Is the Family Court doing enough to discourage non-disclosure and are the penalties sufficient for those who blatantly flout the rules?
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If you have not heard about
the case of Petrodel Resources Ltd& Ors v Prest & Ors then you must have been living under a family
law rock! It is not often that such a
case causes such a divide within the judiciary and touches on everything from
the fundamentals of company law to division of assets on divorce. I’d better give a (very) brief
summary of the facts for the benefit of those under-rock-dwellers before I go
any further:
The
husband, Mr Prest, was appealing
the decision of Mostyn J who had ordered that various UK properties
owned by a
company, of which the husband had complete control and was the sole
shareholder, be transferred to the wife as part of the divorce settlement. The Court of Appeal upheld the
husband’s appeal 2 to 1 with Thorpe LJ dissenting on the grounds that
the company, and not the husband,
owned the properties and so they could not be considered part of the matrimonial pot.
The full Court of Appeal judgement can be viewed here.
There is very little parity between the reasoning
of Thorpe LJ and Rimer LJ, with each Lord Justice sticking to their judicial
guns and coming to completely dichotic conclusions. So who is right? Well, that is a question that the Supreme
Court will no doubt consider and family lawyers will be waiting with cautious
anticipation for the answer.
One item that was not in
dispute between the judges was the lack of financial disclosure provided by the husband. This was summarised by Mostyn J
at first instance:
“I have sought to make sense of the
husband's factual case. Ultimately I have decided that this has been a vain
task because the husband has failed so comprehensively to comply with his
obligation to provide full and frank disclosure...”(para 12)
Whilst this lack of
financial disclosure allowed for adverse inferences to be drawn, it did not
provide a route to the impropriety necessary to pierce the corporate veil and
get to the assets which were tied up in the company. This left the family judges (Mostyn J at
first instance and Thorpe LJ in the Court of Appeal) reaching for a way to
implement a fair outcome whilst arguably stretching their powers under s.24 (1) of the MCA 1973 while the commercial lawyers applied the less flexible company law to the scenario.
There has been plenty of discussion about
the impact this decision may have on the way in which family law is practiced and I do not intend to add further
to that particular debate at the moment. I want to consider what the Family Court can do to encourage full and frank financial disclosure and penalise
those who willfully disregard that obligation.
The duty to provide full and
frank disclosure is an inherent part of UK family law and is set
out in the pre-action protocol annexed to Practice Direction 9A – Application for a Financial Remedy of the FPR 2010. If a party fails to provide such disclosure, particularly
if they have been specifically ordered to do so by the Court, then in addition
to adverse inferences being drawn, that party could also face imprisonment, a
fine, a costs order against them, inability to proceed with their application (Hadkinson
Orders) or they might even face criminal consequences under the Fraud Act 2006.
These are serious penalties which family
solicitors are obliged to inform their clients of at the outset of proceedings.
But are they enough of a deterrent for people like Mr Prest who viewed the
proceedings as“a game in which he has sought to manipulate the process to his
advantage” (see Thorpe LJ's judgement para 28).
Committal Proceedings are
generally considered a last resort and there can be a great deal of disregard for court
orders before the family court deploys those particular teeth, after all you are talking about taking away someone's liberty. But the Family
Court has not shied away from using the threat of such a penalty in extreme cases. Recent instances include property tycoon Scot Young
who was ordered to explain the vanishing of his vast fortune (which occurred
suspiciously at around the same time that his wife asked for a divorce) or face
a prison sentence. The recently reported Winter v Winter also involved committal
proceedings for willful breach of a Court Order to bring funds into this jurisdiction. In that case, Mrs Justice Baron said of the husband’s approach
to the proceedings “the time has come to put an end to his disrespectful
approach to a court of law. Courts are not toothless bodies. They make orders
in order to regulate positions between human being so that society may work in
a proper fashion.”
But is this enough to discourage those who see the family court as something to play with while tormenting their former spouse or should the family judges be quicker to show their teeth when they
are faced with someone who obviously has no interest in playing by the rules.
What is your experience of the Family Court with non-disclosure and/or failure to comply with Court orders? Don't forget to vote in the poll on the right!
What is your experience of the Family Court with non-disclosure and/or failure to comply with Court orders? Don't forget to vote in the poll on the right!
