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Failure to Disclose Financial Information in Divorce UK

One of the recent trends from the senior Courts in this jurisdiction has been to curtail and/or remove the (arguably somewhat legally unorthodox) practices that have developed over time in family law in order to deal with a variety of different problems which regularly occur in family proceedings – including that of financial disclosure. In particular, the cases of Imerman and Prest, made it plain that the family courts need to play by the ‘same rules’ as their civil counterparts. Whilst this shift has given rise to arguments that the job of the financial matters family lawyer has been made considerably more difficult (and such discussion is not the purpose of this article) a recent Court of Appeal civil case shows that the more stringent application by the Civil Courts of the processes available to it has an applicability to the family law world that may be immediately attractive to family law practitioners when advising clients seeking disclosure from recalcitrant litigants in the appropriate situation.

The pursuit of disclosure from a party who is reluctant, in the extreme, to provide a full and frank review of their financial affairs is very much an everyday problem for family lawyers. Every practitioner in the financial field will be well used to the corrosive effects on a case of the seemingly fruitless round of:

  1. Correspondence;
  2. Applications for disclosure;
  3. Further application for disclosure – together with penal notices;
  4. Threats of committal hearing; and
  5. (Rarely) committal hearings themselves.

all of which are time consuming, costly and may or may not provide the requisite information to your and your client’s satisfaction.

It sometimes appears that those who wish to obscure their financial affairs have an innate sense of how best to frustrate the process of disclosure. So while the above standard approach is taken by the seeking party, the regular tactics of avoidance come into operation by the non-discloser, including but not limited to:

  1. The routine changing of solicitors;
  2. the provision at the last moment of some, but not all of the information required;
  3. the provision of voluminous documentation/statements at the very last moment, which is sufficient in itself to stall any hearing (committal or otherwise) but on a further analysis does not actually move matters forward much, if at all and further applications are still needed.

Invariably, having taken the appropriate legal steps in order to force disclosure and having had various approaches obstructed as above, the party seeking such information was left in a position of either:

  1. Settling their case in the full knowledge that they may not have a complete picture of the marital asset base (and therefore may be settling at a significant departure from what otherwise could be seen as a balanced and equitable settlement); or
  2. Seeking to force the issue further by way of committal proceedings in the hope that such proceedings would, eventually, prompt a release of information that would either enable proper consideration of settlement options or, in the alternative, at least provide enough leverage to consider settling pursuant to option 1 above.

The problem with seeking committal has been that there is a perception in the profession that the Courts are deeply reluctant to imprison a defaulting party for what can be seen as the ‘white collar crime’ of ignoring family court disclosure orders. Practitioners have needed to advise their client that, whilst they can issue a committal application, it is likely that the judicial officer at the hearing of the committal proceedings will use every opportunity and every ‘crumb’ of disclosure provided by the defaulting party to avoid pronouncing the ultimate punitive sanction available to the Court.

This perceived practice, in itself, has acted as a bar to many committal applications, with the client and solicitor fearing that the committal exercise would fail the costs/benefit analysis.

However, there have been two recent cases that have provided some hope that the court may be more prepared to take strong action against those parties that refuse to disclose.  The first decision – of YOUNG – has been the subject of much publicity and comment and will not be considered at any great length here. The second, THURSFIELD, a recent decision of the Court of Appeal (albeit the civil division) bears much closer scrutiny and consideration.

In Young, a headline-making decision of Mr Justice Moore, the defaulting Mr Young received a sentence of six months’ imprisonment – one half of which was to be served in custody. The facts of Young are relatively familiar to practitioners, being an extreme example of the sometime binary positions of the parties as to the asset base of the marriage.  Mr Young contended that he was ‘penniless and a bankrupt’ whereas his Wife argued (and continues to argue) that he is an extremely wealthy man and that, through clandestine means, he has managed to obscure his wealth so as to defeat her marital claims.

One of the interesting points of difference between Young and Thursfield is one of timing. The weary practitioner will note just how long it took before punitive sanction was eventually imposed upon the defaulting Mr Young. At paragraph 8 (and following) of his judgment, Mr Justice Moore sets out the history of the application that was before him and recites how this matter had, by the time it reached him, been dealt with by no fewer than nine different High Court Judges over several different applications, starting from 24 June 2008 and finalising on 15 and 16 January 2013. Up to the point of sentence, this case could serve as an example as to why committal has never featured heavily in family law as a viable or practical option to the average litigant.  Indeed, in this case, it proved to be a long and exhaustive process that, without the Wife’s assertion as to the asset base of the case, would not make such a ‘slog’ either cost effective or desirable.

