NG v SG (Appeal: Non-disclosure)

The law of financial remedies following divorce has many commandments but the greatest of these is the absolute bounden duty imposed on the parties to give, not merely to each other, but, first and foremost to the court, full frank and clear disclosure of their present and likely future financial resources. Non-disclosure is a bane which strikes at the very integrity of the adjudicative process. Without full disclosure the court cannot render a true certain and just verdict. Indeed, Lord Brandon has stated that without it the Court cannot lawfully exercise its powers (see Livesey (formerly Jenkins) v Jenkins [1985] FLR 813, HL). It is thrown back on inference and guess-work within an exercise which inevitably costs a fortune and which may well result in an unjust result to one or other party.

In Lykiardopulo v Lykiardopulo [2011] 1 FLR 1427, CA Thorpe LJ stated:

[36] However ancillary relief proceedings are marked by features absent in other civil proceedings:

i)

The proceedings are quasi-inquisitorial. The judge must be satisfied that he has, or at least that he has sought, all the information he needs to discharge the duty imposed on him to find the fairest solution.

ii)

The parties owe the court a duty, a duty of full, frank and clear disclosure. The duty is absolute.

iii)

Sadly the duty is as much breached as observed. The payer's sense of the obligation is distorted by the emotions aroused by the payee. Breaches take many forms.

iv)

Breach by omission is commonplace. A bank account or some other asset is not declared. That tactic gives rise to the counter, filching and copying the contents of desk, briefcase or computer (now proscribed by the decision of this court in Tchenguiz v Imerman [2010] 2 FLR 814, the effects of which have yet to be worked out).

[37] Breaches by commission are more serious. An omission once detected can be excused as an oversight. A breach by commission is plain perjury and thus risks serious consequences. The present case is a good example. The conspiracy within the family to protect the family business resulted in the presentation to the court of forged and back-dated documents.

As Thorpe LJ observes the phenomenon of non-disclosure is regrettably commonplace. Its treatment in the authorities stretches back at least to the famous decision of Sachs J in J-P C v J-A F [1955] P 215. From that case can be identified the origin of the duty of the court to consider drawing adverse inferences where non-disclosure is found. That duty has been reiterated in many subsequent decisions. Sachs J memorably stated:

In cases of this kind, where the duty of disclosure comes to lie on a husband; where a husband has – and his wife has not – detailed knowledge of his complex affairs; where a husband is fully capable of explaining and has had opportunity to explain, those affairs, 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. On the contrary, when he leaves a gap in such a state that two alternative inferences may be drawn, the court will normally draw the less favourable inference –  especially where it seems likely that his able legal advisers would have hastened to put forward affirmatively any facts, had they existed, establishing the more favourable alternative. 

…

… the obligation of the husband is to be full, frank and clear in that disclosure. Any shortcomings of the husband from the requisite standard can and normally should be visited at least by the court drawing inferences against the husband on matters the subject of the shortcomings – insofar as such inferences can be properly be drawn.

So far, so good. But giving numeric expression to a finding of non-disclosure by a process of inferential judgment is far from straightforward. In Al-Khatib v Masry [2002] 1 FLR 1053 Munby J (as he then was) described it at para 92 as the “seemingly unanswerable question”. Finding an answer to that question involves consideration of two strands of judicial thought which sometimes pull in opposite directions.

One strand is well-represented by the words of Thorpe J (as he then was) in F v F [1994] 3 FLR 359 that:

So if he has conducted his affairs throughout the marriage in such a covert fashion as to relieve him of the ordinary obligations of citizenship to support the State through tax contribution, if he has conducted these proceedings in a vain endeavour to maintain that camouflage, if in consequence the obscurity of my final vision results in an order that is unfair to him it is better that than that I should be drawn into making an order that is unfair to the wife.

See also Ben Hashem v Al Shayif [2009] 1 FLR 115 at para 65 per Munby J.

The second strand is that inferences must be “must be properly drawn and reasonable” per Otton LJ in Baker v Baker [1995] 2 FLR 829, CA. See also E v E (Financial Provision) [1990] 2 FLR 233 at pp241 – 242 where Ewbank J concluded “it would be wrong to draw inferences that the husband had assets which, on an assessment of the evidence, I am satisfied he had not got”. 

