time when they were due. The central conclusion of the first judgment was that the wife had failed to establish it. “I recognise”, added the judge immediately, “that that finding may be open to question”. So he reminded himself that, even if the wife had established it, a discretion whether to annul the order would have arisen; and he observed that, even if she had done so, he would have declined to exercise his discretion to annul it. In this respect his reasoning was that it would have been “idle” to annul the order since it was inevitable that in that event either a genuine creditor, for example the Inland Revenue, or the husband himself would at once have issued a fresh petition for a further bankruptcy order. The judge therefore explained that the bankruptcy process would need to take its ordinary course, pending the conclusion of which, and subject to the proposed order to which I will refer in [26(a)] below, the wife’s application for ancillary relief should be adjourned.

26. Apart from whether the judge was right to refuse to annul the bankruptcy order, there were three questionable determinations on the part of the judge on 18 March 2008.

(a) The wife had alleged that she and the husband were also the owners of a house near Perpignan. The house was vested in the name of a company registered in the Bahamas and owned by an associate of the husband. The Bahamian company had been made yet a further respondent to the proceedings but had elected to take no part in them. The wife’s contention was that she and the husband had funded the purchase and refurbishment of the house, that the company held it on behalf of them jointly and that it had a net value of £388,000. His contention was that, through the company, his associate owned the house and had allowed them to use it in return for their funding of its refurbishment. The judge upheld the wife’s contention. The judge’s determination in relation to the house near Perpignan was that, notwithstanding his adjournment of all her other capital claims, he would order the Bahamian company to transfer entire ownership of it to the wife. The question is why, in the light of the wide definition of property in s.436 of the Act of 1986, when read in conjunction with ss.306(1) and 283(1)(a) of that Act, the judge felt able to conclude that the husband’s joint beneficial interest in it had not vested in the Official Receiver along with all his other assets.
(b) The second questionable determination was one which, in the light in particular of submissions from Mr Majumdar at the second hearing, the judge in his second judgment accepted to have been erroneous. In his first judgment the judge ruled, or at any rate observed, that, for the purpose of the continuing bankruptcy and in the light of his Dramaflight order, the assets of Cativo would vest in the Official Receiver as trustee of the husband’s estate. Mr Majumdar was to submit that the mechanism was not as simple as that; that the corporate veil could not be pierced for the purpose of bankruptcy proceedings just because it might be able to be pierced for the purpose of divorce proceedings; and that, although by virtue of the Dramaflight order Cativo was by then again solvent, its assets – albeit only after deduction in respect of its liquidators’ costs and its genuine liabilities – could be placed into the hands of its shareholder only by the conventional routes of either declaring a dividend or concluding the liquidation.
(c) The third questionable determination arose in the course of the dialogue following delivery of the judgment. For the judge then made clear that he proposed to remain seised of the bankruptcy proceedings rather than that they be remitted back to the county court; and that at a further hearing he would himself rule upon the identity of the husband’s genuine creditors and upon the amount owed to each of them for the purpose of the bankruptcy. The question is how the judge felt able to bypass the procedure set out in s.322(1) of the Act of 1986 and in Rule 6.96 of the Insolvency Rules 1986, whereby an alleged creditor must submit proof of his debt to the trustee and whereby only in the event of the trustee’s rejection of the proof can the creditor apply to the court under s.363 of the Act.

27. In the course of that dialogue following the first judgment Mrs Domenge unsuccessfully sought to persuade the judge to revisit his determination not to annul the bankruptcy order. On the following day, however, there was an unusual development, namely the delivery to the judge of a note on behalf of the wife. In the light of the pressure of other work upon Mrs Domenge, her colleague, Mr Willins of counsel, had drafted the note. By the note, Mr Willins requested the judge preferably to appoint a further hearing at which to reconsider his refusal to annul the bankruptcy order but otherwise to grant the wife permission to appeal against it. Mr Willins set out detailed, albeit respectful, argument that the judge’s reasons for refusing to annul it were flawed and submitted that, in that no order reflective of his determination had yet been drawn, let alone sealed, the judge had jurisdiction to conduct the requested reconsideration.

28. On the same day, 19 March 2008, Mr Willins or the wife’s solicitor appears to have sent a copy of his note to the husband by e-mail or fax; and at 14:47 that day the husband, probably by fax to the court, lodged a short note of objection to each of the alternative requests which Mr Willins had made. But, by e-mail timed 14:58, the judge responded to Mr Willins: the essence of the response was that the judge was thereby directing the appointment of a further hearing at which to reconsider his refusal to annul the bankruptcy order and that his e-mail should be forwarded forthwith to the husband. It is clear that, at the time when he sent the e-mail, the judge had not seen the husband’s note and saw no need to collect the husband’s submissions in response to Mr Willins’ requests before ruling upon them.

