Is the non-disclosure of assets a common problem within divorce proceedings or not? Is it simply the case that suspicious spouses expect the worst of their soon-to-be former partner? Is it just the case that family lawyers are a ­cynical bunch?

The 2011 Grant Thornton matrimonial survey showed that 30% of family lawyers felt that their client did not obtain a fair settlement due to undisclosed assets; 94% of respondents stated that in three out of 10 cases hidden assets were revealed.

The issue of non-disclosure was considered in detail by Judge Mostyn in NG v SG (Appeal: Non-Disclosure) [2011] EWHC 3270 (Fam). The judgment considers in detail circumstances where there is non-disclosure, but the extent of the non-disclosure cannot be identified or quantified. As Mostyn J stated, the court ‘is thrown back on inference and guess-work within an exercise which inevitably costs a fortune and which may result in an unjust result to one or other party’.

Mostyn J’s decision is a useful ­summary of the leading cases on non-disclosure. It is another of Mostyn J’s decisions in which he has sought to codify the principles arising from the existing cases.

Hallmarks of financial proceedings

Mostyn J noted the comments of Thorpe LJ in the Court of Appeal in Lykiardopulo v Lykiardopulo [2011] 1 FLR 1427. He stated that financial proceedings within divorce are marked by features absent in other civil proceedings as follows:While a breach by omission may be excused as an oversight, a breach by commission is more serious. Mostyn J noted that a breach by commission is plain perjury and therefore risks ­serious consequences.

  • 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 find the fairest solution.
  • The parties owe an absolute duty to the court to give full, frank and clear disclosure.
  • This duty is as much breached as it is observed.
  • Breaches by omission are ­commonplace. For example, a bank account or another asset may not be declared.

Quantifying adverse inferences

The origin of the duty of the court to consider drawing adverse inferences where non-disclosure is found can be seen in the decision of Sachs J in J-P C v J-A F [1955] P 215. Sachs J stated: ‘[The] husband can hardly complain if, when he leaves gaps in the court’s knowledge, the court does not draw inferences in his favour… 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.’

The real problem, however, arises in placing a figure upon the finding of non-disclosure. Munby J in Al-Khatib v Masry [2002] 1 FLR 1053 described it as the ‘seemingly unanswerable question’. Finding an answer to that question involves a consideration of two strands of judicial thought which sometimes pull in opposite directions:Mostyn J concluded that there must be a sound evidential basis for reaching a conclusion as to the scale of undisclosed assets. The court should not be led into a kneejerk reaction that says simply because evasiveness is demonstrated, there is some vast sum which has been hidden. That does not however mean that the court has to put a precise figure on the scale of hidden assets; an analysis of the cases shows that the court always makes a broad, and sometimes very broad, estimate based on admissible evidence of the scale of the hidden funds.

  • One strand can be summarised by the comments of Thorpe J in F v F [1994] 3 FLR 359. If the husband seeks to camouflage his assets, it is better that the court is drawn into making an order that is unfair to him, rather than making an order that is unfair to the wife.
  • The second strand is that inferences ‘must be properly drawn and reasonable’, as per Otton LJ in Baker v Baker [1995] 2 FLR 829. In essence, it would be wrong to draw inferences that the husband has assets which, on an assessment of the evidence, the court would be satisfied he has not got.

This evidential exercise may be based upon unexplained payments made by the husband, as the wife sought to argue (albeit unsuccessfully) in FZ v SZ and others (Ancillary Relief: Conduct: Valuations) [2011] 1 FLR 64. In the absence of such direct evidence, the court normally reaches for an analysis of lifestyle - such an approach was adopted in Ben Hashem v Al Shayif [2009] 1 FLR 115.

An alternative approach was adopted on behalf of the wife in Al-Khatib v Masry, in which she argued that the husband was worth at least $200m. However, it was accepted that the evidence in support of that assertion was slight. The wife argued that, because the husband knew she was seeking £25m, an inevitable inference was that, in the event that the husband did give full and frank disclosure, the award made in the wife’s favour would have been far greater than the sum she was seeking. To put another way, the truth would be more painful to the husband than the consequences of non-disclosure.

Mostyn J did however express the view that it would be dangerous for a court to rely primarily on the Al-Khatib v Masry technique alone. Also in Al-Khatib v Masry, Munby J found that vague ­evidence of reputation or the opinions or beliefs of third parties was inadmissible.

In conclusion, Mostyn J commented that the court must be careful to ensure that his note of caution does not give rise to a ‘cheat’s charter’. It would be wrong if the adverse inference was too conservative, with the result being that the ultimate decision was unfair to the applicant. Having said that, however, the court must be realistic, and there must be some finding, soundly based on admissible evidence, as to the broad extent of the hidden funds. That finding can be as broad or precise as the facts of the case demand.

Principles to be drawn

In pulling the threads together, Mostyn J concluded that, where the court is satisfied that the disclosure given by one party has been materially deficient, then:

  • By the process of drawing adverse inferences, the court is duty bound to consider whether funds have been hidden.
  • Such inferences must be properly drawn and reasonable. It would be wrong to draw inferences that a party has assets which, on an assessment of the evidence, the court is satisfied a party has not got.
  • If the court concludes that funds have been hidden, then it should attempt a realistic and reasonable quantification of those funds, even in the broadest terms.
  • In making its judgment as to quantification, the court will first look to direct evidence, such as documentation and the observations made by the other party.
  • The court will then look at the scale of business activities and lifestyle.
  • Vague evidence of reputation or the opinions or beliefs of third parties is inadmissible.
  • The Al-Khatib v Masry technique of concluding that the non-discloser must have assets of at least twice what the claimant is seeking should not be used as the sole metric of quantification.
  • The court must be astute to ensure 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. If the result is an order that is unfair to the non-discloser, it is better than one which is unfair to the ­applicant.

Andrew Newbury is a family law solicitor at Pannone