Thursday, July 19, 2012

Arif v Zar & Anor: Applying to transfer a bankruptcy annulment application

It is the classic scenario: one party, usually the husband, obtains a bankruptcy order apparently in an attempt to defeat the other party's financial claims on divorce. Arif v Zar & Anor [2012] EWCA Civ 986, decided yesterday, involved a wife's application for the annulment of the husband's bankruptcy.

The husband had been declared bankrupt on his own petition in October 2011. It was clear that unless the bankruptcy order was annulled, the wife's ancillary relief application would be severely prejudiced. The wife applied for the annulment of the bankruptcy, alleging that many of the husband's debts were a sham.

On the 18th January 2012 at a directions hearing in the Family Division Mostyn J made an order inviting the Bankruptcy Court to transfer the annulment application to the Family Division, to be heard with the wife's application for ancillary relief. The wife then issued her own application for the transfer of the proceedings to the Family Division.

On the 16th March a Registrar in the Bankruptcy Court dismissed the wife's application and sent the annulment application to be determined by a judge of the Chancery Division.

At a further hearing before him on the 23rd March, Mostyn J of his own motion varied the Registrar's order so as to transfer the annulment application to the Family Division with a direction that it be heard together with the Wife's application for ancillary relief.

Both the husband and his trustees in bankruptcy applied for permission to appeal against the order of Mostyn J.

The merits of whether the annulment application should be heard by the Chancery Division or the Family Division were not in issue before the Court of Appeal - the only issue was whether Mostyn J had jurisdiction to make the order he did, or properly exercised such jurisdiction if it exists. After reviewing the court's jurisdiction in bankruptcy, Lord Justice Patten found (at paragraph 26): "that any application to transfer an annulment application should ... be made (as it was in this case) to a registrar in bankruptcy or a judge of the Chancery Division."

Mostyn J had purported to exercise the power to vary or revoke the Registrar's order pursuant to CPR 3.1(7), but Lord Justice Patten held (at paragraph 27) that that power "is ordinarily limited to cases where there has been a material change of circumstances since the order was made or the original order can be shown to have been based on misstated facts or material non-disclosure". Here, there was no change of circumstances or anything akin to material non-disclosure.

The proper way of challenging the Registrar's order, said Lord Justice Patten, was by way of appeal.

Accordingly, he granted permission to appeal to the husband and to the trustees and allowed their appeals.

Lord Justice Rimer and Lord Justice Thorpe gave consenting judgments.

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