Arif v Anwar & Anor

Where financial issues affect both ancillary-relief proceedings and bankruptcy proceedings, the Family Division may manage and determine appropriate preliminary issues, although control of the bankruptcy remains with the Chancery Division. The governing substantive law is unchanged by the division in which the issue is determined.

A preliminary oral-disclosure hearing may be used to test central and contested financial matters, identify issues and give directions, provided the parties’ right to a fair hearing is protected. The court should avoid a roving inquiry into every transaction and instead define proportionate, legally justiciable issues. A party asserting an equitable interest or repayment of liabilities bears the burden of establishing the necessary facts.

The petitioner’s divorce and ancillary-relief proceedings were affected by the first respondent’s bankruptcy. The only apparent bankruptcy asset was the former matrimonial home, while the second respondent asserted an interest in that property and claims arising from financial dealings with the first respondent.

The petitioner sought investigation of those dealings in the Family Division because they could affect the existence of a surplus in the bankruptcy estate. A previous Court of Appeal decision concerning the management of the bankruptcy proceedings was reported as [2012] EWCA Civ 986. Permission to appeal an order directing a preliminary hearing was refused, and the issue came before the court for case management and directions.

The central question was how the overlapping family and bankruptcy issues could sensibly and proportionately be managed.

1. The court rejected the submission that the ancillary-relief proceedings should be adjourned generally pending determination of the bankruptcy issues. The possibility that no surplus might ultimately exist did not justify summary disposal without examining the identified issues.

2. The substantive law applicable in the Family Division and the Chancery Division was identical. The distinction was procedural. The Chancery Division retained control of the bankruptcy, but the Family Division could determine suitable preliminary issues affecting the ancillary-relief proceedings.

3. The court applied the approach described in OS v DS [2004] EWHC 2376 (Fam). A preliminary oral-disclosure hearing could test explanations and factual issues at an early stage, exclude irrelevant lines of inquiry and assist in formulating a fair hearing. It did not inherently amount to procedural unfairness.

4. The court directed a Beneficial Interest Issue concerning the second respondent’s alleged interest in the former matrimonial home. Since the trust deed vested the entire beneficial interest in the first respondent, the second respondent bore the burden of establishing a subsequent disposition or other basis for a constructive trust. Section 53(1)(c) of the Law of Property Act 1925 required a disposition of an existing equitable interest to be in signed writing, subject to the limited operation of section 53(2).

5. The court also directed a Dealings Issue concerning whether sums borrowed for the second respondent’s benefit had been repaid, the source of any repayments, and the nature of the second respondent’s interest in the relevant funds. The second respondent was made claimant because the evidence showed that borrowings had been applied for his benefit and he therefore had to establish that the liabilities had been discharged.

6. The court declined to direct wider inquiries into the alleged debt to Declan, monies collected by another company, or loans from friends. Those matters were primarily for the trustees or administrators and were not shown to be proportionate or legally relevant to the identified family issues.

7. The trustees were joined to the preliminary issues without prejudice to any application for a stay under section 285 of the Insolvency Act 1986. The court made directions for pleadings, disclosure, evidence, valuation and trial. The first and second respondents were made jointly and severally liable for 20 per cent of the petitioner’s costs of the oral-disclosure application from 6 November 2012.

The judgment records an earlier Court of Appeal decision in the same litigation, [2012] EWCA Civ 986, concerning the relationship between the bankruptcy and ancillary-relief proceedings. The present decision was a first-instance case-management and directions ruling in the Family Division.