29. On 11 April 2008 the further hearing took place. In substance no fresh evidence, whether written or oral, was adduced. Mrs Domenge, the husband and Mr Majumdar had each filed skeleton arguments and they all made oral submissions by way of supplement to them. The judge reserved judgment and handed it down at the hearing on 23 May 2008. In the second judgment the judge:

(a) held that he was entitled to reconsider his refusal to annul the bankruptcy order because his order had not been drawn, let alone sealed, and in any event because his duty to appraise the wife’s application for permission to appeal against the refusal entitled him to reconsider it;
(b) held that he had been wrong to find that at the time of the bankruptcy order the husband had been unable to pay his debts;
(c) found that at that time the husband had been able to pay his debts in that, through Cativo, he owned the substantial equity in the property which the court would have been likely, by way of variation of the freezing order, to allow him to realise and to apply, in part, to payment of them, or in the light of which he could have obtained bridging finance for the purpose of their payment;
(d) held that, in that the husband had procured the bankruptcy order in order to defeat the wife’s claims, he should exercise the resulting discretion in favour of annulling it; and
(e) gave reasons for making the order for ancillary relief in favour of the wife to which I have referred in [4(b)] above, being an order which, on this occasion, did not include transfer to her of the husband’s interest in the house near Perpignan but, rather, provided for transfer to him of her interest in it.

30. Study of the many authorities cited to us on this first issue leads me to attempt to summarise the law in relation to it as follows:

(a) A judge’s reversal of his decision is to be distinguished from his amplification of the reasons which he has given for it. Where the reasons for his decision are allegedly inadequate, a party should generally invite him to consider whether to amplify them before complaining about their inadequacy in this court and he has an untrammelled jurisdiction to amplify them at any time prior to the sealing of his order: Re T (Contact: Alienation: Permission to Appeal) [2002] EWCA Civ 1736, [2003] 1 FLR 531, per Arden LJ at [41], being a case in which the inadequate reasons were my own.

(b) A judge has jurisdiction to reverse his decision at any time until his order is perfected but not afterwards: In Re Suffield and Watts (1888) 20 QBD 693. Nowadays an order is perfected by being sealed pursuant to CPR 40.2(2)(b).

(c) Until 1972 the courts made no attempt to narrow the circumstances in which it would be proper for a judge to exercise his jurisdiction to reverse his decision prior to the sealing of the order. Thus In re Harrison’s Share under a Settlement [1955] Ch 260 this court rejected, at 275, the submission that the jurisdiction should be exercised only in cases of manifest error or omission. “Few judgments are reserved,” it said interestingly at 276, “and it would be unfortunate if once the words of a judgment were pronounced there were no locus poenitentiae”. Indeed it now seems that a written reserved judgment may be less open to a judge’s reversal than an ex tempore judgment: Stewart v. Engel [2000] 1 WLR 2268, per Sir Christopher Slade at 2276A; and that, if a written judgment has been disseminated only as a draft, it may be more open to reversal by the judge than if it has been handed down and thus finally delivered: Robinson v. Fernsby [2003] EWCA Civ 1820, per May LJ at [98] and Mance LJ at [113].

(d) In 1972, however, came the decision of this court in In re Barrell Enterprises [1973] 1 WLR 19. The jurisdiction to reverse is now often described as “the Barrell jurisdiction”: see for example Stewart v Engel, cited above, per Sir Christopher Slade at 2274A. The decision of this court in Barrell is generally regarded as having narrowed the circumstances in which it is proper for a court to reverse its decision prior to the sealing of the order; and nothing turns on the fact that Miss Barrell’s application was made to this court for reversal of its own decision to dismiss her appeal, which, for an unexplained reason, had for six months not been enshrined in a sealed order. This court said, at 23H – 24B:

“When oral judgments have been given, either in a court of first instance or on appeal, the successful party ought save in most exceptional circumstances to be able to assume that the judgment is a valid and effective one. The cases to which we were referred in which judgments in civil courts have been varied after delivery (apart from the correction of slips) were all cases in which some most unusual element was present.”

It seems to me that the court’s reference to “oral judgments” was in contradistinction not to written, reserved judgments but to written, sealed orders.

(e) The limitation apparently placed by this court in Barrell upon the proper exercise of the jurisdiction to reverse, namely by its adoption of the formula that the circumstances should be exceptional, was not universally welcomed. For example in Pittalis v. Sherefettin [1986] 1 QB 868 this court seemed to pay little more than lip-service to it: see the judgments of Fox LJ at 879 F-G and of Dillon LJ at 882 C-F. Indeed, in there observing that it was in itself exceptional for a judge to be satisfied that the order which he had previously pronounced was wrong, Dillon LJ in effect emasculated the limitation into insignificance. But even after the bulk of the Civil Procedure Rules had come into effect in April 1999, the formula adopted in Barrell was unequivocally reaffirmed both by the majority decision of this court in Stewart v. Engel, cited above, per Sir Christopher Slade at 2275H – 2276D and per Roch LJ at 2292E, and, obiter yet significantly, by the five-judge constitution of this court in Taylor v. Lawrence [2002] EWCA Civ 90, [2003] QB 528, in which, at [13], in quoting from Barrell, the court chose to italicise the words “save in most exceptional circumstances”.

