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If You Change Your Mind...

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They say that it is a woman's prerogative to change her mind, well now it clear that it is also a Judge's.

The case of Paulin and Paulin [2009] EWCA Civ 221 issued on the 17 March 2009 makes for very interesting reading.  Not least because the steps taken by the husband in an attempt to thwart his wife's claims for financial relief following the breakdown of their marriage were described by the court as

"A tactic now occasionally adopted by a devious husband confronted with an application by his wife for financial relief ancillary to divorce proceedings is to issue proceedings for bankruptcy order to be made against him.  Following the making of such an order...all the husband's assets vest in the trustee pursuant to s.306 of the Insolvency Act 1986 with the result that the divorce court suddenly becomes disabled from ordering him to make capital provision for the wife.    The wife's response to the tactic is often to apply in bankruptcy proceedings for the bankruptcy order to be annulled...."

The Court had to address its mind to the two applications by the wife (1) for an annulment of the bankruptcy order and thereafter (2) her financial claims on divorce.   The Judge having heard both the applications at the same time refused the wife's application for the annulment of the bankruptcy order and therefore adjourned her claim for ancillary relief. 

However, despite having given a long, reserved judgement with a full explanation as to why he found against the wife, before the order was drawn up the wife's legal team persuaded the judge to hear further argument.  Following this hearing, the judge changed his mind and in a total about turn, gave a further long and detailed explanation as to why he now granted the wife's application for an annulment and went on to order the husband to make substantial lump sum payment to her.

The husband, not surprisingly appealed and the two issues which the Court of Appeal had to deal were (1) was it proper for the judge to change his mind upon a central question and (2) what principles govern the determination of an application to annul a bankruptcy order made on the bankrupt's own petition and, in light of these, did the judge err in annulling the bankruptcy order?

The facts of the case make for an entertaining read not least trying to follow the twists and turns of the husband's business interests and the lengths he went to, weaving a "web of companies...never..owned anything in his own name.  There was little paperwork which showed he was the owner of property or other company assets".   He had previously been disqualified as a director for seven years but undertake a two day a week part time consultancy.   This "part time" work enabled him to drive a Rolls Royce Phantom Coupe, enjoy several skiing holidays each year. 

With regard to the family home worth £1.9million the husband "had taken elaborate steps designed to disable the court from awarding the wife any part of that equity.  In his respect he favoured a belt as well as braces". 

The judgment goes on to deal with the fact that the judge having heard the further arguments put forward by the wife's counsel after the first decision had been made but before the order was sealed, and accepted that this first decision was wrong.

This is extremely rare and it certainly takes a strong judge to admit when he feels that he might have made a mistake.   The case looks at various previous cases and summarises the law in relation to the judge's reversal of the decision prior to the order being made.  Differentiation is drawn between the judge's entitlement to merely amplify the reasons for his judgment as against a reconsideration of the decision itself.

Issues arose as to the timing of such decisions and the form in which the judgment was at the time, namely an oral presentation, a written draft or a more formal handed down decision.

The issue of whether it was appropriate to grant the annulment itself was then considered.  It was made clear that, primarily, it was the wife's burden to prove that the husband was not insolvent and that there were sufficient assets on the balance sheet that outweighed his liabilities.   Once that was established, it then fell to the husband to prove that, nevertheless, he was commercially insolvent and still unable to pay his debts. 

Ultimately the judge was found to have exercised his discretion appropriately and the husband's bankruptcy order was annulled on the basis that he was able to meet his debts as they fell due.    Orders were then subsequently made in favour of the wife upon her divorce.

This case shows the balance that must be struck by the Courts between spouses who seek bankruptcy to avoid claims on divorce against the circumstances that genuinely arise and will frequently arise during this current economic volatility.    It is also of considerable interest and hope that, in the event that a judge clearly thinks that he has made the wrong decision will admit this, risking the loss of reputation and a rehash of his decisions.    However, my own view is that it is far better to take the brave step of admitting a mistake rather than stay quiet and risk injustice.

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