28 May 2020 - Article
This article explores the law of adverse inference following the Court of Appeal’s decision Mahon v Mahon  EWCA Civ 901 Mummery LJ, Wilson LJ Withers LLP acted for the wife in her application for ancillary relief in the Family Division of the High Court. The substantive hearing of the application took place over four days with the husband appearing in person. Bodey J awarded the wife approximately £9m from a schedule of the parties’ visible assets amounting to £10.5m. The husband was found to have substantial assets which he dishonestly refused to disclose during the course of the protracted litigation which supported a finding of adverse inference against him. The husband applied to the Court of Appeal for permission to appeal; the thrust of his appeal being that this award was plainly excessive. The husband’s application for permission to appeal was refused.
The wife originated from South Africa and although the husband also had British nationality, he was primarily South African. They married in South Africa in 1983 when the parties were 23 and 26 respectively. They had three children before moving to England in 1996 where they remained until the breakdown of their marriage in 2006. At this point the husband immediately returned to live in South Africa. By the time of the final hearing of the wife’s application the children were aged 23, 19 and 12.
The husband was a qualified lawyer and an entrepreneur. The Court of Appeal described him as well versed in finance. During the marriage he was heavily involved in the promotion and organisation of a high profile annual football tournament between the states of South Africa and the proceeds of this venture allowed the family to enjoy a very comfortable lifestyle, the wife remaining at home to raise the children.
In the High Court proceedings, the husband disobeyed numerous directions for financial disclosure, served two inconsistent versions of the requisite statement of his financial resources, and frustrated the attempts of the wife’s forensic accountant to present to the court an analysis of his financial circumstances. The wife was forced to rely on a number of Hildebrand documents to try and paint a broad brush picture of the parties’ finances. Counsel for the wife told the Judge that the asset schedule which he had produced was not worth the paper upon which it was written. The husband repeatedly told the wife that none of his assets could be traced to him and in evidence, justified his comment to the wife that the parties were worth “50-60 million” as a reference to South African Rand. This would have put the parties’ wealth at approximately £3.5million. The Court of Appeal observed that this was absurd.
The husband adopted a tactic of trying to pressurise his wife into early submission. The first hurdle in the proceedings was his challenge in March 2006 to the jurisdiction of the English Court on the basis that the wife was not habitually resident in England. He issued rival proceedings in South Africa only to pull the plug on his application days before the stay application was due to be heard by the English Court. Later in 2006, the husband arranged for the wife’s Ferrari to be taken away and shipped to South Africa without her knowledge, ceased paying all of the outgoings on the family home lived in by the wife and two of the children and at different, particularly fragile points in the proceedings, threatened to seek residence of the parties’ youngest child.
The wife’s award of £9m was made up of the £400,000 net capital in her own name, the transfer of the parties’ jointly owned former matrimonial home (worth approximately £3 million gross) into the wife’s sole name and a lump sum of £5.5 million. The husband accepted in the Court of Appeal that the presentation of his finances in the High Court was abysmal but argued that it was unfair for the Judge to infer from this conduct that he had such significant further resources to make it appropriate for his wife to exit the marriage with an overall award of £9m.
The law of adverse inferences
Standard of Proof
Whilst a spouse’s financial disclosure may be far from complete, utterly misrepresentative and/or present a tissue of falsehoods, the starting point in law still has to be evidence. In Al-Khatib v Masry  1 FLR 1053 Munby J confirmed that an accumulation of anecdotal evidence, insubstantial material and suspicion cannot be elevated in status to proof. There has to be sufficient material upon which the court can properly make a finding based on inferences.
The Court of Appeal (Butler-Sloss LJ and Otton LJ) in Baker v Baker  2 FLR 829 tackled the standard of proof to be applied in cases of non-disclosure. Whilst it is for the applicant to prove his or her case, it is for the respondent to the application to provide the court with the relevant information; without this the court cannot properly exercise its discretion. The husband in this case had argued that in cases of material non-disclosure, there is a higher duty of proving the case placed upon the applicant than the standard balance of probabilities. He argued that the court was not justified in drawing inferences adverse to the husband in the absence of proof that the existence of those assets was to be sufficient to meet the seriousness of the allegations made.
The Court of Appeal distinguished between the standard of proof required to prove a fraud as opposed to that required to infer the existence and amount of assets which a spouse declines to reveal to the Court. The latter being reprehensible but not in the same class of case as the former. The husband was not being accused of fraud and therefore it was right that the Judge at first instance evaluated his assets on a balance of probabilities.