(f) So the formula in Barrell governs. But how far does it help? In Compagnie Noga D’Importation et D’Exportation SA v. Abacha [2001] 3 All ER 513 Rix LJ, still sitting as a judge of the Commercial Court, observed, at [42 – 43], that it was not a statutory definition and should not be turned into a straitjacket at the expense of the interests of justice and that a formula of “strong reasons” was an acceptable alternative to that of “exceptional circumstances”. In Robinson v. Fernsby, cited above, May LJ observed, at [94], that the formula of “exceptional circumstances” was “a relatively uninformative label” and, at [96], that he preferred the alternative which Rix LJ had suggested.

(g) It is therefore instructive to notice examples of the application to particular facts of the jurisdiction to reverse a decision prior to the sealing of the order. An early example is Miller’s Case (1876) 3 Ch. D 166: the court’s attention had not been drawn to one of a company’s articles of association, which compelled a conclusion opposite to that which had been reached. Another example is Millensted v. Grosvenor House (Park Lane) Ltd [1937] 1 KB 717: for the negligence of the hotel in upsetting a jug of hot water over her, the judge awarded damages of £50 to the claimant but on the following day, without further argument on that point, he informed the parties that his award had been excessive and would be only £35. A third example is In re Harrison’s Share under a Settlement, cited above: ten days after the judge had approved proposed variations of trusts the House of Lords held in other proceedings that a judge had no jurisdiction to do so in such circumstances. A fourth example is Dietz v. Lennig Chemicals Ltd [1969] 1 AC 170: shortly after the date of a master’s approval of a settlement of the claims of a purported widow and child it was learnt that three weeks prior to that date the widow had remarried.

31. It seemed at one stage that Miss Kyriakides had alighted on an ingenious argument for the proposition that in 2000 the Barrell jurisdiction had been abrogated. Her argument related to the date from when time begins to run for the filing of an appellant’s notice for an appeal from the High Court to this court. In Stewart v. Engel, cited above, Sir Christopher Slade observed, at 2274H – 2275B:

“Consistently with the existence of the Barrell jurisdiction, R.S.C. Ord. 59 r.4(1) provides that the time for appeal from a decision of the High Court begins to run from “the date on which the judgment or order of the court below was sealed or otherwise perfected”. Up to that date, in my judgment, the Barrell jurisdiction continues to subsist, though, as I will explain later, the discretion thereby conferred on the court is in my judgment severely restricted.”

Roch LJ made a similar observation at 2291D.

32. On any view there was a neat symmetry between the subsistence of a trial judge’s jurisdiction to reverse his decision until the point when the time for filing an appellant’s notice began to run and, correspondingly, the termination of his jurisdiction at that point. For it was clearly convenient both for the litigants and for this court that, once the appeal process had begun, the focus would be upon an order which the trial judge could not change. Such was the consideration which in Stewart v. Engel, cited above, Sir Christopher Slade and Roch LJ surely had in mind. They referred to Order 59 of the R.S.C. because, although the bulk of the C.P.R. had come into force in April 1999 and applied to the proceedings before them, Part 52 of the C.P.R., relating to appeals, was introduced only by Rule 19 of the Civil Procedure (Amendment) Rules 2000, 2000 No 221, and came into effect only on 2 May 2000 so did not apply to them.

33. The argument of Miss Kyriakides was based on the fact that rule 52.4(2)(b), thereby introduced in 2000, changed the date from when time began to run for the filing of an appellant’s notice for an appeal from the High Court to this court: it became “the date of the decision of the lower court” rather than the date of the sealing of the order. Were the Barrell jurisdiction to have survived this change, all neat symmetry (argued Miss Kyriakides) would be gone. The focus of an appeal would become a moving target in that a trial judge could reverse his decision even after the appeal process had begun, provided only that his order had not been sealed. Miss Kyriakides pointed out that her argument had not been raised when, in 2003, this court decided Robinson v. Fernsby, cited above, and that the power of the trial judge to extend the time for appeal might occasionally, but would not generally, serve to resolve the problem.

34. But the industry of Mrs Domenge has unearthed a definitive rebuttal to the argument of Miss Kyriakides: it lies in the decision of this court in Hyde and South Bank Housing Association v. Kain, unreported, 27 July 1989. On a Friday a county court judge awarded damages of £790 to a tenant against a landlord in respect of a damaged carpet but over the following weekend the judge changed his mind and, at a further hearing a few days later, he gave judgment for the landlord. In this court counsel for the tenant argued that the Barrell jurisdiction did not apply to the county court because, under R.S.C. Ord. 59 r.19(3), the time for appealing from that court began to run not from the date when the order was sealed but from “the date of the judgment or order of the court below”, i.e. the date of its oral pronouncement in court. This court rejected counsel’s argument. O’Connor LJ, held, at 13 A–B, that the time for appeal had no bearing on the judge’s power to control the case. Stocker LJ held, at 17 C–D, that it was irrelevant to the point at which he became functus officio. Nicholls LJ observed, at 22 A–B, that, if prior to its perfection a county court judge reversed his order, time for appealing against the reversal ran from the date of its oral pronouncement. So, even if for no other reason, the argument of Miss Kyriakides founders against the rock of binding precedent.

