Balancing Creditor and Spousal Claims after Foreign Judgment Registration

Introduction

This landmark Court of Appeal decision arose from matrimonial finance proceedings between Mr Segun Awolowo (“the husband”) and Mrs Awolowo (“the wife”), with a Nigerian sister company of the husband’s brother (Linkserve Ventures Transnational Ltd, “the Intervenor”) asserting a £1.6 million debt. The wife had applied under section 37 of the Matrimonial Causes Act 1973 (deemed under section 23 of the Matrimonial & Family Proceedings Act 1984) to set aside a series of transactions—including a foreign judgment and a charging order—alleged to be intended to defeat her claim for financial relief. Key issues included (a) the existence and genuineness of the asserted loan, (b) the effect of registration in England of a Nigerian judgment under the Administration of Justice Act 1920 and the Foreign Judgments (Reciprocal Enforcement) Act 1933, and (c) the proper balancing of creditor and spouse’s claims under established family law precedents.

Summary of the Judgment

The Court of Appeal unanimously allowed the wife’s appeal. It held that the Deputy High Court Judge’s findings were materially flawed in two respects:

• The judge wrongly treated registration of the Nigerian settlement‐judgment and the charging order as judicial validation of the £1.6 million debt, despite no substantive adjudication on the debt’s legitimacy in Nigeria or upon registration in England.
• The judge failed to take into account—and in places inverted—the highly relevant absence of contemporaneous corporate and financial documents from the husband and the Intervenor, which should have weighed against their case and supported an adverse inference.

The appeal was remitted for rehearing before a High Court judge, with directions to transfer all related proceedings into the Family Division so that the wife’s financial claim and any challenges to the foreign judgment and charging order can be heard and balanced together.

Analysis

Precedents Cited

• Harman v Glencross [1986] Fam 81; Austin-Fell v Austin-Fell [1990] Fam 172; Kremen v Agrest [2013] EWCA Civ 41 – establishing the family court’s duty to balance the claims of creditor and spouse when assets are insufficient to satisfy both.
• Rayden on Divorce [23.270]–[23.280] – commentary confirming that a final charging order should not be made without first reconciling competing claims.
• Bhura v Bhura (No 2) [2015] 1 FLR 153 – guidance on the evidential threshold and approach to “sham” transactions.
• Bank St Petersburg PJSC v Arkhangelsky [2020] 4 WLR 55 – test for proof on balance of probabilities of dishonesty or fabrication in civil proceedings.

Legal Reasoning

The court identified four critical errors in the lower judge’s approach:

1. Mischaracterisation of Foreign Judgment Registration: Registration under the 1920 and 1933 Acts simply enforces a foreign court’s decision, it does not rehear or validate underlying documents as “legitimate” debt. The Nigerian High Court had entered a settlement‐agreement as judgment without evaluating the truth or origin of the loan.
2. Improper Evidential Weight: The Deputy Judge treated absence of financial and corporate records as a weakness in the wife’s case, rather than the husband’s and Intervenor’s. Well-established appellate guidance (Re Mumtaz Properties; Royal Mail v Efobi) requires that conspicuous documentary gaps weigh against the party responsible for producing them.
3. Failure to Balance Competing Claims: Despite citing Harman, Austin-Fell and Kremen, the judge did not conduct the mandatory balancing exercise between the spouse’s financial remedy application and the Intervenor’s charging order.
4. Misapplication of Sham-Transaction Principles: The judge overstated reliance on Bhura’s “stiff” test without properly assessing whether the husband and Intervenor discharged any burden to prove the debt’s existence once the wife raised reasonable suspicion.

Impact

This decision clarifies that:

• Registration of a foreign judgment is procedural and not a finding on the merits of the underlying debt.
• Family courts must adhere strictly to the creditor-spouse balancing exercise before making or finalising charging orders.
• Documentary disclosure obligations in financial remedy proceedings are crucial; absence of key records invites adverse inferences.
• Burdens of proof in sham or debt-existence disputes may shift to the creditor once a spouse establishes reasonable grounds for suspicion.

Future cases will require meticulous evidential analysis of foreign documents, rigorous compliance with disclosure, and proper sequencing of charging order applications alongside matrimonial finance claims.

Complex Concepts Simplified

• Charging Order: A court mechanism that secures a creditor’s claim over property by placing a legal charge, which may lead to sale if not paid.
• Registration of Foreign Judgment: Under the Administration of Justice Act 1920 and the Foreign Judgments (Reciprocal Enforcement) Act 1933, a foreign court’s decision can be registered in England for enforcement—but does not automatically validate underlying evidence.
• Sham Transaction: A contract or arrangement intended to disguise the true agreement or to defraud a third party; must be proved on the balance of probabilities, applying extra care but not a higher legal standard.
• Balancing Exercise: When assets are insufficient for both creditors and matrimonial claims, the family court evaluates and allocates resources fairly between the two.

Conclusion

Awolowo v Awolowo & Anor establishes that family courts must:

• Not treat registration of a foreign judgment as conclusive proof of debt.
• Balance creditor and spouse’s competing claims before making charging orders final.
• Draw adverse inferences where responsible parties fail to disclose corporate and financial documents.
• Clarify burden-of-proof issues in debt-existence and sham-transaction disputes.

This decision safeguards spouses from procedural exploitation by creditors with foreign judgments and reinforces rigorous evidential scrutiny in financial remedy proceedings.