Richard Adams looks at the adjournment of capital claims in financial proceedings and the need for practitioners to be alert to potentially fabricated disclosure
The thorny issue of whether it is appropriate to adjourn a spouse’s capital claims was considered by HHJ Hess in X & Y [2022], where he was faced with a husband whose approach to the proceedings and disclosure was obstructive and unreliable (including documents that were likely to have been forged) to the extent that it was not clear whether the husband’s wealth (para 18(vii)):
… always was something of a deceptive fiction or [that he] might be doing the same now in the opposite direction?
Background
The husband, a litigant in person, was aged 50 and a foreign national. He had had a successful career as a ‘tech entrepreneur’ in the computer games industry. The wife was aged 40 and from a different overseas country. The parties met in November 2001, when the wife was 19. They became engaged in February 2002, began cohabiting in April 2002 and married on 20 June 2002. There were two children of the marriage, aged 19 and 15. Both had developed health problems with chronic fatigue syndrome (ME), the eldest being housebound for most of the time and requiring a huge amount of care from the wife, with little hope of improvement. The contact between the children and their father was limited. The wife was their primary carer and so taking employment was particularly challenging, if not impossible.
The parties lived together in rental accommodation in the husband’s home country from April 2002 to January 2015, but the evidence suggested they had lived life at a reasonably high level and spent a lot of money on daily living. The husband then wished to move to London and the wife was reluctant but was informed by the husband that if they did so, they would be financially successful. He told her that another company wished to buy his company for £80m and produced to her what appeared to be a legitimate draft sale contract to that effect. He provided the wife with what appeared to be a genuine bank statement which seemed to record that somebody had made a down payment of £8m on this contract and that these funds were in the husband’s possession. As a result, the family moved to London in January 2015, where they continued to live a good lifestyle, including renting a £10,250 per month property in Wimbledon Village, good holidays and private education for both children.
In March 2018, the marriage broke down and the husband left the family home. Shortly thereafter, the wife and children had to leave as well as the husband had stopped paying the rent, as well as the school fees, leading to the children’s exclusion in May 2019.
Proceedings
Divorce proceedings were commenced by the wife in December 2018 and she issued a financial application in Form A in December 2019. The husband’s approach to the proceedings was highly obstructive. The first appointment was adjourned three times due to the husband failing to provide his Form E and the financial dispute resolution (FDR) appointment was also adjourned, and then relisted for a final hearing, for similar reasons. The three-day final hearing before HHJ Hess concluded in July 2022.
The FDR appointment was also adjourned due to the husband’s defective engagement and eventually dispensed with, and a two-day final hearing was listed for April 2022. That was subsequently adjourned when it became clear that it was necessary that some third-party financial disclosure would be required from banks associated with the husband’s business, the hearing finally concluding after a third day in July 2022.
Credibility
HHJ Hess began, unusually, by assessing the respective reliability and credibility of the parties. He found that the wife had been overwhelmingly clear and reliable in her presentation and disclosure. However, he reached a quite different conclusion as to the husband.
While the judge found the husband to be a highly intelligent person, he noted that he only sometimes, and then partially, co-operated with directions orders, as well as being evasive and obstructive in answering questions, often going off on tangents. Further, when presented with evidence obtained by the wife from the internet (such as pictures of the husband on his social media accounts enjoying apparently expensive activities), the husband said that he had deliberately photoshopped these images.
A significant issue was the veracity of the bank statement and sale contract given to the wife in 2015. The husband maintained these documents were genuine. However, genuine bank statements for the same period were disclosed and a number of transactions, including the £8m credit, did not appear. The husband suggested that the monies were later returned to the prospective purchaser and so would legitimately cease to appear, although HHJ Hess rejected that explanation. HHJ Hess therefore found that no payment had been made.
His overall view was that the husband was dishonest and unreliable and that everything the husband said should be treated with a great deal of caution.
Financial positions
The wife’s financial position was very straightforward but also very poor. She had virtually no assets and significant commercial debts of over £300,000, some of which were borrowed by her to lend to the husband. She relied entirely on UK state benefits to fund her living, and it was difficult to see how she could improve her position in the foreseeable future.
The husband’s financial position was more difficult to assess. He claimed he had no income or assets at all and debts in the region of £2m (half of which were tax debts owed to his native government), that he had been formally declared bankrupt in his home country and that he had to either stay at his mother’s house or live on the streets.
He claimed that the prospective purchase of his business, while genuine, felt apart after due diligence was conducted and the downpayment had to be returned. He said after that, the value of his company depreciated and was worthless.
According to the husband, his native tax authorities were able to raise an advance tax bill of approximately £1m against the possible future income from the sale of the company. The husband produced documents purporting to be from the relevant authorities, although again HHJ Hess had doubts as to the veracity. The husband claimed that another business he had been involved in recently was worthless, although this was in marked contrast to an internet post by the husband in 2020 in which he asserted that he had grown the company’s turnover to £2m annually.
Despite the husband’s claimed financial situation, his bank statements showed significant transactions and transfers of money, including to his girlfriend and to fund spending in South America, where he spent a significant amount of time.
