Mekarska v Ruiz & Anor

The Court of Appeal refused the application for permission to appeal against Mr Justice Peter Jackson's decision, thereby upholding his refusal to annul the husband's bankruptcy and refusing the second appeal against the district judge's ancillary relief order. The court held that Section 336 of the Insolvency Act 1986 does not create an entrenched, indefeasible right for a non-owning spouse to remain in the matrimonial home regardless of the interests of the bankrupt's creditors; rather the charge created by the Family Law Act 1996 continues to subsist but is subject to applications under section 33 and to the balancing exercise in section 336(4) and the presumption in favour of creditors in section 336(5). The judge below had correctly applied the statutory factors (including the checklist in section 336(4)) and there was no sufficient ground to annul the bankruptcy under section 282 of the Insolvency Act 1986. Subsidiary complaints about the trustee's conduct and the level of fees did not meet the legal thresholds for relief and were ancillary to the failed arguments about Section 336.

Background and procedural posture:

The parties married in 2001. The husband purchased and owned the family home in his sole name; that property was the principal marital asset. The marriage broke down in 2006 and the wife obtained home rights by registration under the Family Law Act 1996 and an order under section 33(5) preventing their automatic termination. In December 2007 the husband presented his own bankruptcy petition and an order was made the same day. A trustee in bankruptcy was appointed in February 2008 and proposed a sale of the house; a buyer at first appeared at £270,000 but later reduced an offer leading the wife to withdraw cooperation.

Procedural history:

• A district judge (Wicks) made ancillary relief orders on 7 November 2008 providing the wife with the net surplus after bankruptcy liabilities and expenses.
• The wife applied (out of time) to appeal that ancillary provision and later applied for annulment of the bankruptcy; Registrar Nicholls transferred the annulment application to the Family Division to be heard with the appeal.
• Peter Jackson J heard both matters and refused the annulment and dismissed the appeal against ancillary relief ([2011] EWHC 913 (Fam)). The wife sought permission to appeal to the Court of Appeal; permission was refused and the application for appeal was dismissed by the Court of Appeal.

Issues framed:

• Whether Section 336 of the Insolvency Act 1986 gives the registered non-owning spouse an unassailable right to remain in occupation which takes precedence over bankruptcy creditors and cannot be varied or defeated by the trustee.
• Whether the bankruptcy order ought not to have been made (grounds for annulment under section 282), including arguments that the bankruptcy should have awaited resolution of ancillary relief, that the trustee's fees were excessive and that the trustee should have disclaimed the property.

Court's reasoning and disposition:

The Court held that Section 336 preserves the charge created by the Family Law Act 1996 against the trustee and purchasers but does not entrench occupation rights so as to displace the court's power to order under section 33, or to deprive successors in title (including the trustee) of locus to apply to vary or discharge orders under section 49(3). Section 336(4) prescribes that the court must balance the interests of the bankrupt's creditors against the spouse's conduct, needs and resources; section 336(5) creates a presumption after one year in favour of creditors. The wife's asserted construction — that the charge continued as an absolute right to remain irrespective of the statutory balancing and creditors' interests — was rejected. On annulment, the statutory test in section 282 requires that, based on grounds existing when the order was made, the order ought not to have been made. The appellant failed to show any such ground: the judge below found the husband insolvent and there was no evidence of tactical or improper petitioning to defeat ancillary claims. Complaints about trustee fees and conduct did not meet the annulment test and were moreover tied to the rejected Section 336 argument. The Court therefore refused permission to appeal and dismissed the application.

The Court expressed concern at the continued dissipation of assets and urged an end to further unnecessary litigation in the bankruptcy.

Application for permission to appeal refused. The Court upheld Peter Jackson J's conclusions that the bankruptcy should not be annulled under section 282 and that there was no sustainable second appeal against the district judge's ancillary relief order. The court rejected the appellant's construction of section 336 Insolvency Act 1986 as creating an indefeasible right to occupation; the charge created by the Family Law Act 1996 continues to bind a trustee but the court may regulate occupation under section 33 with regard to the statutory balancing in section 336(4) and the presumption in section 336(5). Complaints about the trustee's fees and conduct did not establish the statutory grounds for annulment or a valid appellate point on ancillary relief.

Appeal to the Court of Appeal (Civil Division) from Mr Justice Peter Jackson in the Family Division (see [2011] EWHC 913 (Fam)). The district judge decision below was made by District Judge Wicks in the Uxbridge County Court. Permission to appeal was refused and the application dismissed by the Court of Appeal.