Arif v Zar & Anor

The Court of Appeal allowed the appeals by the husband and his trustees against an order of Mostyn J which had varied a registrar's directions and transferred an annulment of bankruptcy application into the Family Division. The court held that a judge may not use the broad power in CPR 3.1(7) to vary or revoke a registrar's bankruptcy case-management order in the absence of a material change of circumstances, material non-disclosure or comparable grounds; the proper route to challenge a registrar's order in bankruptcy is by appeal under the insolvency statutory scheme. The judgment explains the interaction between the Insolvency Rules, the jurisdiction of registrars in bankruptcy and the circumstances in which transfer of an annulment application to the Family Division may be appropriate (including the relevance of s.49 Senior Courts Act 1981 and the need to avoid multiplicity of proceedings), but emphasises that such transfers are within the discretion of the registrars or Chancery judges and are not to be overborne by a judge of another division using CPR 3.1(7).

The husband was made bankrupt on his own petition. The wife applied for annulment of the bankruptcy under s.282 of the Insolvency Act 1986 and sought transfer of that annulment application to the Family Division so it could be heard with her ancillary relief application in the divorce proceedings. She alleged that many of the husband’s commercial debts were sham and that, if those liabilities were excluded, there would be a surplus of assets available for an award in her favour.

The registrar in the bankruptcy list refused the transfer and directed that the annulment application be dealt with in the Chancery Division on a summary basis. At a subsequent case management conference Mostyn J varied the registrar’s order, transferred the annulment application into the Family Division and ordered expanded disclosure and witness attendance, concluding that it was appropriate to hear the matters together so that evidence could be tested by cross-examination and multiplicity of proceedings avoided.

The principal issues before the Court of Appeal were (i) whether Mostyn J had jurisdiction to vary the registrar’s order under CPR 3.1(7), and (ii) the proper limits on use of that power in the context of bankruptcy case management and transfers between divisions where the Insolvency Rules and statutory allocation of bankruptcy jurisdiction to the Chancery Division apply.

The Court of Appeal held that the power to vary or revoke the court’s own orders under CPR 3.1(7) is not unbounded. Established authorities require either a material change of circumstances since the order, or material misstatement/non-disclosure, before a court may set aside or vary its earlier order rather than require a formal appeal. The regulation of bankruptcy proceedings and transfer decisions is governed by the Insolvency Rules and the statutory insolvency scheme; a High Court judge of another division may not properly override a registrar’s exercise of bankruptcy case management by purporting to exercise CPR 3.1(7) where no such exceptional grounds exist. The correct remedy for challenging the registrar’s decision was by appeal to a High Court judge under the insolvency statutory provisions. Accordingly permission to appeal was granted to the husband and trustees and their appeals were allowed.

Appeal allowed. The Court of Appeal held that Mostyn J was not entitled to use CPR 3.1(7) as an unbounded power to vary the registrar’s bankruptcy case-management order in the absence of a material change of circumstances or material non-disclosure; the proper route to challenge the registrar’s decision was by appeal under the insolvency rules. The court therefore allowed the appeals and restored the position that the registrar’s order should only be set aside by appeal.

Appeal to the Court of Appeal from an order of Mostyn J (High Court) dated 23 March 2012 varying directions made by Registrar Derrett (bankruptcy registrar) dated 16 March 2012. Underlying bankruptcy order made by Registrar Derrett on 6 October 2011. Neutral citation at this level: [2012] EWCA Civ 986.