There must surely be a sound evidential basis for reaching a conclusion as to the scale of undisclosed assets. The Court should not be led into a knee-jerk reaction that says simply because evasiveness and opacity is demonstrated there is some vast sum salted away. This is not to say that the Court has to put a precise figure on the scale of the hidden assets, let alone to identify by reference to evidence where they are or what they comprise: see Al-Khatib v Masry at para 89 and Ben Hashem v Al Shayif at para 70.

That said, analysis of the cases shows that the Court always makes a broad (sometimes very broad) estimate, based on admissible evidence, of the scale of the hidden funds. Sometimes there is direct evidence of the existence of the hidden money revealed by documents improperly obtained, and as Thorpe LJ points out in para 36(iv) of Lykiardopulo, the ramifications of Tchenguiz v Imerman have yet to be worked out. Sometimes the wife is able to give direct evidence of observations made by her or of things said to her by the husband (as happened in Lykiardopulo). Sometimes the evidential exercise is based on a host of unexplained payments made by the husband, as the wife sought (unsuccessfully) to argue in FZ v SZ and Others (Ancillary Relief: Conduct: Valuations) [2011] 1 FLR 64.

In the absence of the availability of direct evidence of this nature the Court normally reaches for an analysis of lifestyle. In Ben Hashem v Al Shayif the wife’s case was that the husband’s resources were in fact in excess of US$500m and may even have exceeded US$800m, and the Court was invited to find that the husband was worth in excess of £250m. Munby J conducted a detailed lifestyle analysis at paras 68 – 71 and concluded that “I am satisfied that the husband is worth many millions – and significantly more millions than he has been willing to admit – but nothing in the materials before me justifies a finding that he is worth hundreds of millions”.

Thus there was a broad finding, based on admissible evidence as to lifestyle, as to the overall scale of the husband’s fortune.

An alternative technique was deployed in Al-Khatib v Masry. It was argued for the wife that the husband was worth at least $200m. However, it was accepted that the evidential support for this assertion was slight. It was therefore argued that as H knew well before the trial commenced that W was seeking £25m then, having regard to the distributive principles propounded in White v White [2001] 1 AC 596, [2000] 2 FLR 981, HL, an inevitable inference was that that the husband’s wealth, whatever it may be, was such that, were he to make the full and frank disclosure which he ought to but had not made, the court applying White v White would award the wife even more than she was asking for. A frank revelation of the truth would be even more damaging to the husband than the adverse inferences to be drawn from his non-disclosure. Put another way, the truth would be more painful to him than the consequences of non-disclosure (see para 92).

This argument or technique was accepted but it is noteworthy that Munby J did not rely on it alone. At para 96 he deployed what he described a “valuable cross-check” namely his findings as to the continuing scale of the husband’s business activities and the size of the commissions he was shown to have been capable of earning. On that evidence it was entirely reasonable to conclude that the husband over a period of some 20 years was able to amass a sizeable fortune.

In Al-Khatib v Masry Munby J also importantly found that vague evidence of reputation or the opinions or beliefs of third parties is inadmissible: see para 19.

I would suggest that it would be dangerous for a Court to rely on the primary Al-Khatib v Masry technique alone. I say this with some diffidence given that I advocated it as counsel.

Of course the Court must be careful to ensure that the note of caution I have sounded does not give rise to a “cheat’s charter” (as Dame Elizabeth Butler-Sloss P put it in Baker v Baker). It would be wrong if the more usual consequence of the application of the principle was for the adverse inference to be too conservative with the result that unfairness is in fact visited on the Claimant giving rise to what might be termed a non-discloser’s dividend. I accept that the court must be astute to avoid this unfairness and that a strong message must be sent out that a non-discloser should not be able to procure a result from his non-disclosure better than that which would be ordered if the truth were told. But the court must be realistic and there must surely be some finding, soundly based on admissible evidence, as to the broad extent of the hidden funds. This finding can be as broad or precise as the facts of the case demand. It is noteworthy that in Behzadi v Behzadi [2008] EWCA Civ 399 Wilson LJ was minded to grant permission to appeal precisely because the trial judge had not attempted a quantification of the undisclosed assets that were found likely to exist in Iran.

