This question was examined in the most recent instalment of a
long running case involving Mrs & Mrs Charman.
It is a fundamental aspect of financial proceedings on divorce in England that each party discloses to the other, and to the court, full and frank details of their financial circumstances. Understandably, some people are worried that this information, much of which may be private and potentially commercially sensitive, will leak out into the public domain.
A High Court Judge, Mr Justice Coleridge, has recently rejected an application made by the Revenue & Customs Commissioners (HMRC) for disclosure of documents on the court file relating to Mr Charman's finances.
In February 2006, Coleridge J heard an application made by Beverley Charman against her former husband, John Charman. The assets at stake exceeded £100m and the hearing eventually resulted in the judge making an award to Mrs Charman worth in excess of £40m made up of property and cash.
One of the issues which the judge had to consider was the extent of Mr Charman's income and capital tax liabilities in relation to his interests in Axis Speciality Ltd. There was considerable evidence about this during the hearing.
More recently, HMRC issued assessments against Mr Charman for
approximately £11.5m of unpaid tax for the years 2001 through
to 2008. Mr Charman disputed the liability and sought to
appeal the assessments. At the time of the recent hearing before
Coleridge J the appeal process was underway but a final hearing had
not been fixed. For the purposes of this hearing, HMRC wanted
sight of, and to be able to use, the transcripts of the
divorce/financial proceedings and many other documents which were
filed in or brought into being for the purposes of the original
financial application. Mrs Charman did not object to the production
of these documents but Mr Charman did and so HMRC made an
application which was heard by Coleridge J.
It was agreed that, unless both Mr and Mrs Charman agreed, the numerous documents sought by HMRC were not disclosable unless the court ordered so. Both parties sought to rely on a public interest argument in support of their positions.
The relevant court rule reads:
'Except as provided by this rule or by any other rule or Practice Direction, no document filed or lodged in the court office shall be open to inspection by any person without permission of the court, and no copy of any such document shall be taken by, or issued to, any person without such permission'.
The question was therefore how should the Judge exercise his discretion when deciding whether or not to give that permission? Or, put another way, what was more important, the normal privacy of the divorce courts or assisting the Revenue to recover tax properly payable?
Coleridge J reviewed the earlier cases and, in particular, considered what is commonly referred to as the 'implied undertaking'. Essentially, information disclosed for the purposes of the matrimonial proceedings should not be used by the other party for some other purpose. Financial information disclosed to meet the requirements of the financial proceedings is protected by this implied undertaking, before, during and after the proceedings are completed. This implied undertaking is based on the duty to the court and a failure to adhere to it amounts to a contempt of court which can be punished by fine or imprisonment.
Coleridge J summarised the position by say that, as a general rule, documents and other evidence produced in financial proceedings are not disclosable to third parties outside the proceedings save that, exceptionally and rarely and for very good reason, they can be disclosed with the leave of the court. The fact that the evidence may be relevant or useful to the person seeking it was not, by itself, a good reason enough to undermine this rule. He went on to comment that no one could seriously argue with a proposition that it was in the public interest for the right amount of tax to be paid by tax payers, and there seemed to be no doubt that the documents sought by HMRC could be relevant to the proceedings before the tax chamber, but, having carried out the balancing exercise, Coleridge J had no hesitation in finding that there was nothing rare or exceptional in the present case Mr Charman was therefore entitled to say, with indignation, that he had complied fully with the rules of disclosure and that the confidentiality/privilege which attached to the documents and other evidence produced by him should not be breached.
Clearly, there may well be cases where the court will conclude that the balance falls in favour of permitting disclosure to HMRC, but the present case was not one of them.
The case is also a timely reminder to those going through divorce proceedings that they should not forget that information provided by their partner may well be covered by the implied undertaking and should not be disclosed to, or discussed with, third parties such as friends and relatives.
Many people are now trying to resolve their disputes outside of the court mechanism using the collaborative process. Used successfully this can bring about an even greater level of confidentiality than that which applies in court proceedings.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.