35. There is no question, therefore, but that in the present case the judge had jurisdiction to reverse his decision. But was it proper for him to exercise it? In that regard he had a discretion, which he was required to exercise judicially, in other words in accordance with the principles established in particular by this court. Did he do so?

36. Relevant to the answer are the following features:

(a) The issue whether the bankruptcy order should be annulled was the pivot upon which, in effect, the determination of the entire proceedings turned; and, at the first hearing, extensive submissions had been made to the judge upon it.

(b) The judge’s first judgment was reserved for six weeks.

(c) By the time when he agreed to reconsider it, the judgment was no longer in draft but had been delivered.

(d) In his hurried note to the judge Mr Willins referred to Barrell, cited above, and submitted only that, prior to the sealing of the order, “the court has a general power to reconsider its judgment on the question of annulment, not least in circumstances where, as here, the court had not received submissions on the course which the court proposed to take”. Unless such was a make-weight reference to the judge’s ex tempore decision to arrogate to himself the task of identifying the husband’s genuine debts for the purposes of the bankruptcy, I do not understand the course to which counsel there referred.

(e) In his note Mr Willins did not expressly point out to the judge that a reconsideration required exceptional circumstances or strong reasons; still less did he seek to explain why such existed.

(f) In his note Mr Willins in substance did no more than to reargue the case for an annulment. He did not seek to rely on fresh evidence nor on any significant authority not already cited to the judge.

(g) Although in his first judgment the judge had observed that one of his two alternative reasons for refusing to annul the bankruptcy order “may be open to question”, there is nothing to indicate that, left to himself, he would have set in train the reversal of his decision.

(h) By his email in answer to Mr Willins, the judge said that he was “quite prepared” to reconsider the issue at a further hearing. Apart from observing that “this case presents a very difficult problem”, he gave no reason for his decision to reconsider. He made no reference to Barrell nor to other authority. He did not purport to conclude that there were exceptional circumstances or strong reasons; still less did he identify them.

(i) Clearly the judge did not consider that the application for reconsideration raised any matter of potential controversy upon which, in advance of his determination of it, he should collect the husband’s submissions.

(j) Even in his second, substantive and reserved judgment, following the second hearing at which the husband continued to object to the reconsideration, the judge recorded only that he entertained no doubt that, in that his first order had not been sealed, he was entitled to reconsider it; and he referred only to Re T (Contact: Alienation: Permission to Appeal), cited above, which, as I have suggested at [30(a)] above, addresses amplification rather than reversal.

37. In the light of the above features I conclude that the judge’s decision to exercise his jurisdiction to reconsider his decision upon the central question was flawed in that it did not even purport to be exercised in accordance with the principles set out in Barrell and the other authorities cited above; indeed, highly unusual though it was, the decision to reconsider was not reasoned at all. The manner in which the judge acceded to the request for reconsideration has engendered a legitimate grievance in the husband. Moreover, far from obviating an appeal, the course taken by the judge made it inevitable: for in his first judgment he had accepted that most of the husband’s objections to the order of annulment ultimately made were valid and indeed conclusive.

38. It does not, however, follow from the impropriety of the judge’s decision to reconsider his decision upon the central question that the husband’s appeal from his ultimate order should succeed. When, on 19 March 2008, the judge directed reconsideration, the husband did not thereupon attempt to appeal against the direction; and it is pointless to speculate on this court’s reaction to any such attempt if invited to consider it prior to the date of the hearing at which the judge conducted the reconsideration, namely 11 April 2008. Before us is the husband’s appeal against the ultimate order; and, it is the merit of that appeal which crucially I proceed to address. As Peter Gibson LJ said in Robinson v. Fernsby, cited above, at [121]:

“If a judge gives reasons why he is recalling his order or a draft judgment which he has sent out and those reasons are unpersuasive, that in itself does not seem to me to require the court to interfere with the perfected order unless it can be said that the judge’s final judgment is thereby, or for some other reason, shown to be wrong.”

39. Section 272 of the Act of 1986 provides:

“(1) A debtor’s petition may be presented to the court only on the grounds that the debtor is unable to pay his debts.”

Section 282 of the same Act provides:

“(1) The court may annul a bankruptcy order if it at any time appears to the court –

(a) that, on the grounds existing at the time the order was made, the order ought not to have been made..

