The duties and obligations of financial disclosure

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The subject of disclosure is currently a hot topic in family law, particularly as a result of the impending decision of the Supreme Court in the cases of Sharland v Sharland [2014] EWCA Civ 95 and Gohil v Gohil [2014] EWCA Civ 274.

In both cases, the Supreme Court has recently been asked by Mrs Sharland and Mrs Gohil to overturn their divorce settlements on the basis that they were misled by their ex-husbands as to the extent of the wealth available. The judgments are expected to be handed down in the Autumn.

In the case of Sharland, the husband had failed to disclose, either before the final hearing or during his oral evidence, that preparations were underway for an IPO of his company (IPO is short for an initial public offering, which is when a company initially offers shares of stocks to the public). The wife compromised her claims during the course of the hearing based on the valuations of the expert accountants who were also unaware of the IPO, but sought to reopen the case when she discovered the truth. The judge refused her application concluding that the husband had been dishonest but that on the facts as they now stood he would not have made a different order. The Court of Appeal upheld the decision by a majority.

In the case of Gohil, two years after the divorce the wife found out that her husband had not fully disclosed his finances during the divorce. He was later convicted of fraud offences and jailed for 10 years. During the course of the criminal trial, further evidence of the extent of his intentional non-disclosure in the original proceedings emerged. The judge ruled that her husband had failed to properly disclose his financial circumstances and agreed to overturn the original settlement. However, her husband then took the case to the Court of Appeal which ruled in his favour. The Court of Appeal said that because the courts were not allowed to use evidence from the husband’s criminal trial, held in open court but not released by the crown prosecution service, they couldn’t therefore prove that he was being dishonest in the original proceedings.

The duty of financial disclosure is the foundation of financial remedy proceedings. The general rule is that a fair trial demands that the court makes its decision on the basis of all available relevant evidence. The duty falls on both the litigant and practitioner and it is important to understand the standards expected of both you and your lawyer and at what point the duty ceases to exist. A summary of the position is set out below.

  1. The litigant has an absolute duty to provide full, frank and clear financial disclosure whether within the context of informal and voluntary discussions and negotiations or as part of financial remedy proceedings. If a party is in breach of the duty, whether by failing to disclose certain relevant facts and circumstances or actively presenting a false case then the court may set aside the substantive financial order and make a costs order against that party. However despite Mr Sharland’s deliberate and dishonest non-disclosure the judge and subsequently the Court of Appeal, by a majority, decided not to set aside the order in the circumstances. Macur LJ pointed out that other sanctions could include a criminal prosecution or civil contempt proceedings.
  2. For a litigant, the duty of disclosure continues until the court makes a substantive order and therefore there is an obligation on the litigant to volunteer disclosure of any new information that would affect the courts exercise of its function in determining the financial provision to be made. The other party does not need to ask for it. It should be volunteered.
  3. The litigant has a duty to ensure that disclosure is up to date when trying to negotiate a financial settlement. Any material change in financial circumstances must be communicated to the other party.
  4. The litigant should not cherry pick what he or she wants to disclose – to do so is likely to result in a breach of the duty to provide full and frank disclosure.
  5. The practitioner has a duty to make an objective assessment of what information needs to be disclosed and must not allow his client to provide only such disclosure as his client thinks fit.
  6. The practitioner has a common law duty to the court to supervise and investigate the disclosure process and to see that the disclosure process has been complied with. The practitioner is required to take reasonable steps to ascertain the truth of the disclosure.
  7. If there is new information that materially affects the disclosure provided by his client then the practitioner is duty bound to let the court and other party know.
  8. Any material changes that occur after the substantive hearing and before judgment has been handed down must be disclosed. The change should be brought to the court’s attention at the earliest opportunity. If this is not done then the court may be misled into making a decision on incorrect facts. It may be that the client has a change in fortune or a run of bad luck, either way it should be disclosed so that the court has full and accurate information.
  9. If a client refuses to accept his lawyer’s advice to provide disclosure then the lawyer cannot continue to act.

If you need advice or assistance regarding a Family Law matter then please contact our Partner and Head of Divorce and Family Law, Tracey Dargan.

Please note the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.