Non-disclosure: Surely Imerman must go

Wed 23rd Dec 2015

Recently the Supreme Court considered the effect of non-disclosure upon Consent Orders and agreements through family proceedings. There is a subtle difference between the two stages of a Court process upon which the considered non-disclosure may have an effect. The common fact within these two cases was that the non-disclosure was fraudulent.

The case of Gohil dealt with the admissibility of fresh evidence within an appeal and whether that had any relevance to the determination of a spouse’s application to set aside a financial order in divorce proceedings on the ground of a fraudulent non-disclosure of resources on the part of the other spouse. This was perhaps of a more technical nature whereas the case of Sharland may have dealt with the broader principles.

In Sharland, Lady Hale set out the two questions that the Court considered in principle:-

- What is the impact of fraud upon a financial settlement which is agreed between a divorcing husband and wife, especially where, as will always be the case, that agreement is embodied in a Court Order?

- Does “fraud unravel all”, as is normally the case when agreements are embodied in Court Orders, or is there some special magic about Orders made in matrimonial proceedings, which means that they are different?

Given that both cases dealt with fraudulent non-disclosure then the Supreme Court did not need, unfortunately, to deal with the process of disclosure in court proceedings.

Yet, these questions before the Supreme Court on Sharland clearly set out principles upon disclosure and the value to be placed upon full, frank and clear disclosure.

But how in more regular cases does a party know whether there has been proper disclosure?

The Court process requires that the Form E has to be full, frank and clear. The duty of giving full disclosure is not limited to merely the point in time of the Form E but it is ongoing through the whole process toward a final determination or agreement. Then in the terms of the latter especially, up to the point of consideration of the agreement by the Judge whose role it is to determine whether the agreement should be made a Court Order.

If a party has great concern that not everything is being revealed within the Court process, then a spouse may be tempted to take a self-help option, which is not permitted and disapproved of by the Court.

What was once governed by the principles in case of Hildebrand, whereby documentation and information coming to the attention of one party could be copied and retained with either the originals being relayed back to the owner of the documentation or, if merely information, then the knowledge of such information being conveyed to the other spouse.

That changed in 2013 with the case of Imerman. Knowledge by way of information or documentation deriving from unlawful self-help methods were deemed to be inadmissible. This led to the idea that there would be a “cheat’s charter”. In Imerman, it was the hacking of encrypted computer files.

It throws up many possibly absurd scenarios. For instance, if an account with tens of thousands of pounds was discovered by such means then it could be argued that the account cannot be admitted within evidence because of the tainted means of knowledge. The logic flows that the Court ought to disregard that account and the balance of monies in it.

The case of UL –v- BK (Freezing Orders: Safeguards: Standard Examples) dealt with issues raised by the inadmissibility of documents and dealt with Imerman issues. One answer was that the wife could remember the knowledge, whilst returning the original documentation without making any copy. That knowledge would then be admissible evidence. This, of course, does lead onto the secondary issues of questioning recollection and a persistent or intransigent maintenance of innocence on the part of the alleged non-discloser.

It has been suggested that in the less mighty cases before the court, where the monies are not so great in quantum but perhaps the stakes are higher, that the understood and old Hildebrand attitude would be continued. But, that is to suggest that the Imerman principles only applied in cases of great wealth. An oddity and contradiction is created. It was not the purpose of either Sharland or Gohil to rectify that practical and every day problem.

However, Lady Hale in Sharland sets out quite clearly that “the general principal that fraud unravels all” is no less applicable to matrimonial Court Orders than to Contracts, which is governed by a separate set of procedural rules. The case of Livesey (1985) was heavily used within the Sharland case.

Lady Hale went onto emphasise the following:-

“There are processes, both within the procedures of the family Court and independent of them, for helping the parties to reach agreement on the practical consequences of the breakdown of their relationship.”

“It has long been possible for married couple to make a binding agreement about the financial consequences for their present position. However, it is not possible for such an agreement to oust the jurisdiction of the Court to make orders about their financial arrangements. This was a rule of public policy, because of the public interest ensuring that proper division is made for dependent family members.”

