The Court of Appeal (CoA) highlights the perils of a shaky paper trail when substantial third-party debt claims surface during divorce proceedings to demonstrate that a loan was genuine.
Background:
The wife and the husband, both Nigerian nationals, married in Nigeria in 2004 and have four children. The family moved to England in 2009. In December 2009, the husband purchased a property in London as the family home for £1.35 million without a mortgage, and registered it solely in his own name. In July 2010, another property was purchased in London for £816,500 without a mortgage through the husband’s business, De Skyline Hotel Ltd., with the intention of developing it into a hotel.
De Skyline Hotel Ltd. was incorporated in England on 12 August 2010 after the purchase of the second property, which comprises the Dower House and the Orchard, and was dissolved in June 2021.
The husband and wife separated in February 2015. The wife registered her home rights under the Family Law Act (FLA) 1996 in November 2015. The husband returned to live in Nigeria and commenced divorce proceedings there in February 2017, while his wife commenced divorce proceedings in England in August 2017. Following the grant of a decree nisi in the proceedings in Nigeria in September 2018, the wife agreed to withdraw her English Petition and made an application for financial relief under the Matrimonial and Family Proceedings Act (MFPA) 1984.
However, the husband claimed that the £1.6 million of the equity of the former family home was effectively held on trust for his brother's company due to a loan he received to purchase the property. In a September 2023 judgement, the High Court determined that the husband owed the intervenor, Linkserve Ventures Transnational Ltd., £1.6 million and dismissed the wife's application under Section 37 of the Matrimonial Causes Act (MCA) 1973. She challenged this decision based on several material flaws.
Decision:
The CoA remitted the case for rehearing before the High Court and refused to substitute their own decision. Lord Justice Moylan concluded that the Judge had made several errors vitiating her decision. The first critical error was the Judge's misunderstanding of the Nigerian judgement and its registration. She wrongly stated that the Nigerian and English courts had "judged" the debt "legitimate" and that the Nigerian Court had "accepted and approved" the loan documents as valid evidence, entering judgement on that basis. Lord Justice Moylan emphasised that the Nigerian Court only entered the terms of settlement as its judgement without any adjudication on the debt's validity. The English Court merely registered the judgement without assessing the underlying debt.
The second substantive error was the Judge's failure to consider and misunderstanding of the significance of the absence of documentary evidence from the husband and the intervenor. Lord Justice Moylan stated this was a case where the lack of expected corroborating documents, such as company accounts, loan evidence, and financial circumstances at the time, was a significant factor against the husband and the intervenor, which the Judge had failed to account for. Instead, she wrongly took the absence of such evidence against the wife.
Lord Justice Moylan also noted the Judge failed to take into account relevant evidence, such as the Access Bank statements showing substantial funds in a De Skyline Ltd. account, inconsistent with the husband's claims of modest financial circumstances. She also overlooked clear inconsistencies in the husband's and intervenor's evidence regarding how the loan was transferred, i.e., direct to DSH Nigeria vs. via Yara Commodities to the husband's English account. The Judge compounded this by taking the lack of contradictory evidence from the wife as support for the husband's account, again inverting the evidential burden.
Finally, he addressed the burden of proof, suggesting that if the core issue was the source of funds for the family home, the burden was on the husband and intervenor to prove it was a legitimate loan from the intervenor.
Implications:
This ruling underscores the critical importance of robust documentary evidence to support claims of third-party debt. The absence of expected contemporaneous documentation, such as loan agreements with clear terms, bank statements showing the transfer of funds, and company accounts reflecting the loan, will be viewed with significant suspicion and may lead to adverse inferences against the party asserting the debt.
This case also highlights on whom the burden of proof rests. When the provenance of funds used to acquire matrimonial assets is in dispute and a third-party loan is asserted as the source, the Court suggests that the burden may lie with the party asserting the debt. This shifts the onus away from the applicant spouse having to prove the debt is a sham.