Pulling the threads together it seems to me that where the court is satisfied that the disclosure given by one party has been materially deficient then:

This is an appeal by NG (“H”) against the judgment and order of District Judge Malik both dated 20 July 2011. On 5 September 2011 Parker J considered H’s nine grounds of appeal and granted permission on six; the application for permission in relation to the remaining three was adjourned to be heard with the substantive appeal.

The applications before District Judge Malik were

The 2008 order provided for £70,000 per annum spousal maintenance and £10,500 per annum child maintenance for each of the three children of the family. All these payments were indexed.

In February 2009 H ceased making payments under the order citing an inability to pay. Arrears arose.

There can be no doubt that the course of the case was made difficult by a combination of bloody-mindedness and incompetence by H in the presentation of his financial affairs.

By his judgment District Judge Malik found that:

The order gave expression to these findings, and provided that:

Thus H was ordered to pay to W a total of £996,419.40.

No actual application was ever made by W for capitalisation of the spousal maintenance pursuant to s31(7A and 7B) MCA 1973. The suggestion was advanced for the first time during the final (written) submissions of W’s counsel.

I have mentioned that H’s ground of appeal are nine in number but they can be reduced to the following complaints:

H makes no complaint at all as to the assessment by the District Judge of either W’s financial position or of her needs.

H has appeared before me in person. At court he handed to W’s counsel and to me a written statements and a file of papers. I looked at these de bene esse. It was hard to tell what was (a) a repackaging of material that was before the District Judge; or (b) material that could have been put before the District Judge, but was not; or (c) genuinely new material. In respect of (b) the Court will only allow its admission exceptionally, but in respect of (c) much more latitude is generally afforded – see the commentary on FPR Part 30 in @eglance and pp371 – 373 of Financial Remedies Under The Family Procedure Rules (Class Publishing 2011). As will be seen the result of this appeal does not turn critically on consideration of this material. It has however supplied some clarity to what was a murky situation below.

The proceedings below followed an unusual course, to say the least. Both parties were represented by Counsel. The case began on 8 March 2011 with a three day time estimate. At the end of the third day W’s evidence had just been concluded. It had become apparent during his evidence that he wished to advance further documentary evidence. The District Judge, with the consent of counsel, therefore ordered that:

I have to say that in case of this complexity I am baffled as to why such a course was adopted, although in fairness to District Judge Malik it was devised with the active encouragement of both Counsel. The motive was, at least so far as W was concerned, to try to limit costs, in circumstances where she was funding her own legal fees by borrowing. Written final submissions are one thing, but further extensive documentary disclosure followed by written final submissions thereon are quite another. W had no idea what H might produce. Even allowing for W’s understandable anxiety about costs I cannot fathom why further days in court were not fixed. In fact, H supplied further clarificatory material which was quite important.

The above timetable was not adhered to. H supplied his further disclosure on 5 April 2011. This occupies pages 255 – 356 of Appeal Bundle C2. I am frankly amazed that everyone seems to have been content that these 101 pages would simply be addressed by counsel in writing. Final submissions on behalf of W were produced on 21 April 2011. These ran to 32 pages. In para 125 it was stated:

The court will be aware of its powers to capitalise periodical payments. W wishes the court to know that she would agree a clean break, with consequential dismissal of her rights to periodical payments, in exchange for an appropriate sum.

This was the first (and last) time that capitalisation was ever mentioned to the court.

Final submissions on behalf of H were produced on 5 May 2011. These ran to 7 pages. W replied to these with a two page document on 13 May 2011. The Judge emailed out a draft judgment on 13 June 2011. A hearing was fixed to consider consequential maters on 20 July 2011. On 17 July 2011 Counsel for W sent in a note suggesting emendations; this included a request that the Court should actually say that it was satisfied that H could pay the arrears (this was absent from the draft, but was included in the final version).

