Arif v Zar & Anor

A judge of the Family Division cannot use CPR r 3.1(7) to revoke or vary a bankruptcy registrar’s order merely because the judge considers it wrong. That power is normally confined to a material change of circumstances, materially misstated facts, or material non-disclosure. The proper challenge is an appeal.

An annulment application is not a claim by or against the insolvent estate for the purposes of the transfer power in the Insolvency Rules 1986. A proposed transfer should therefore be sought from the bankruptcy registrar or a Chancery Division judge. Where an annulment may affect financial remedies on divorce, the bankruptcy court should consider whether disclosure, cross-examination, and a joint hearing are needed for justice, balanced against cost to creditors.

The husband petitioned for his own bankruptcy during divorce proceedings. The wife sought annulment, alleging that substantial asserted debts to relatives and friends were shams. She said that a proper determination required disclosure and cross-examination and should be heard with her application for ancillary relief.

A bankruptcy registrar refused to transfer the annulment application to the Family Division and directed an expedited, summary hearing in the Chancery Division. At a later case-management hearing, Mostyn J purported to vary that order under CPR r 3.1(7), transferred the annulment application to the Family Division, and made disclosure directions.

The husband and his trustees in bankruptcy sought permission to appeal. The central issue was whether Mostyn J had jurisdiction to vary the registrar’s order, or had properly exercised any such jurisdiction.

1. Permission was granted and the appeals were allowed. Patten LJ, with whom Rimer and Thorpe LJJ agreed, held that Mostyn J had no power under CPR r 3.1(7) to transfer the annulment application to the Family Division and vary the bankruptcy registrar’s order.

2. The bankruptcy jurisdiction is statutory and is assigned in the High Court to the Chancery Division. Although the CPR generally apply to insolvency proceedings where consistent with the Insolvency Rules 1986, the transfer power in CPR r 30.5 was restricted by IR r 7.15(3). That rule concerned proceedings to enforce a claim by or against the insolvent estate. An annulment application did not fall within it. A transfer application should therefore be made to the bankruptcy registrar or a Chancery Division judge.

3. CPR r 3.1(7) was not an unrestricted power to reopen orders. Lloyds Investment (Scandinavia) Ltd v Ager Handerssen [2003] EWHC 1740 (Ch) and Tibbles v SIG PLC [2012] EWCA Civ 518 established that, ordinarily, variation or revocation requires a material change of circumstances, material non-disclosure, or an order based on misstated facts. The wife’s arguments were criticisms of the registrar’s decision on its merits, not grounds satisfying that limited jurisdiction. Finality required those arguments to be advanced by appeal.

4. Even if the relevant review power were section 375(1) of the Insolvency Act 1986, the same general requirement of new evidence or a material change of circumstances applied. It did not validate the order made by Mostyn J.

5. The court nevertheless stated that bankruptcy judges and registrars should be alert to credible evidence that bankruptcy is being used to shield a spouse from financial-remedy claims. Full disclosure and cross-examination may be required. A joint hearing of annulment and financial-remedy applications may be convenient, but the decision remains discretionary and must balance justice to the spouse against economical administration for creditors.

• Court of Appeal (Civil Division): Permission to appeal was granted and the husband’s and trustees’ appeals were allowed: [2012] EWCA Civ 986.

• High Court, Family Division: Mostyn J varied the bankruptcy registrar’s order, transferred the annulment application to the Family Division, and made disclosure and party-joinder directions. That order was set aside on appeal.

• High Court in Bankruptcy: Registrar Derrett refused to transfer the wife’s annulment application to the Family Division and directed an expedited Chancery Division hearing without cross-examination.