40. A reading of the above two subsections together yields the uncontroversial conclusion that a court may annul a bankruptcy order if it concludes that, on the date of that order, the bankrupt was able to pay his debts. But, even if it so concludes, the word “may” confers upon the court a discretion whether to annul the order.

41. It is well-established that the enquiry into whether on the relevant date the bankrupt was able to pay his debts is an enquiry not into whether his liabilities exceeded his assets (“balance sheet insolvency”) but into whether he could meet his liabilities when they were due (“commercial insolvency”). Often quoted in this context are the words of Mr David Oliver QC, sitting as a deputy judge of the High Court, Chancery Division, in Re Coney (A Bankrupt) [1998] BPIR 333, at 335 G – H, as follows:

“Inability to pay one’s debts, at least in the context of insolvency, has historically long been construed as an inability to pay one’s debts at the time that they are due … The counterpart to this approach to solvency is that even if one’s liabilities exceed one’s assets on a balance sheet basis, it does not follow that a person is insolvent, albeit that it is all the more likely to result in the state of the individual’s relations with his bankers constituting the ultimate test of solvency.”

Mr Oliver added, however, at 336 C – D:

“… it would not normally be right … to annul a bankruptcy order unless at least it is shown that as at the date of the order the debtor was in fact able to pay his debts, or had some tangible and immediate prospect of being so able which has since been fulfilled or would so have been but for the order itself. It is with regard to a ‘tangible and immediate prospect’ that the assets and liabilities of a debtor and their nature will usually be of relevance.”

So the enquiry into whether the ability to pay existed on the date of the order is conducted with a limited degree of flexibility – apt to the commercial world.

42. All credit goes to Miss Kyriakides for having drawn our attention, following the hearing, to the decision of the High Court of Australia in Sandwell v. Porter (1966) 115 CLR 666, in which in an analogous context Barwick CJ stressed the degree, albeit limited, of flexibility. The question was whether sums paid by the bankrupts to the appellant prior to their bankruptcies were repayable to their trustees as having constituted wrongful preferences; and, by statute, the answer depended upon whether, at the time of the payments, the bankrupts had been unable to pay their debts as they fell due and indeed “out of [their] own money”. The Chief Justice said, at 670:

“But the debtor’s own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time – relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor.”

43. We have received substantial argument as to whether there is a second ground for annulment of a bankruptcy order, namely that it was made upon a petition which was an abuse of the court’s process. Indeed, by a respondent’s notice, the wife contends that, even if this court felt unable to uphold the judge’s conclusion that on the date of the bankruptcy order the husband was able to pay his debts, it should uphold the annulment on this alternative ground, which indeed was urged upon him at the second hearing.

44. On the face of it this second ground clearly exists. Rule 7.51 of the Insolvency Rules 1986 provides:

“(1) The CPR, the practice and procedure of the High Court and of the county court … apply to insolvency proceedings in the High Court and county court as the case may be, in either case with any necessary modifications, except so far as inconsistent with the Rules.”

Rule 3.4 of the Civil Procedure Rules provides:

“(2) The court may strike out a statement of case if it appears to the court –

(a) …
(b) that the statement of case is an abuse of the court’s process…

(3) When the court strikes out a statement of case it may make any consequential order it considers appropriate.”

Rule 3.4 is not inconsistent with the Insolvency Rules and there is no need for modification. So, as one would expect, the bankruptcy court appears able to protect the integrity of its process by striking out a petition abusive of it and consequentially annulling an order wrongly granted upon it.

45. The existence of abuse of process as an alternative ground for annulment appears to be fortified by express findings of abuse of process in several authorities in which bankruptcy orders made on debtor’s petitions were annulled. But here caution is required: for in almost all of them the court seems to have been castigating the petition as abusive because the debtor had been able to pay his debts. Thus in In re A Debtor, Ex parte The Debtor v Allen [1967] 1 Ch. 590 a court had ordered D to pay damages to C in the sum of £2400, payable by instalments of 25 shillings a week. D could afford to pay the instalments but obtained an order for his bankruptcy on the basis that he was unable to pay £2400. A Divisional Court of the Chancery Division upheld the annulment of the order. It held, at 594D, that, in that £2400 was not presently payable, it was irrelevant that D could not presently pay it; at 595E, that D was able to pay his debts; and, at 596D, that the presentation of his petition had been an abuse of the process of the court. References to abuse of process by Thorpe J in F v F (Divorce: Insolvency: Annulment of Bankruptcy Order) [1994] 1 FLR 359 at 366F and by myself in Couvaras v Wolf [2002] 2 FLR 107 at 114H must be considered in the same context: in both cases the findings were that the bankrupted husbands had been able to pay their debts.