He said that he had been trying to find work as a chief technical officer earning £90,000 pa but had not been successful. Evidence presented by the wife suggested his realistic earning capacity as a chief technical officer would be more in the region of £300,000 pa.
HHJ Hess therefore found that the true financial position was difficult to assess. This inevitably led to a change in the wife’s position. She had initially sought a lump sum of £6,881,000 to meet her housing and other capital needs together with capitalised maintenance. However, as a result of the complete failure of the husband to be transparent and clear in the proceedings, the wife asked to adjust her capital claims on the basis that it may well be that she would have to restore the matter to court in future.
Discussion
HHJ Hess therefore needed to address the question of whether it was appropriate to adjourn the wife’s capital claims and engaged in an analysis of the authorities on the subject. His starting point was that it is the normal practice in financial remedy cases for the court to decide at a final hearing, on the balance of probabilities, the computation of assets and then make a once and for all division of capital. This practice reflects the established policy of the courts, such as that articulated by the House of Lords by Lord Scarman in Minton v Minton [1979] when he said (at p608):
An object of modern law is to encourage [the parties] to put the past behind them and to begin a new life which is not overshadowed by the relationship which has broken down.
However, there are a number of authorities which justify a departure from this. The earlier cases suggest that an adjournment of capital claims should only be granted where there is a real possibility of capital from a specific source becoming available in the near future (see Bracewell J in MT v MT [1992]).
More recent authorities (Roberts J in AW v AH [2020], Mostyn J in Quan v Bray [2018] and Sir Peter Singer in Joy v Joy-Morancho (No 3) [2015]) were of assistance in illustrating that the justification of a departure from normal practice does not necessarily need to include a real possibility of capital from a specific source becoming available in the near future, as fairness and justice must prevail over the normal desirability of the finality of litigation.
MT v MT (Financial Provision: Lump Sum)
In MT v MT, the husband was entitled by law to one eighth of the considerable wealth of his 83-year-old German father. The parties had always anticipated this prospect. Bracewell J conducted an analysis of the authorities and noted that the courts had considered the meaning of the requirement for the court to have regard to the financial resources each party was likely to have in the foreseeable future.
In some cases, the foreseeable future was viewed as relatively short periods of four to five years, in others specified proportions of sums were to be paid for periods of up to ten years and in others the claims were adjourned to prevent injustice. In MT v MT the claims were adjourned until the death of the husband’s father.
AW v AH
In this case there appeared to be limited assets, but the husband had made substantial use of corporate nominate holdings and may have had beneficial ownership of value in various companies in respect of which he had operational control. It was held that it would be wholly unfair to leave the wife with next to nothing where, on the husband’s own case, there was the possibility of improving his finances in the future, and so the claims were adjourned for seven years until the husband was age 70.
Joy v Joy-Morancho
Here, the bulk of the parties’ wealth originated from operations conducted through an offshore trust set up before the marriage. The husband claimed he was excluded from the trust and that it was not a resource. Singer J found the husband’s conduct within the proceedings amounted to blatant dishonesty and that it was foreseeable he would be entitled to further funds in the future. This was a hard case in which fairness and injustice justified the adjournment of the wife’s capital claims taking priority.
Quan v Bray
In Quan, the husband was employed by a charitable trust with considerable assets and was found to have the capacity to earn significant financial rewards in the future. Due to the husband’s approach which Mostyn J termed ‘brazen nondisclosure, coupled with his arrogant and contemptuous attitude’ (para 39), the wife’s capital claims were adjourned indefinitely as it was considered foreseeable that the husband would accumulate sufficient sums to make a capital settlement for the wife.
In X & Y, HHJ Hess summarised (at para 19(v)) the principles that emerged from the above cases as follows:
If a litigant engages in conduct, which may include full or partial non-disclosure, which causes the court to conclude that a once-off division of capital now is likely to cause unfairness and injustice to the other party then the court, in exception to the normal practice, has a discretion to decide that the normal desirability of finality in litigation should be overridden to preserve the possibility of a fair outcome for the parties.
HHJ Hess found that the present case met that test. If he dismissed the wife’s claims now because she had not been able to establish the existence of assets which, if the husband had given proper disclosure, might have been established, and which would leave the wife in considerable debt and in a country to which she was tricked to moving, then he may well be doing her a considerable injustice. In reaching that conclusion, he bore in mind the financial needs, obligations and responsibilities the parties were likely to have in the foreseeable future.
HHJ Hess considered whether there should be a limit on the length of the adjournment, and adjourned the application for a ten-year period, to balance his wish to give the wife an opportunity for a fair chance at receiving some capital provision and the interest in the finality of litigation. The question of costs was also adjourned for the same period.
He also ordered periodical payments of £5,000 per month to the wife and children taking into account the husband’s realistic earning capacity as a chief technical officer.
Suspicious disclosure
HHJ Hess also wished his judgment to be published to draw wider attention to the ability of dishonest parties to manufacture bank statements and other documents which, for all practical purposes, look genuine but which are in reality not in that category. Such issues are being considered by the Judicial Digital Steering Committee. In the interim practitioners should be mindful of the need to verify documents where there are inaccuracies or inconsistencies and in some cases independent third-party verification will be required.