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Family Law

The leading authority on all aspects of family law

22 DEC 2016

Trustees have no greater claims than those of the bankrupt: Robert v Woodall [2016] EWHC 2987 (Ch)

Chloe Wake

Trainee Solicitor

@ChloeJaneWake

Trustees have no greater claims than those of the bankrupt: Robert v Woodall [2016] EWHC 2987 (Ch)

Chloe Wake, Trainee Solicitor, Vardags

The High Court has stopped fashion victim Trinny Woodall from being pursued beyond the grave by her bankrupt ex-husband. Legal proceedings against Ms Woodall were instigated by her ex-husband’s trustees in bankruptcy in an effort to satisfy outstanding creditors. However, the court has ruled that legal action under the Matrimonial Causes Act 1973 falls under a personal jurisdiction which ceases when one spouse dies.

Background 

Ms Sarah Jane Woodall (best known as Trinny  who formed part of BBC fashion duo ‘Trinny and Susannah’) married Jonathan Elichaoff, a former rock drummer turned antiques dealer, in September 1999. After nine years of marriage, Ms Woodall petitioned for divorce on 19 November 2008.

A statutory demand was served on Mr Elichaoff on 31 January 2009 by a creditor and a bankruptcy petition was presented against him on 9 March 2009.

A consent order was agreed between Mr Elichaoff and Ms Woodall on 5 June 2009 where, amongst other things, it was agreed that Mr Elichaoff repay Ms Woodall £1,412,300 and pay her £24,000 per annum in spousal and child maintenance.

Mr Elichaoff was made bankrupt on 7 July 2009.

District Judge Stewart approved the parties’ consent order on 16 July 2009, without knowledge of Mr Elichaoff’s bankruptcy.

On 13 November 2014 Mr Elichaoff died when he fell from the roof of Whiteley’s shopping centre in Bayswater. An inquest ruled his death was suicide. Following his death, the media reported that Mr Elichaoff had significant debts and had recently lost a lot of money in an oil investment.

The ‘novel’ application 

On 6 July 2015, six years after Mr Elichaoff was made bankrupt and following his death, the Trustee in Bankruptcy, Mr Ian Robert, (‘the Trustee’) issued an application against Ms Woodall. The Trustee accepted his application was particularly novel. The application sought:

  1. A declaration that the consent order signed by Mr Elichaoff on 5 June 2009 (or alternatively the consent order sealed by the court on 16 July 2009) was void;  
  2. An order for a lump sum or property adjustment order or other order for financial provision in favour of the Trustee or alternatively Mr Elichaoff’s estate, including payment of a sum equivalent to that owed by him pursuant to ss 34 and 24 of the Matrimonial Causes Act 1973 (‘the 1973 Act’); and
  3. A declaration that payments made by Mr Elichaoff to Ms Woodall (totalling £40,000) were transactions at an undervalue pursuant to s.339 of the Insolvency Act 1986 (‘the 1986 Act’) or were voidable preferences.

Ms Woodall issued an application to strike out which was heard by Mr Registrar Jones on 23 February 2016. The Registrar declared the following:

  1. All dispositions of property by Mr Elichaoff pursuant to the consent order were void pursuant to s 284 of Insolvency Act;
  2. The Trustee’s application for a lump sum or property adjustment order was struck out;
  3. The Trustee’s application for a declaration regarding the transactions at an undervalue (the £40,000) was struck-out; and
  4. The Trustee was to pay three quarter’s of Ms Woodall’s costs in dealing with the application.

The Trustee applied for permission to appeal.

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Permission to appeal 

The Trustee’s initial application for permission to appeal was dealt with on paper by Mr Justice Morgan. Morgan J refused permission to appeal against the lump sum or property adjustment order aspect but granted permission to appeal the transactions at an undervalue (the £40,000) aspect and the order for costs.

The Trustee applied for an oral permission to appeal hearing in respect of the lump sum or property adjustment order aspect. Ms Woodall cross-applied to set aside Morgan J’s order insofar as it gave the Trustee permission to appeal.

The lump sum or property adjustment order 

The Trustee made the following arguments:

  • Section 436 of the Insolvency Act 1986 provides that a bankrupt’s estate comprises of ‘all property belonging to or vested in the bankrupt at the commencement of the bankruptcy’. The 1986 Act further provides that ‘property’ includes money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest.
  • The bankrupt’s rights against Ms Woodall were ‘property’ within the meaning of s 436 of the 1986 Act either because they constituted a ‘thing in action’ or because they were something ‘arising out of or incidental to property’. They were not claims of a personal nature and were therefore unaffected by Mr Elichaoff’s death.
  •  Section 25 of the 1973 Act provides that the court shall have particular regard to matters in s 25(2)(a)-(h), and specifically s 25(2)(b) ‘the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future’. As such, the court could still make an order based upon the obligations Mr Elichaoff had to his creditors.