46. So the question arises: are there circumstances in which presentation of a debtor’s petition is an abuse of the process of the court notwithstanding that on that day he is unable to pay his debts? The question was considered, albeit inconclusively, in the decision of this court in In re Holliday [1981] Ch. 405. The husband had presented his petition and obtained the bankruptcy order on the day when the wife had activated her claim for ancillary relief against him. She appealed against a judge’s refusal to annul it. Goff LJ said, at 414B-E:

“The first question which arises… is whether on [the date of the bankruptcy order], the debtor was able to pay his debts, for if so then the receiving order and the adjudication order clearly ought not to have been made.

If, however, he was not so able, then prima facie those orders were rightly made, but [counsel for the wife] has submitted that even on this hypothesis they are still bad as an abuse of process. Initially he rested this argument solely on the ground that the proper inference from the facts must be that the debtor’s motive or purpose was not that of protecting himself from undue pressure by creditors, or to secure a fair distribution of his assets between them, but to baulk the claim the wife was making for a transfer of property order. In my judgment, however, even if this were his main or sole motive (and it may well be that it was) still that cannot alone make the petition an abuse of process. But then [counsel] submitted that the petition was an abuse of process if at the time the debtor believed that he was able to pay his debts or filed his petition without directing his mind to that question one way or the other. There is, however, in my view no evidence to establish either of those postulates. I turn back to the question whether he was in fact able to pay his debts.”

Goff LJ proceeded, at 415C-D, to conclude that the husband “could not pay his debts and that the petition was not an abuse of the process of the court”. The wife’s appeal was dismissed.

47. After the hearing before us Mr Scott QC on behalf of the wife managed to locate a sole example of an order, analogous to the annulment of a bankruptcy order, which was made because the petition had been an abuse of process and irrespective of whether on the date of its presentation the petitioner had been unable to pay his debts. It is In re Betts, Ex parte Official Receiver [1901] 2 KB 39. Mr Betts was, in the words of Darling J at 41, a professional bankrupt. His modus operandi was to get credit; not to pay; to suffer judgments to be entered against him; not to pay; when served with summonses to commit him to prison for non-payment, to present petitions for his bankruptcy; and pursuant to them to procure receiving orders which would defeat the summonses. At the time of procuring his latest receiving order he was an undischarged bankrupt under three bankruptcies. A Divisional Court of the King’s Bench Division held that his latest petition had been an obvious abuse and it allowed the receiver’s appeal against a registrar’s refusal to rescind the receiving order made pursuant to it.

48. No doubt there will be other extreme cases like that of In re Betts. But for practical purposes I regard it as safer to proceed on the assumption that, if the debtor was unable to pay his debts on the date of his petition, its presentation was not an abuse of the process of the court; and that accordingly the existence of abuse of process as an alternative ground for annulment is more apparent than real.

49. There is no doubt that in an application to annul a bankruptcy order the onus of proof lies on the applicant. Thus in the present case the wife had to prove, to the civil standard, that on 26 July 2006 the husband was able to pay his debts. But in this respect I make three further observations.

(a) In F v F (Divorce: Insolvency: Annulment of Bankruptcy Order), cited above, Thorpe J stated, at 366G:

“The standard is one that augments with the gravity of the findings, so that even on the application of the civil balance of probabilities it is to a high standard that I must be satisfied in order to reflect the gravity of the stain on the husband’s integrity.”

This statement was reiterated by Munby J. in Whig v Whig [2007] EWHC 1856 (Fam), [2008] 1 FLR 453, at [51], and indeed, in his first judgment, by the judge in the present case. In my view, however, Thorpe J’s statement, like most other troublesome references to a sliding civil standard, should now be regarded as wrong: In re B (Children) (Care Proceedings: Standard of Proof) (CAFCASS intervening) [2008] UKHL 35, [2009 1 AC 11, per Lord Hoffmann, at [5], [10] and [13] (for the present case falls into his second category rather than his first) and per Baroness Hale, at [69] and [70].

(b) Mr Scott has persuaded me that, where the applicant for annulment of a bankruptcy order made on a debtor’s petition establishes that there was no balance sheet insolvency, i.e. that his assets exceeded his liabilities, the evidential onus shifts to the debtor to establish commercial insolvency, i.e. that nevertheless he was unable to pay his debts. In my view common sense lies behind Mr Scott’s proposition. For the existence of commercial insolvency in such circumstances calls for an explanation. Relevant evidence is likely to be much more accessible to the bankrupt than to the applicant; indeed, if prior to the bankruptcy he has made a bona fide albeit unsuccessful attempt to raise the money to pay his debts, he will probably be able to discharge the evidential burden without difficulty. But Mr Scott’s submission also carries the support of the decision of this court in reasonably analogous circumstances in Newton v Newton [1990] 1 FLR 33. A husband appealed against the award of a lump sum of £750,000 to the wife in proceedings for ancillary relief. He was a property developer and the wife established that he had net assets of considerable value. But her evidence as to how he could raise a lump sum of that size was thin. His appeal was nevertheless dismissed. Sir Roualeyn Cumming-Bruce said at 44H- 45C:

“At the end of the day [counsel for the wife] has satisfied me that there is a good answer to the liquidity problem. The glaring lacuna in the evidence in this case is evidence as to the bank’s actual or probable reaction to an application by the husband for a further borrowing facility. There was no evidence from any finance house… Faced with the absence of any evidence as to the reaction of credit houses to a further credit advance, I take the view that the judge was justified in holding that it was reasonably practicable for the husband to find a way to pay the lump sum… by obtaining further credit.”

