Judgment—Alteration—Variation of decision after judgment delivered Bankruptcy—Appeal— Application to annul bankruptcy order

Court of Appeal, Civil Division Longmore, Wilson and Lawrence Collins LJJ 17 Mar 2009

The Court of Appeal has given guidance on when judgment may be altered after delivery, and the onus of proof in annulling a bankruptcy order.

Tina Kyriakides (instructed by Sprecher Grier Halberstam LLP) for the husband. Timothy Scott QC and Victoria Domenge (instructed by Colemans, Chelmsford) for the wife. Shantanu Majumdar (instructed by Francis Wilks and Jones LLP) for the Second Respondent

The parties were married in 1999. In March 2003, the husband bought a house intending it to become the family home. The property was placed in the ownership of a company (Cativo) which the husband had specifically acquired for that purpose. In September 2005, the wife issued divorce proceedings. In July 2006, the husband purported to transfer ownership of Cativo to a third party, and manufactured a debt payable by Cativo which rendered the company valueless.

In July 2006, the husband successfully petitioned for bankruptcy against himself on the ground that he was unable to pay his debts. The wife applied to have the bankruptcy order annulled. That application was heard together with the divorce petition. The judge found that the transfer of Cativo had probably been a sham and not all the alleged debt was genuine. He upheld the wife’s contention in respect of a French property the parties had purchased and ordered that it be transferred into her ownership. However, he held that the wife had failed to establish that on the date of the bankruptcy order, the husband could pay his debts at the time they had been due. The following day, the wife sent a note to the judge requesting permission to appeal against the refusal to annul the bankruptcy order, or to hold a further hearing to reconsider that decision.

The judge ruled that he was entitled to reconsider his refusal to annul the bankruptcy order. He found that the husband had procured the bankruptcy order in order to defeat the wife’s claims, and he should therefore exercise the resulting discretion in favour of annulling it. The husband appealed.

Wilson LJ:
On the issue of whether the judge had had jurisdiction to revisit his judgment, his lordship distilled the following principles from the authorities:

(a) a judge’s reversal of his decision was to be distinguished from his amplification of the reasons which he had given for it. Where the reasons for his decision were allegedly inadequate, a party should generally invite him to consider whether to amplify them before complaining about their inadequacy in the Court of Appeal and he had an untrammelled jurisdiction to amplify them at any time prior to the sealing of his order: T (a child: contact), Re [2002] All ER (D) 372 (Oct).

(b) A judge had jurisdiction to reverse his decision at any time until his order was perfected but not afterwards: Suffield and Watts, Re, ex p Brown [1886–90] All ER Rep 276. Nowadays an order was 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.

d) In 1972, however, Re Barrell Enterprises [1972] 3 All ER 631 narrowed the circumstances in which it was proper for a court to reverse its decision prior to the sealing of the order.

(e) The limitation apparently placed by 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, but was reaffirmed by Stewart v Engel [2000] 3 All ER 518.

(f) In Compagnie Noga D’Importation et D’Exportation SA v Abacha [2001] 3 All ER 513 Rix LJ stated that Barrell’s formula 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”.

The judge had therefore had jurisdiction to reconsider his decision. However, he had failed to give any reasons as to the exercise of discretion and his decision was accordingly flawed, in that it did not even purport to be exercised in accordance with the principles set out in Barrell.

Ultimate appeal
His lordship turned to the merits of the ultimate appeal. There was no doubt that in an application to annul a bankruptcy order the onus of proof lay on the applicant. Thus in the instant case the wife had to prove, to the civil standard, that in July 2006 the husband was able to pay his debts. In F v F (divorce: insolvency) [1994] 1 FLR 359, Thorpe J stated: “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.”

In his lordship’s view, however, Thorpe J’s statement, like most references to sliding scales, should now be regarded as wrong.

Where the applicant for annulment of a bankruptcy order made on a debtor’s petition established that there was no balance sheet insolvency, the evidential onus shifted to the debtor to establish commercial insolvency, ie that nevertheless he was unable to pay his debts.

When read together, ss 272 and 282 of IA 1986 made it clear that a court could annul a bankruptcy order if it concluded that, on the date of that order, the bankrupt was able to pay his debts. However, even if it so concluded, the word “may” conferred upon the court a discretion whether to annul the order.

His lordship then disposed of the appeal on the facts.

Longmore and Lawrence Collins LJJ agreed.