Quantifying the hidden assets
In Mahon the husband sought to rely on Munby J in Al-Khatib for the proposition that a judge has to go beyond a finding that there are hidden resources and to attempt to quantify them to be satisfied that they exist at such a level to justify the award which he is making. The wife in Al-Khatib sought assets of over £23m from the total family wealth which she asserted to be in excess of $200m. Munby J concluded that the husband had not made full and frank disclosure and without hesitation found him to be in flagrant contempt of court. The husband was pleading poverty against a financial landscape including 27 bank accounts in Switzerland, 11 motorcars including a Rolls Royce, 3 Mercedes and a Cadillac and on his own evidence alone, 4 properties. The husband admitted an annual income of £120,000 against living expenses for him and the children of £303,115. The Judge held that whilst this backdrop invited a degree of scepticism, the husband’s financial disclosure justified a much more damning finding. In light of the husband’s serious and persistent litigation misconduct, it was held that whilst the material before the court did not justify a finding that the husband was worth $200m, it did justify a finding that the full extent of the family’s assets was comfortably in excess of £50m and probably significantly more. The judge held that whilst the true extent of the husband’s wealth would remain unknown behind a labyrinth of offshore structures, any unfairness occasioned by the court’s imprecise assessment of the extent of the resources should fall on the delinquent rather than the innocent party.
A very similar scenario had occurred in Baker where the husband on Appeal had criticised the judge at first instance for making an order for a lump sum of £160,000 without any evidence that there were assets to justify such an order. The wife had not satisfied the judge that the husband was worth millions although he was satisfied that the husband was worth enough to meet the wife’s claim. Butler-Sloss LJ (as she then was) agreed with the judge’s approach that if a court finds that a husband has lied about his means, lied about other material issues, withheld documents and failed to give full and frank disclosure, it is open to the court to find that beneath the false presentation, and the reasons for it, are undisclosed assets… if the cupboard was bare, it was in the husband’s interest to open it and display its meagre contents. To accept any alternative proposition, would make the law a cheats’ charter sending a clear message to spouses unwilling to make full and frank disclosure.
In Baker the judge was satisfied that the amount of the order was appropriate to rehouse the wife modestly and, on the basis of the assets available, in no way out of proportion. Similarly in Al-Khatib on the basis of a finding that the husband was worth at least £50million, the judge could be satisfied that the wife was receiving no more than half of the family assets in awarding her £23million. The Judge in Mahon was not afforded the relief of such a safety net and it was this that the husband sought to exploit.
Wilson LJ in Mahon held that the use of the words €˜comfortably’ and €˜significantly’ by Munby J to describe the hidden resources in Al-Khatib was just a description of the scale of the inference apt to that case. There is no proposition (as alleged by the husband) that a judge can only complete this exercise lawfully if he makes a finding of that character. It was instead obvious from the scale of the order made by Bodey J and from what he said in his judgment that had he wanted to, he could have applied either of the adverbs to the facts of this case.
The court does not need to quantify hidden resources to justify the finding made. To do so would be a contradiction in terms and would have the peculiar effect that the less which a party disclosed, the less the Judge would be entitled to draw adverse inferences. Wilson LJ supported Bodey J’s confidence that in favouring an award of £9million, he was making an award with which the husband could reasonably comply.
The English courts continue to take the robust view that to the extent that drawing an adverse inference leads to a conclusion which may be unfair or unjust, or which gives a law abiding spouse more than that person ought to be entitled to, the guilty spouse only has themselves to blame. This has to be the right approach but the inevitable second chapter to all of these tales is enforcement as Mrs Mubarak will testify. Where a spouse has spent many months, if not years, litigating against somebody who is prepared to lie and conceal both to them and the Court, it is not just sceptical to say that these same people are unlikely to be swiftly reaching for their chequebooks when it comes to pay day.
Wilson LJ reiterated that it is not the function of the family court to punish a litigant, even in cases where a spouse has displayed appalling litigation conduct. A spouse’s gross obstruction of the court’s investigative duty did not necessarily imply hidden resources but he went on to send a clear message out to all spouses contemplating dishonest or deficient financial disclosure. He warned that the legal system in England and Wales has become sophisticated in detecting and dealing with dishonest disclosure. He expressed confidence that a refusal to make clear candid and early disclosure very seldom benefits the party who adopts this strategy. Despite the most ingenious efforts of their owners to cover them up, the family Courts are uncovering assets on a daily basis. Even when not recovered, the attempt is usually so obvious as to justify an inference that they exist and that party is most likely to be faced with a costs order on an indemnity basis for any increase in the other party’s costs caused by such conduct.