The evidential burden had therefore shifted so as to lie upon the husband.

(c) A further feature relating to proof arises in applications for annulment in which the evidence presented in support of the debtor’s petition is shown not to have been full and frank. In F v F (Divorce: Insolvency: Annulment of Bankruptcy Order), cited above, Thorpe J was addressing both the wife’s application to annul a bankruptcy order made against the husband on his petition and her application for ancillary relief. It was in the latter context that, at 367B-C, the judge reminded himself of the long-standing principle in proceedings for ancillary relief that adverse inferences should, or at least may, be drawn against husbands whose disclosure is demonstrated not to have been full and frank. In Artman v Artman [1996] BPIR 511, however, Robert Walker J carried that principle into applications for annulment: for, at 515C-D, he cited the words of Thorpe J as authority for “the principle… that presumptions are to be made against a debtor who prevaricates and fails to give a candid account of his affairs”. The editors of Phipson on Evidence, 16th ed. tell us, at 6-17, that the raising of a rebuttable presumption does not amount to a shift of the evidential burden. But, if not identical twins, the two concepts are surely first cousins.

50. Adding the feature at (c) to the proposition at (b) in [49] above, I am clear that a person made bankrupt on his own petition who is shown both to have made a substantially dishonest Statement of Affairs and on the date of presentation to have held assets which substantially exceeded his liabilities will find it hard to resist annulment on the basis that he was nevertheless unable to pay his debts. The husband in the present case fell into both such categories. His Statement of Affairs was substantially dishonest in that his deposition therein of owning no shares, of not having transferred an asset for less than its true value during the preceding five years and of renting the property for a peppercorn as a house-sitter was entirely inconsistent either with his subsisting interest in the property through Cativo or at least, if other than a sham, with his transfer of it fifteen days earlier; and his disclaimer of property abroad failed to address his interest in the house near Perpignan. His assets on 26 July 2006 were primarily interests in the property, to be realised five months later in the sum of £1,088,000, and in the house near Perpignan, to be estimated 20 months later in the sum of £194,000; whereas his debts on that date were calculated by the judge in the sum only of £136,000 together with further tax liabilities which the husband had not satisfactorily quantified.

51. The central conclusion of the judge’s second judgment was that on 26 July 2006 the husband was able to pay his debts in that, within a time-frame which his creditors would have tolerated, either the court would have varied the freezing order so as to allow him to realise his equity in the property and to apply part of its proceeds to payment of his debts or he could have obtained bridging finance for the purpose of paying them. If, as I have concluded, the evidential burden of proof and indeed also the burden of rebutting a presumption lay, in these respects, upon him, it is clear that the husband discharged neither of them. But, irrespective of these factors, would the judge’s central conclusion have been open to him? On that hypothesis I would have been very uneasy about its alternative limb, founded upon the likelihood of apparently unsecured bridging finance. But in, say, the summer of 2006 would the court have so varied the freezing order as to enable the property to be sold and part of its equity to be devoted to payment of the husband’s genuine debts? There was energetic debate in our court about the proper response to this hypothetical question. In the course of the second hearing before him, the judge had himself observed that, if invited to consent to variation of the freezing injunction so as to enable the husband to secure further borrowing against the property for payment of his debts, the wife would have blown him “a polite raspberry”. The strong submission of Miss Kyriakides was that, had the husband applied to the court for such variation as would permit either his further mortgage or more realistically his sale of the property for such purpose, the court itself would have blown him that self-same fruit. But in my view the answer to the question is not so straightforward. I have no doubt but that the family court will generally unfreeze a husband’s assets (other than, possibly, a home in which the wife and children are still living) to the extent necessary to enable him to discharge a genuine commercial debt, particularly if incurred during the marriage, provided that he persuades it that he cannot otherwise discharge it and that its continued non-payment will swiftly lead his creditor to place him into bankruptcy. But the prospect that, irrespective of the stance of the wife, the court in the present case would have refused so to relax the injunction against the husband’s deployment of the value of the property arises only because throughout the proceedings at first instance he falsely denied that he had any interest in it. In this respect Mr Scott has pitched his argument very high, namely that the husband’s false denial throughout the proceedings has estopped Miss Kyriakides even from making the above submission to this court on his behalf. Brought to a lower level, however, Mr Scott’s argument should in my view prevail. We cannot be sure of the reaction of the family court to any application on the part of the husband in the summer of 2006 so to relax the freezing injunction as to permit sale of the property only because he never made it. He did not make it because a request to be allowed to deploy part of the proceeds of the property in the discharge of debts would have exposed the falsity of his case that he did not own it. Had he honestly presented the facts to the court, then, in the light in particular of the fact that the wife, with the children, was no longer residing in the property and appears not to have been aspiring to do so – and subject, importantly, to whether he could have deployed other assets, such as his interest in the house near Perpignan, in timely discharge of his debts – the court would be likely, in my view as in that of the judge in the second judgment, to have permitted its sale and his deployment of a small proportion of its net proceeds in the discharge of his debts. In that event sale would be likely to have been achieved as swiftly as when, shortly afterwards, RBS took proceedings for a possession order, the result of which was that the property was already under offer by early in November 2006 and was sold by December 2006.