This turgid process is in contrast to the case of Thursfield, a decision of the Civil division of the Court of Appeal (Lloyd, Jackson and Beatson LJJ), in which, in the context of a family case, a recalcitrant Husband has been sentenced to a term of imprisonment of 2 years. The sentence was relatively swiftly delivered, given that the application (a freezing injunction) that triggered proceedings in this jurisdiction was made in May 2011 and the hearing which provided the sentence against Mr Thursfield took place on 20 June 2013 (the Application for committal having been heard in November 2012). From first application to sentencing therefore took a little over 2 years, as opposed to nearly 5 years in Young. There are some fact specific criteria that distinguish this decision from Young, but nonetheless, this was clearly a swifter progression.

The facts of this case are a little unusual, in some respects, but the principles to be gleaned from those facts should mean that this case has relatively wide applicability.

The Facts

The parties to the proceedings were married and had their marriage dissolved in Michigan USA. Financial proceedings were negotiated and an agreement reached and formalised.   The Husband failed to comply with his agreement and the Wife obtained judgment against him, in Michigan, for a breach of contract – being the appropriate remedy for breach of financial agreement in that jurisdiction. The judgment shows that the Husband failed to provide the Wife with sums in the region of $5.8 million or thereabouts. As part of her breach of contract application, the Wife set out that there had been a failure by the Husband to disclose assets.

The Husband appealed the order that provided the Wife with $5.8 million but that appeal was dismissed for want of prosecution (but later reinstated). At the time that the application was heard by the Court of Appeal in this jurisdiction the American appeal against the primary decision was still on-going, although it did not impact on this court’s ultimate reasoning or decision.  In any event, it was noted in both the lower and higher courts that the appeal in the USA was an argument as to quantum and while, if the USA appeal was successful, it may reduce the level of the Husband’s indebtedness, there were always going to be funds which should have been paid at a time when there had been no payments made at all.  It was also noted that this did not exculpate the Husband from obeying disclosure orders.

The Wife filed a freezing injunction in this jurisdiction in order to protect assets that could be used to satisfy the USA decision.  This was to be a mirror of the order made in the USA. The freezing injunction was made by HHJ Purle and it continued, together with the normal procedural steps, until being listed for a 4 day hearing in November 2011.  Again, this was before HHJ Purle, who at the end of the hearing continued the freezing injunction.

HHJ Purle also made a disclosure order and the subsequent failure by the Husband to obey this order became the basis of the committal proceedings.  The order he made was of a fairly common type in this type of situation.  He ordered that, inter alia, the Husband provide the following disclosure:-

  1. How his legal representation was being funded;
  2. Who was providing the funds;
  3. The terms on which the funds were being provided; and
  4. To the best of his knowledge, the source of the funds of the provider.

The order was appealed by the Husband and a stay granted;  this appeal was in turn eventually dismissed when the Husband failed to provide the security for the appeal.  Significantly, he also failed to provide the disclosure that was ordered.

After he failed to provide the disclosure, the Wife applied (July 2012) for him to be committed to prison for the breach of the order. This came before the Court and back before Judge Purle, on 22 August 2012. Two Affidavits had been filed by the Husband, one on the day before hearing. The Husband did not attend court. Judge Purle adjourned the matter until 9 November, 2012.  He made directional orders including that the Husband was to attend court.

The Husband filed a further affidavit on 9 November and his legal team provided some further evidence at the court door.  The Husband did not attend court and, instead, applied for a further adjournment.   His application for an adjournment was rejected. The court also found the last minute disclosure by the Husband lacking.

Having found that there were continuing breaches of an order, the Husband was found in contempt.  He was sentenced to 24 months’ imprisonment. 12 months of the term was attributable to the punitive element of the committal order and the remaining 12 months were to be viewed as the coercive element (further explanation of which is set out below).

He appealed – as of right – to the court of appeal.

Court of Appeal

The Husband put forward two propositions. Firstly, effectively, that he should have been provided with a further opportunity to comply with the original order and that committal should be an absolute last resort. His second ground of appeal was as to the sentence itself.

The Court of Appeal, whose decision was unanimous with the leading judgment being supplied by Lloyd LJ, made ‘short shrift’ of the first ground, noting that this particular ground had been wholly undermined by the fact that the Husband had failed to take any steps, however late (even up to the date of the appeal hearing itself) to comply with the disclosure order (paragraph 19 of the judgment). Indeed the court took careful note of the decision of Judge Purle’s description of the breach as “plain, manifest and deliberate” (para 22).  The court noted that Judge Purle had listed in his judgment a catalogue of the Husband’s breaches of the order and further, transparent falsehoods as to some of the Husband’s explanations (para 23). The court took careful note that these findings of Judge Purle were not disputed.