On 20 July 2011 the hearing took place. H had dispensed with his counsel on the ground that he had run out of money. He was represented by his solicitor Mr Wilson. Mr Marsden makes the fair point that at no stage following the advertisement of capitalisation on 21 April did H’s representatives ever complain that they were being ambushed by this. Moreover, they did not raise complaint about this with the District Judge after receipt of his draft judgment on 13 June 2011, or indeed at the hearing on 20 July 2011.

I now turn to examine H’s financial position as must have been known to the Court below based on the material before it, including the 101 pages of additional disclosure produced after the evidence had closed on 5 April 2011. The following facts were then, it seems, incontrovertible:

The above transactions can be summarised thus:

In addition H had to pay school fees, but against that there was the receipt of the money from the sale of W2’s GH property (the sum being then unknown).

Overall the material before the court below showed, or should have showed, that perhaps around £1.7m was unaccounted for. But over the 9 year period from 2002 to 2011 H had to live, and the evidence showed he and W2 very lived well indeed. Until 2007 he was living in Monaco where, no doubt, he paid astronomical sums in rent. And there would have been heavy travel costs, no doubt. His credit card statements showed high expenditure at smart shops and fine restaurants. So on the evidence before District Judge Malik it would have been far from implausible that a sum of £1.7m would have been entirely spent.

The position in relation to LMG is as follows. It is a property development company In October 2010 the owners of LMG walked away from the enterprise. H was able to acquire their shares and is now the owner of the Group. In opening H’s counsel produced a schedule setting out the position, which I reproduce:

H has produced a letter from Barclays Corporate dated 17 November 2011, which updates the position, both as to values and debt. I admit this letter as, obviously, it did not exist at the time of judgment. Moreover, one only has to open the newspapers to be aware of the economic downturn that has eventuated since the summer. The updated position is as follows:

I now turn to the findings of the District Judge which led him to conclude that H was guilty of sustained non-disclosure. I have identified in the judgment ten specific findings of evasiveness and opacity which led him to his conclusion. His conclusion must surely have been that H had overall resources well in excess of £1m, for of course, it would hardly have been proper to have made awards totalling just short of £1m leaving H with nothing on which to live. The ten findings are:

H argues simply that he now has no money at all. It has all been spent or lost. If the order is allowed to stand he will simply be forced into bankruptcy, and W’s victory will prove to have been Pyrrhic.

For W Mr Marsden argues that the findings were all validly made on the evidence. Essentially this is an attack on findings of fact, which is a notoriously difficult challenge for any appellant. Capitalisation, even if mentioned late in the day, was a tenable discretionary outcome; and, as I have pointed out, no complaint was made about its belated advertisement.

Where the decision is a finding of facts then the ascent faced by the appellant is particularly steep. Thus in Re S (Abduction: Custody Rights) Ward LL said:

Although it is possible to appeal against a finding of fact, it is notoriously difficult to succeed in so doing. Where findings of fact are made based on the demeanour of a witness, the appeal court will seldom interfere because the trial judge has the special advantage over the appellate judge.

That said, such appeals are not impossible. A well-known example is Sherrington v Sherrington [2005] 3 FCR 538. It was a probate action where it was alleged that a will had not been duly executed. In overturning the factual findings of Lightman J, Peter Gibson LJ stated at para 33:

Before we go to the three issues, we must say a few words about the appropriate approach of the court to the issues so far as they are appeals on fact. As Mrs Talbot Rice rightly reminded us, an appellate court is severely handicapped in judging the credibility of oral evidence, even though transcripts are provided, because it has not heard and seen the witnesses giving evidence nor observed their demeanour. She has referred us to statements in Benmax v Austin Motor Co Ltd [1955] 1 All ER 326, [1955] AC 370 which made it clear how very difficult it is for an appellate court to interfere with a finding of primary fact founded on the credibility of a witness. Although that case suggests that it may be easier for an appellate court to interfere with an inference drawn from primary facts, that must now be read subject to the cautionary words of Lord Hoffmann in Biogen Inc v Medeva plc (1997) 38 BMLR 149 that specific findings of fact are inherently an incomplete statement of the impression made on the trial judge by the primary evidence and that such findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance. It is accordingly necessary for this court to treat the judge's findings with appropriate respect. It must be very slow indeed to interfere with any such findings. That, however, does not mean that an appeal on fact can never succeed. If this court is convinced that the judge was plainly wrong, then it is its duty to interfere.