52. In my view, therefore, the judge was correct to conclude that on 26 July 2006 the husband was able to pay his debts. There then accrued to the judge a discretion whether to annul the bankruptcy order; and I have no doubt that, in circumstances in which he had purported to exercise it in precisely the opposite way only two months earlier, this is an unusual case in which respect for the width of a trial judge’s discretion does not sensibly arise. Mr Scott has been wise not even to argue to the contrary. In Artman v Artman, cited above, Robert Walker J said, at 514B:

“The statute does not lay down any particular matters to be taken into account in the exercise of the court’s discretion, but the likely effect of any annulment order on the applicant, on the bankrupt where he is not the applicant, and on the bankrupt’s other creditors must, it seems to me, be among the most important matters to be taken into account. So must any element of abuse of process in the obtaining … of the bankruptcy order.”

53. In this respect, therefore, the husband’s motive in procuring the bankruptcy order, namely (as found by the judge) to defeat the wife’s claims, and also the effect on the wife of refusing to annul the order, namely that the court would be precluded from ordering the husband to make capital provision to her while it subsisted, were two factors which strongly militated in favour of exercising the discretion so as to annul it. It is clear that what led to the exercise of discretion in the opposite way in the first judgment was the existence of the genuine commercial creditors; the likelihood that, were the order annulled, they would swiftly petition for the husband’s bankruptcy; and the judge’s conclusion that it would therefore be “idle” to annul the order. If following annulment he had proceeded at once to make capital provision for the wife, why would it have been idle? Although he might have spelt it out more clearly, I am confident that in this regard the judge in his first judgment was taking his cue from Whig v Whig, cited above, to which he expressly referred as correctly stating the law. In Whig v Whig Munby J had observed, at [82] to [84], that any order for capital provision made between annulment of a first order for bankruptcy and the making of a second such order was liable to be set aside as a transaction at an undervalue pursuant to s.339 of the Act of 1986; and for that proposition Munby J had relied in particular upon the decision of a deputy judge of the Chancery Division in Hill v Haines [2007] EWHC 1012 (Ch), [2007] BPIR 727. By the time of his first judgment, the judge in the present case had not realised that the decision of the deputy judge in Hill v Haines had been reversed in this court: [2007] EWCA Civ 1284, [2008] 1 FLR 1192. By the time of his second judgment, however, the judge had realised that the decision had been reversed. For he referred to the decision of this court and added that he had re-read it. The result is that the basis for Munby J’s observations in Whig v Whig has been substantially undermined by the decision of this court and that there is very little risk that the judge’s ultimate award to the wife in the present case will be set aside as a transaction at an undervalue. Thus it was – in my view – that in his second judgment the judge no longer remained concerned that it would be idle to annul the bankruptcy order.

54. Of course the consideration to which I have just referred does not obviate the need for the court to weigh the interest of the husband’s genuine creditors, particularly of the two judgment creditors, in the exercise of its discretion. It has been the contention of Miss Kyriakides that the judge’s ultimate annulment order enabled the wife to “steal a march” on the judgment creditors. As it happens, the wife seems to have issued her proceedings against the husband long before they did. Indeed, although I accept that in proceedings for ancillary relief a court will strive to quantify its award to a wife upon a basis which will enable the husband to meet all his liabilities as well, of course, as to maintain himself, it by no means follows, particularly where money is in short supply, that, whether in the context of capital or in that of income provision, the interests of the husband’s other creditors always take precedence over those of the wife: see for example the decision of this court in Mullard v Mullard (1982) 3 FLR 330, per Balcombe J (as he then was), at 332H. In the same way it does not always follow that the husband’s trustee in bankruptcy can force a realisation of the husband’s interest in the home in which the wife and children are residing pursuant to s. 335A of the Act of 1986. In the present case the existence of the creditors, who seem to have been owed sums totalling apparently less than the value of the house near Perpignan ultimately awarded to the husband, was certainly not a trump card precluding annulment; and in my view survey of the wider circumstances plainly generates a conclusion that the judge’s ultimate approach to the exercise of his discretion was correct.

55. Accordingly I would dismiss the appeal.

Lord Justice Lawrence Collins:
56. I agree.

Lord Justice Longmore:
57. I also agree.