In terms of the length of sentence itself, both Judge Purle and the Court of Appeal drew heavily from the earlier judgment of Lord Justice Jackson in JSC BTA Bank –v- Solodchenko [2011] EWCA Civ 1241. Both the Lower Court and the Court of Appeal were drawn to paragraph 55 of Jackson LJ’s judgment, where he made the point that freezing injunctions should be treated with such gravity, given the reasons that they were ordered in the first place, that a breach of any term of a freezing order is a serious matter. The Court went on to say that such a breach merits “condign punishment”. At paragraph 25, the Court of Appeal clarified that condign punishment generally means a prison sentence, though a fine may also be appropriate.

In JSC BTA, Lord Justice Jackson went on to say, that “whether it is a continuing failure to disclose relevant information, the Court should consider imposing a long sentence, possibly even the maximum of 2 years, in order to encourage future co-operation by the contemptor”.   This proposition was cited with approval and reaffirmed as appropriate by this court.

When considering how such a sentence should be approached, the court again drew heavily from the earlier decision of JSC BTA and approved the approach of Jackson LJ (at paragraph 56) that it would be appropriate for the Court, in sentencing, to set out what should be regarded as the punitive element of that sentence and what part of the sentence should be seen to be coercive, so that the coercive element could be remitted upon compliance with the original order of disclosure.

When reviewing this particular case, the Court of Appeal considered that Judge Purle had applied these principles correctly.  At first instance Judge Purle had referred to a list of deficiencies on the Husband’s part, including his failure to attend the hearings despite being required to do so and suggested the punishment element should be at the higher end of the scale.  The punitive element was fixed at 12 months.   Having fixed the punitive aspect of the sentence – the lower court had applied a coercive element of 12 months.

Having arrived at an overall sentence of 24 months (the statutory maximum), the point was made by the court that the Husband could be released, if he decided to purge his contempt, one year into that sentence.The statutory maximum for contempt was therefore only being applied if he continued to fail to comply with the disclosure order and thus, it was in his own hands (para 27).  Had the sentence been entirely punitive, this may have led to an appeal being successful; however, given that there were the required elements of separate punitive and coercive terms and given that that there was the opportunity for the Husband to reduce his sentence by complying with the original disclosure order in future, this did not give ground to a successful appeal.

The Husband raised further argument as to sentencing factors, suggesting that both his age and good conduct should have resulted in a sentence below the maximum he received, as with criminal sentencing considerations.  However the court was not persuaded that these were proper considerations when considering contempt.  The court found that age was not a mitigating factor and that previous good conduct could not be taken into account when the Husband had so manifestly failed to deal with the disclosure order as required by this Court.  Simply put, his general good character was wholly undermined by his failure to obey the disclosure provisions of the order.

There were other points that were raised in the Husband’s defence – primarily involving the proceedings in America – which did not trouble the Court and are not important for the purposes of this article.

Suffice to say the sentence stands.

Conclusion

Freezing injunctions within matrimonial proceedings are relatively commonplace. Disclosure orders on the back of a freezing injunction are equally well utilised. Therefore, in a factual situation that mirrors the bare facts of this case – namely failure to provide disclosure pursuant to a freezing order – a matrimonial practitioner can confidently advise their client that manifest breaches of disclosure orders can be pressed forward for contempt and utilise this particular case to suggest that condign punishment can be used to help deal with the failure to disclose.

What has yet to be tested fully is whether general orders for disclosure, such as in the Young case, can be accelerated along the same path as in Thursfield.  Is Thursfield only useful in cases involving freezing injunctions or can it have a wider applicability?  After all, a breach of order leading to contempt should provide the court with the same opportunity to punish breach of its orders.  Perhaps it will be successfully argued by a future advocate that Young and Thursfield should not be seen as exclusive to each other and that the court should be swifter to deal with recalcitrant non-disclosing spouses.

Freezing injunction aside, the writer would suggest that the key in managing non-disclosure satisfactorily, as in Thursfield, is judicial continuity.  Mr Young and many like him use the lack of such judicial continuity to their advantage.  Short of ordering costly transcripts, it is hard for a judicial officer new to a case not to provide ‘the benefit of the doubt’.

Of course, such ‘victory’ may be wholly pyrrhic.  A prison sentence may not cure the deficiency in disclosure. Furthermore, a term of imprisonment may not suit a case where the non-discloser’s income is vital to the client’s future security. The writer is not aware as to whether, having served his sentence, Mr Young has now engaged with the court process in a manner with which Mrs Young would be satisfied.   In Mrs Thursfield’s case, the Husband did not submit to this jurisdiction and has not seen (and is unlikely to see) the inside of Brixton Prison.

Nonetheless, what these two cases may mean is that solicitors advising in these circumstances, on both sides, are able to explain that a prison term for failure to provide appropriate disclosure is not as remote a possibility as perhaps previously it had been considered. Defaulter best beware…

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