In my decision of AA v NA (Appeal: Fact-Finding) [2010] 2 FLR 1173 I stated at para 15:

In my opinion an appellate court would only be able to say that a fact-finder has plainly got the wrong answer if:

(i)

His conclusion was demonstrably contrary to the weight of the evidence, or

(ii)

The decision making process can be identified as being plainly defective so that it can be said that the findings in question are unsafe.

I would include in the second category errors of principle as to, say, the burden or standard of proof, or a failure to take into account well-established principles as to the weight to be given to proven lies or litigation misconduct in reaching the factual findings.

My first conclusion is that the decision to invoke the capitalisation provisions in s31(7A) and (7B) MCA 1973 and to make an award of £675,000 thereunder in the circumstances which I have described was demonstrably wrong in principle and flawed. It is noteworthy that in the principal authority concerning capitalisation, Pearce v Pearce [2003] 2 FLR 1144, CA (which was not cited to the court) both parties had formally applied for capitalisation. It must be elementary that the proposed payer of a capitalisation award should actually receive, with ample notice, an application for that relief. Moreover, the directions of the court and the evidence would need specifically to address the relief sought. All manner of bespoke Duxbury calculations would likely need to be done. The fact that H’s representatives did not raise a complaint about this change of tack by W after 21 April 2011 does not cure this fundamental defect.

My second conclusion is that procedurally this case went right off the rails. It cannot be right or proper for further important disclosure to come in by post after the oral evidence has been closed and for such material to be addressed merely by written submissions. The fact that both Counsel were actively supportive of this arrangement does not cure the irregularity.

My third conclusion is that the inferences here were neither properly drawn nor reasonable. District Judge Malik did not work his way through the steps I have suggested in para 16 above. Most significantly he at no point attempted even a broad estimation of what he believed H had hidden away in residue. It may be said that tacitly he must have found that H had access to around £2m, of which he was awarding £1m to W. But how do his ten findings lead to that conclusion? In many respects they strike me as either stale or inconsequential and incapable of leading to a tenable finding that H had salted away a vast sum.

On the evidence before him there was perhaps £500,000 of equity in W2’s F property. One must doubt the propriety of attributing that to H without any notice having been given to W2 that such a finding would be sought. And there was about £550,000 recoverable from LMG. If it is said that there was another £1m hidden away somewhere how was that consistent with the known expenditure of the £6.7m proceeds of sale set out by me above and H’s demonstrated high living since 2002? High expenditure does not necessarily signify hidden reserves. Rather, it may merely indicate the force of habit in circumstances where H genuinely seemed to have believed that the investment in LMG would bring him a splendid return.

District Judge Malik also failed to address the incongruity of H having vast sums salted away but he and W2 having to borrow £500,000 by way of mortgage on the F property.

I emphasise that I have not reached my conclusions thus far in reliance on any material advanced to me by H that was not before District Judge Malik. However my decision is fortified by the contents of the Barclays letter of 17 November 2011 which I have admitted. The data therein is expressed in my para 39 above and shows that the prospect of any recovery from LMG is bleak indeed.

In circumstances where I am satisfied that District Judge Malik erred in principle and his discretion miscarried I set aside the entirety of his judgment and order. I do not need to consider the grounds individually for this purpose, although I do formally give permission to appeal those grounds (Nos. 3, 4 and 5) adjourned to me by Parker J.

I am empowered to exercise the discretion anew. I have been much tempted to do so as it appears to me to be highly likely that H is right when he says that he has no money at all, and that all that there is the F property owned by W2. However, as I have stated at para 21 above, I do not doubt that H through a combination of bloody-mindedness and incompetence made a proper investigation of his affairs very difficult. I have therefore decided to direct a retrial. W is entitled to have the discretion exercised anew following a full trial with oral evidence.

My disposition is as follows:

I will hear the parties as to costs and as to the form of my order.