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.
