Family Law Hub

BP v KP & NI [2012] EWHC 2995 (Fam)

  • In a tweet: Res judicata – once a matter is decided, it is final.  

    Summary: The husband ("H") and wife ("W") had married in 2003. At that time, H had been involved with an investment management company called XYZ. This had been set up in 1998. The business was very successful but in 2006 a financial regulatory authority served notice of an investigation into alleged market abuses. Despite this, the fund continued to trade and was very successful.  

    NI was an investor in the fund and a friend of H's. He asserted that in 2007 he had decided to pursue his academic studies and had wanted to convert his investments into securities which were less risky. Both NI and H stated that, in November 2007, they discussed entering into a "Phantom Swap Agreement" or "Cap and Collar Agreement" – essentially the idea was that NI would buy a certain amount of shares in the ABC Fund for £7,700. If the value of the fund went up, NI would receive the first 5% and any profit beyond that would be shared between equally by H and NI. If the fund went down, H would guarantee all the losses apart from £100,000. NI and H asserted that they had signed this agreement in early March 2008 although the effective date was 8 February 2008.

    In late March 2008, the regulator announced that it would file a complaint against XYZ and the funds were suspended. Very heavy litigation ensued. The complaint was partly proved and in 2012, XYZ went into administration.  

    NI's funds subsequently collapsed and he sued H in the Chancery Division claiming £6.5 million. H did not defend the suit and in May 2011 default judgment was entered against H for that sum.  

    W strongly disputed H's version of events. Her position throughout the majority of the litigation had been that, whilst she did not dispute that NI had purchased the shares, she argued that the agreement had been a fraudulent construct – it had not been entered into in 2008 (when H and W were still happily married) but in 2010 when the marriage had broken down. She alleged that NI and H had conspired in order to remove the great majority of the family's assets from the powers of the court; she was convinced that, in time, NI would return all or most of the monies to H.  

    In order to test the veracity of H's case, W wanted to examine the originals of the agreement; in particular, she wanted to forensically examine the paper to discover when it was manufactured. H contended that W already had his copy of the agreement; NI said that his copy had been lost in the post. W changed tack and asked to examine NI's computer on which the agreement was prepared; NI claimed he had thrown his computer away as it was outdated.  

    So, faced with these rather convenient set of coincidences, W decided to apply in the Chancery Division to have the default judgment set aside. She had already successfully prevented final charging orders being made in relation to H's share of the former family home and over assets held in the Isle of Man.  

    An OS v DS hearing was listed in the financial proceedings but events then took an unexpected turn. It transpired that NI had not in fact suffered a loss of £6.5 million after all – it was more like £2.5 million. As a result, NI and H reached a compromise agreement which meant that the loss H and W had not suffered a loss of some £7.3 million but rather a loss of between £2.25 million and £3.82 million. W agreed to withdraw her Chancery application. W's position was that it was her concession to withdraw the Chancery application alone that had reduced the loss; H, she said, would have been perfectly content to allow the whole judgment debt to have been enforced.  

    There were two issues before the court:  

    • was W barred (by operation of the doctrine of res judicata) from asserting in the financial remedy proceedings (which are due to be heard in March 2013) that an agreement said by H to have been formed in early March 2008 was either the product of collusive fraud between him and NI, or, if not actually fraudulent, was in fact formed in 2010? ; and 
    • at the final hearing was W also barred from running a case of "add-back" in relation to the losses suffered by H, and therefore to the family, arising from enforcement of that agreement by NI? 

    Res judicata (as I'm sure you already know) is an important legal doctrine that generally means that once a matter is judicially decided, it is finally decided. It bars re-litigation or re-consideration of matters that have already been decided.   

    Held: In respect of the res judicata issue, W accepted that the effect of the Chancery judgment, which would not now be impeached by virtue of the compromise, was that she could not by virtue of the doctrine of res judicata argue that the agreement was procured by fraud and was therefore void. However, the judgment said nothing of when the agreement was formed, and she therefore maintained that she was not precluded from asserting that the agreement had been entered into in 2010.

    Mr Justice Mostyn agreed, and held that W was not estopped from seeking a finding as to the date on which the agreement was formed at the final trial of the financial remedy proceedings, in support of her add-back argument. The date of the agreement was not a "cardinal fact" as the contract would be equally valid whether it had been executed in 2008 or 2010 and the impact of H's failure to comply with his obligations was the same whenever the contract was formed. There was no serious argument that H would be unjustly harassed if W were allowed to pursue her contention as to the date of the formation of the agreement because an overall compromise had already been reached.  

    In respect of the second issue, Mr Justice Mostyn was not prepared to bar the wife from running her add-back argument, although he did indicate that she faced "a stiff climb" to meet the requisite test.

Case note, published: 08/02/2013

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Published: 08/02/2013

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