In reaching his decision, Deputy High Court Judge Dicker QC referred to the case of Harb v King Fahd Bin Abdul Aziz  (Secretary of State for Constitutional Affairs intervening) [2005] EWCA Civ 1324. Here the wife made an application for financial provision under the 1973 Act on the grounds that her husband, the monarch of a sovereign state, had failed to provide adequate maintenance. The husband was successful in claiming immunity on the grounds of sovereign immunity. Permission to appeal was granted, however the husband died prior to that appeal. The Court of Appeal ordered that there be no further order made since the 1973 Act only enabled the court to make orders against a spouse during their joint lives. The case further confirmed that a claim against a spouse for financial relief is not a ‘cause of action’ within the meaning of s 1(1) if the Law Reform (Miscellaneous Provisions) Act 1934, unless an order had been made before the death.

Mr Registrar Jones made it plain in his judgment that ss 23 and 24 of the 1973 Act created rights which can only be pursued by spouses themselves and that those rights 'do not extend beyond joint lives'. He had concluded that the Trustee’s application therefore had 'no merit whatsoever'.  

Morgan J dismissed permission to appeal on paper on the basis that even if the Trustee could demonstrate that Mr Elichaoff’s claim for ancillary relief came within the definition of ‘property’ under s 436(1) of the Insolvency Act 1986, the Trustee 'could not be in any better position in relation to that claim than the bankrupt would have been (in the absence of the bankruptcy'. Morgan J therefore dismissed the application for permission to appeal on the basis that such a claim cannot be pursued following the death of a spouse or bankrupt.

After a thorough review of the law, Deputy High Court Judge Dicker QC concluded that the Registrar and Morgan J had taken the correct approach and that 'the suggestion that, whilst a bankrupt may no longer have had any needs after his death, he still had obligations which the court can take into account in determining what order is appropriate is, in my judgment, misconceived'. Permission to appeal was therefore refused.

Transactions at an undervalue 

The Trustee argued that payments totalling £40,000 that were paid by Mr Elichaoff to Ms Woodall during their marriage were repayable to him whether they were a gift or a loan. The Trustee contended that if they were a gift then the £40,000 was paid to Ms Woodall without consideration and therefore constituted a transaction at an undervalue. Alternatively, if the payments were repayment of a loan, they were transferred to Ms Woodall in preference to the creditors and were therefore voidable.

The Registrar concluded that, as a matter of fact, the payments made to Ms Woodall had been made by way of a loan. He said, 'I have found no explanation in the evidence for why the financial information provided by Ms Woodall has not been accepted. On its face it establishes a running account of loans to Mr Elichaoff and repayments by him when he was able to do so'. However, the Trustee set out in his skeleton argument that Mr Elichaoff had told the Official Receiver in his statutory interview that the payments from him were 'not really loans'. His argument was that the Registrar had overlooked or failed to take into account this evidence. Opposing Counsel vigorously defended this point. Evidence was presented to the court that in fact this statement from Mr Elichaoff had not been made during the statutory interview but during a telephone conversation whilst he was resident at a drug rehabilitation centre. Furthermore that the words 'not really loans' had been removed from their context. The file note made at the time recorded the conversation as, 'He also said that he had ‘borrowed’ approximately £1.4 million from his ex-wife although there was no written agreement and he had not included her on his creditor list as it was not really as a loan'.

Despite not having been quoted in full and despite having been represented as being said at the statutory interview, Deputy High Court Judge Dicker QC felt the Trustee ought to have drawn the Registrar’s attention to the file note to ensure it had not been overlooked in his judgment. Irrespective of this fact, he concluded that this was insufficient to conclude that permission to appeal should be set aside. Morgan J had the benefit of the file note and he had concluded that it was reasonably arguable that the Registrar should not have struck out the claim. Permission to appeal therefore remained. The court also concluded that Ms Woodall failed in her cross-application to set aside the cost aspect of Morgan J’s order.  

Conclusion 

Whilst Ms Woodall’s cross-application failed, the substance of the Trustee’s claim was encompassed in the application for a lump sum or property adjustment order. Deputy High Court Judge Dicker QC was clear in his judgment that rights under the 1973 Act only enable the court to make an order against a spouse during their lifetime.