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Non-disclosure of assets and the consequences

September 19, 2013
Family Law

A business tycoon, who was recently found to have lied to his wife about his business assets, has had his divorce settlement set aside.

He had failed to disclose all of his business investments and entered into a private agreement with his wife, which would give her £1.8m upon their divorce. However, upon learning the full extent of her now ex-husband’s assets, she applied to the High Court to challenge the terms of the settlement. Sir Paul Coleridge ordered that the agreement should be set aside on the basis of the husband’s failure to provide full and frank disclosure of his assets in a situation where the wife had entered into the settlement without legal advice.  He further ruled that the settlement ought to be re-negotiated as the wife may well be entitled to a ‘further capital payment.’ This issue of non-disclosure was considered in some depth by Mostyn J. in NG v SG (Appeal: Non-Disclosure) [2011] EWHC 3270 (Fam). In his judgment, Mostyn J emphasised the ongoing duty of full and frank disclosure owed by parties to the Court.  He said that without this, the Court ‘is thrown back on inference and guess-work within an exercise which costs a fortune and which may well result in an unjust result to one or other party.’ Mostyn J also discussed the Court’s duty to consider drawing adverse inferences where there was non-disclosure and cited J-P C v J-A F [1955] P 215, in which Sachs J stated: ‘…where the duty of disclosure comes to lie on a husband…and where he seeks to minimise the wife’s claim that husband can hardly complain if, when he leaves gaps in the court’s knowledge, the court does not draw inferences in his favour.’  Mostyn J said that the Court must reach a conclusion as to the scale of undisclosed assets using a ‘sound evidential basis’.  He said that just because evasiveness is demonstrated, that is not sufficient to suggest that a vast sum has been hidden.  However, this does not mean that the Court has to put a precise figure on the scale of the undisclosed assets.  Mostyn J went on to say that the Court should always make a broad estimate, based on admissible evidence of the scale of hidden funds.  Where there is no direct evidence of this nature, the Court should look to analyse the lifestyle of the parties. However, an alternative method was employed in Al-Khatib v Masry [2002] 1 FLR 1053, where the wife argued that the husband was worth approximately $200m.  The evidence in support of this claim was weak and so instead, she argued that based on the principles of White v White (equal division being the starting point), an inevitable inference would be that were he to make full and frank disclosure, the award made in her favour would be more than what she was seeking, which was £25m.  In simple terms, the true picture displayed by full and frank disclosure would be more damaging than the adverse inferences that would be drawn against him from non-disclosure. Mostyn J laid down the following principles to be applied, where the Court is satisfied that the disclosure given by one party has been materially deficient:

  1. By drawing adverse inferences, the Court is duty bound to consider whether funds have been hidden.
  1. Inferences must be properly drawn and reasonable.
  1. Where the Court concludes that funds have been hidden, then it should attempt a realistic and reasonable quantification of those funds, albeit broadly speaking.
  1. When quantifying funds, the Court must first consider direct evidence such as documentation and observations made by the other party.
  1. The Court must then consider the scale of business activities and lifestyle.
  1. Vague evidence of reputation or the opinions / beliefs of third parties is inadmissible.
  1. The Al-Khatib v Masry technique of concluding that the non-discloser must have assets worth twice of what the applicant is seeking should not be used in isolation.
  1. The non-discloser should not be able to procure a result from his non-disclosure that is better than that which would have been ordered had the truth been told.

In summary, it is evident that in cases of non-disclosure, the Court will lean towards making an order that might be unfair to the non-discloser, rather to the applicant who has complied with their duty of on-going full and frank disclosure. Hana Khodabocus - Assistant Solicitor, Family Department Direct Dial: 01293 596959

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