The duty of full disclosure in financial remedy proceedings

Whether a financial settlement on divorce is agreed or ordered by the Court both parties will first have to make full and frank disclosure of their means.

The reason is obvious: the settlement is based upon the available assets, and the incomes of the parties – without this information it is impossible to determine what a reasonable settlement will be.

So if the parties wish to settle the matter by agreement and one of them fails to make full disclosure then it will not be possible to reach an agreement.

And if the matter goes to Court the Court will require both parties to make full disclosure.

So what might happen if they do not? How can the Court decide a settlement without details of one party’s means?

A newly published Family Court judgment provides the answer.

Flagrant breach of the duty of disclosure

The judgment concerned the final hearing of a wife’s financial remedies application. What made the case particularly difficult was the behaviour of the husband, as the judge explained:

“The problem that this case throws up is how the Court should deal with a respondent husband who has been dishonest throughout, has failed to comply with Court orders, has failed to provide relevant financial information and documentation, has flagrantly breached undertakings given to the Court, and who has given no encouragement to others with relevant information to assist the process. Indeed, an email has surfaced indicating that he was taking steps from many years ago to put assets beyond the reach of his wife. Because of his actions, I do not have a complete picture and I will have to consider how I should draw inferences and what inferences I should draw on the basis of the information that I do have. It is right to record this is one of the most flagrant breaches of the duty of full and frank disclosure that has come before the Courts.”

And there is the answer to the question: without full details of one party’s means the Court will have to draw inferences as to their assets, on the basis of the information available. This process is commonly referred to as drawing adverse inferences.

Before we go into that we should quickly look at what each party was asking the Court to order.

The wife asked the Court to find that the sums that had passed through the husband’s hands, and that had disappeared, were of the order of £5.5 million (although they were probably substantially more), and she essentially asked the Court to award her a lump sum for half of that amount.

On the other hand, the husband claimed that he had no assets, and therefore asked the Court to make a ‘clean break’ order, with no provision for the wife.

What are adverse inferences?

So how does the Court go about drawing adverse inferences?

As the judge explained, a finding of non-disclosure is established by either: (1) direct evidence of an asset which the alleged non‑disclosure has not revealed; and/or: (2) failure to comply with Court orders or provide adequate responses to questions from which failure the Court feels able to draw adverse inferences; and/or: (3) evidence of lifestyle wholly inconsistent with the disclosed resources.

In this case, all three of these propositions applied. There was clear evidence that the husband had removed assets, he had failed to comply with Court orders requiring him to provide information regarding his assets, and he was currently living abroad, with no visible means of support.

Having found that the husband had failed to disclose assets the Court then had to assess their value.

This all came down to the evidence of the parties. And the judge had no hesitation in accepting the wife’s version of events, i.e. that there were assets worth at least £5.5 million.

Accordingly, the judge decided that the wife was entitled to everything she had requested.

What is the cost penalty for litigation misconduct?

So the wife fully succeeded in her claim. And there is another thing that may cause the husband to regret his actions, albeit not mentioned in the case report.

In financial remedy proceedings, the Court will not normally make any order requiring one party to pay the other party’s costs. However, it may do so where it considers it appropriate, because of the conduct of a party in relation to the proceedings, known as litigation misconduct.

Here, the wife would most likely have incurred a not inconsiderable amount of costs pursuing her claim, particularly given the husband’s failure to cooperate in the proceedings.

And the Court would certainly have been justified in ordering the husband to pay those costs, or at least a substantial proportion of them. Whether such an order was made we do not know, but certainly anyone tempted to conduct their case in the way the husband did here would do well to know that they risk having a costs order made against them.

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