Lady continued later in her judgement:-

“Thus it is impossible for the parties to oust the jurisdiction of the Court, but the Court also possesses powers to achieve finality (a “clean break”) in the parties financial arrangements which the parties cannot achieve for themselves.”

“….The Court conducts an independent assessment to enable it to discharge its statutory function to make such orders as reflected in the criteria listed in Section 25 of the Matrimonial Causes Act 1973 as amended.”

“….Allied to the Court’s responsibility to safeguard both the parties’ and the public interest is the parties’ duty to make full and frank disclosure of all relevant information to one another and to the Court.”

 Lady Hale highlighted that the crux of the issue is that family proceedings are different from ordinary civil proceedings in two respects:-

“First, in family proceedings it has been clear …. that a Consent Order derives its authority from the Court and not from the consent of the parties, whereas in ordinary civil proceedings a Consent Order derives its authority from the contract between the parties. Second, in family proceedings, there is also a duty of full and frank disclosure, whereas in civil proceedings this is not universal.”

Lady Hale then provided an analysis of existing caselaw and expressed that:-

“Matrimonial cases were different from ordinary civil cases in that the binding effect of a settlement embodied in the Consent Order stems from the Court’s order and not from the prior agreement of the parties.” But, then emphasised that “the Court cannot make a Consent Order without the valid consent of the parties. If there is a reason which vitiates the parties consent then there may also be good reason to set aside the Consent Order. The only question is whether the Court has any choice in the matter.”

Lady Hale confirmed that “at Common law, the general effect of any misrepresentation, whether fraudulent, negligent or innocent, or of non-disclosure where there was a duty to disclose, was to render a contract voidable at the instance of a party who had thereby been induced to enter it.”

Then Lady Hale posed upon the crux;-

“It would be extraordinary if the victim of a fraudulent misrepresentation, which had led her to compromise her claim to financial remedies in a matrimonial case, were in a worse position than the victim of a fraudulent misrepresentation in an ordinary contract case, including contract to settle a civil claim …”

The consequence was set out:-

“…a party who has practised deception with a view to a particular end, which has been attained by it, cannot be allowed to deny its materiality. Furthermore, the Court is in position to protect the victim from the deception, or to conduct its statutory duties properly, because the Court too has been deceived.”

Even when a deception has been discovered there is always the query as to whether it would make any difference and cause a different outcome had it been known beforehand. Lady Hale was clear:- “the burden of satisfying the Court of that must lie with the perpetrator of the fraud. It was wrong in this case to place upon the victim the burden of showing that it would have made a difference.”

The Supreme Court has not set out anything groundbreaking. It has, in many ways, merely confirmed that fraud ought to unravel all – otherwise justice cannot prevail.

However, what this does do is send out a clear message to everyone – the judiciary, the lawyers and the people separating. There has to be full, frank and open disclosure. That non disclosure is a fraud.

There is a presumption that fraud, once proven, upsets and negates any consent given by a party and/or undermines the Court Order.

There is a presumption that the fraud is material unless the perpetrator can prove otherwise.

This focus upon the consequences of non-disclosure goes to emphasising the duty for full and frank disclosure throughout. That the non-disclosure ought to be brought to the attention of the Court at the first opportunity. That the Court itself ought to take heed of non-disclosure. Perhaps to do otherwise could “aggravate the emotions within the family” and upset the purpose to find a level playing field.

It is pertinent that Lady Hale said, directly under heading ‘Settling Matrimonial Claims’:_

“It is in everyone’s interest that matrimonial claims should be settled by agreement rather than by an adversarial battle in Court. The financial resources of the family are not whittled away by the often substantial legal costs involved. The emotional resources of the family are not concentrated on conflict. The future relationship between the adult parties is not soured, or further soured, by that conflict. This is not only good for them but also for their children, whatever their ages, and for the wider family. It is for these reasons that there are processes, both within the procedures of the family Court and independent of them, for helping the parties to reach agreement on the practical consequences of the breakdown of their relationship.”