When a couple divorce and are going through the process of trying to sort out their finances, there is a responsibility on each of them to provide the necessary information to enable the discussions to take place in an informed manner. Since 1985 it has undeniably been the case that the parties to financial proceedings are under an obligation to make full and frank disclosure of all relevant circumstances. Such disclosure is invariably given in the first instance by both parties completing detailed financial statements known as Form E's. These statements contain what is known as a 'statement of truth'. This recites that the person who completes the form confirms that the information contained in it 'is a full, frank, clear and accurate disclosure of my financial and other relevant financial circumstances'. Signing such a statement knowing it to be untrue is a contempt of court. The punishment for contempt can be as severe as one month's imprisonment (up to two years in a higher court) or a fine of £2,500.

All too often, however, one or other of the parties (or sometimes both) feels that the other has not been entirely candid in their presentation. Sometimes this is borne out of the lack of trust which is all too prominent at such times but often there is good reason for believing that the information given is misleading or lacking in important respects. On many occasions it is said that the parties' lifestyle or spending habits during the marriage was at complete odds with the financial information given in the disclosure process.

A suspicion that the other party is attempting hide things can often be the trigger for the commencement of financial proceedings. Once financial proceedings have been started this duty to give disclosure is owed to the court as well as the other spouse and judges have certain powers available to them to try and secure compliance. In addition, over the years, the judiciary has developed a method of trying to 'fill in the gaps'. Judges who deal with financial claims exercise a quasi-inquisitorial function. When faced with evidence of non-disclosure they are entitled to draw inferences adverse to the non-discloser and make awards based on those inferences. As long ago as 1955 Sachs J stated:-

[where a husband] "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 my be drawn, the court will normally draw the less favourable inference..."

The question therefore arises as to how the judge can quantify and place a figure on the non-disclosure. This issue was recently examined by Mr Justice Mostyn in NG v SG (Appeal): Non-Disclosure [2011] EWHC 3270 (Fam).

Mostyn J himself described the process of inferential judgment as far from straightforward. What is clear is that broad assertions and flimsy evidence will not be sufficient to persuade a judge to conclude that there are hidden, undisclosed resources but what will do? How does the court prevent the development of a 'thief's charter'?

In NG v SG the judge who initially heard the case made an order that assumed that the husband had significantly more wealth than he had disclosed. The judge was criticised by Mostyn J for failing to attempt to quantify what exactly the husband had hidden away and for not providing any reasoning or explanation as to how his findings of fact led to the conclusion that the husband could meet the order that was made.

Mostyn J also laid down an 8-point checklist which had to be considered when there was an allegation of non-disclosure. The 8-points were as follows:

  1. The court is duty bound to consider by the process of drawing adverse inferences whether funds have been hidden.
  2. 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 he has not got.
  3. 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 term.
  4. In making its judgment as to quantification, the court will first look to direct evidence such as documentation and observations made by the other party.
  5. The court will then look to the scale of business activities and lifestyle.
  6. Vague evidence of reputation or the opinions or beliefs of third parties is inadmissible in the exercise.
  7. A technique that had been utilised in an earlier case of concluding that the non-discloser must have assets of at least twice what the claimant was seeking should not be used as the sole metric of quantification.
  8. 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 that the court should be drawn into making an order that is unfair to the claimant.

This case therefore highlights that the court should only draw adverse inferences in a disciplined manner and when there is appropriate evidence to support the drawing of such inferences. This may be seen to tip the balance in favour of the person determined to avoid the need to give full disclosure (especially in the light of recent cases that have tried to limit the use of 'self-help' - e.g. copying your spouse's bank statements) that but there are other points to be borne in mind. As mentioned above, and as stressed by Mostyn J, a breach by commission is much more serious. That is plain perjury and the consequences for that can be very serious.

Moreover the court is entitled to penalise a person who is found to have been wilfully untruthful by making a costs order against them. Within financial proceedings, the general rule is now that each party will pay their own legal costs. The court can, however, make an order requiring one party to pay the costs of another party at any stage of the proceedings where it considers it appropriate to do so because the conduct of a party in relation to the proceedings is such as to warrant the making of such an order. A deliberate failure to comply with the duty of full and frank disclosure falls into this category.

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.