Key principles of non-disclosure of assets

A recent decision in Goddard-Watts v Goddard Watts [2023] EWCA Civ 115 has allowed the wife’s appeal against a divorce settlement on the basis of fraudulent non-disclosure, providing key insight into the court’s view of the effects of such dishonesty.

Agreeing with the wife’s contention that she could not receive a fair resolution of her claim without a root and branch investigation of all financial matters de novo, the court held that the husband’s material non-disclosure required the ‘entire financial landscape to be considered completely anew.’

This judgment is the latest in a long-running dispute between the parties, which began after the wife (W) challenged the original settlement agreed in 2010 following the couple’s separation and divorce. Judges had on two previous occasions agreed that the husband (H) had wilfully deceived W when negotiating the settlement, by misrepresenting his assets as well as by failing to make appropriate disclosure of likely significant capital accumulations in the foreseeable future.

In 2009, H’s solicitors wrote to W’s solicitors stating that neither H nor W were beneficiaries of the family trusts, which were of considerable value. Therefore the, trusts fell outside the scope of settlement negotiations. In 2014, W discovered that H was indeed a beneficiary of the trusts, and that he had received payments from the trusts of almost £8 million. W made applications to set aside the original consent order on the basis that H’s fraudulent non-disclosure had denied her a fair divorce settlement.

When the case was heard in 2016, the judge ordered the original settlement to be set aside. During the hearing, however, H again withheld key financial information about his company, leading the judge to believe that the company was worth far less than its true valuation. As a result, the new financial relief order was similarly tainted by fraud. W brought proceedings to seek it to be set aside, and for a third determination of the wife’s claim to be made.

Kingdon approach

Following the 2022 judgment of the case, the wife argued that the judge’s adoption of a ‘Kingdon approach’ when determining the third relief order denied her a fair hearing, and this formed the basis of her appeal against the ruling. In Kingdon v Kingdon [2010] EWCA Civ 1251, the judge held that the husband’s non-disclosure of assets to his wife prior to making a consent financial relief order was a material failing. However, the court determined that it was unnecessary and inappropriate to set aside the whole of the order and to direct a full rehearing of the wife’s application. Instead, the wife was awarded an additional lump sum to represent her interest in the non-disclosed assets.

In Goddard-Watts, however, the wife successfully argued that the husband’s persistent and wilful deception tainted the original consent order in its entirety, and that a full hearing was required to reassess every aspect of the husband’s finances. However, when sending the case up for appeal, the court noted that she based her decision on the wife not having thus far been allowed to ‘air her claim in the full knowledge of the disclosable facts’, rather than on the basis that the wife would ‘necessarily achieve a greater award’ at appeal.

While there have been a number of recent cases about the effect of fraud on overturning judgments, there is little authority on how to resolve a case once a judgment has been overturned.

The case reinforces the position that the court has ultimate discretion over which approach to take. While the previous authority had only allowed part of the case to be re-examined, the court’s decision to grant the appeal allows a full and frank reassessment of the entire case, which it deemed the fairest way to remedy the husband’s fraud.

Potential issues

There are nonetheless inherent problems which can arise from sending the case to a rehearing. The case may not be listed for many months, by which time the parties’ financial situations may have radically changed. A root and branch investigation also carries significant cost implications, not to mention the emotional burden of preparing for, and attending, the hearing. In this case, the wife – who the court noted was ‘understandably weary of this litigation’ – had sought an award of £13.4 million plus costs from the husband as an alternative way to resolve the dispute. However, the judge believed a restored hearing was the only way to proceed, since such an award would require detailed scrutiny which was not in a proportionate timeframe for the Court of Appeal to make, nor would dealing with the award summarily be appropriate or fair to the husband.

The court also emphasised the difference between the family court and the civil court when making its judgment. This was a noteworthy position to take when viewed against the backdrop of recent years, during which family courts have imported judges from other branches who have sought to stamp out those family law rules which differ from rules in other courts. One such example of this is the court’s refusal to pierce the corporate veil when hearing divorce cases, bringing family law in line with commercial law overturning a long held controversial family law position.

In this case, the court highlighted the difference between family proceedings and ordinary civil proceedings, noting that ‘in applications for financial orders there is no such separation as exists in civil proceedings between issues of liability and those of quantum’. This point was one of several used by the court when rejecting the wife’s arguments that a Supreme Court decision in a commercial case, Takhar v Gracefield Developments [2019] UKSC 13, should have been applied by the previous judge in lieu of a Kingdon Approach.

However, the court noted that the exact approach which had been taken by the first instance judge in Kingdon v Kingdon should not be unduly elevated, and that the Kingdon approach should be viewed as authority that the court retains a wide flexibility to adapt or ‘enable the procedure to fit the case’. On that basis, the court declined the wife’s invitation to issues guidelines for when the Kingdon approach was or was not applicable on a restored application after set aside on the basis of fraudulent non-disclosure. Instead, the court sought solely to answer the question of whether the Kingdon approach was appropriate in this case.

Key considerations

The court found that the husband’s fraudulent non-disclosure at the hearing in 2016, especially when viewed in the context of his previous fraudulent non-disclosures, was so far reaching that it positively required the previous judge to consider the entire financial landscape afresh. The court found that the judge had been wrong to determine the wife’s application by segregation of the capital award agreed in 2010 and confirmed in 2016, and found that the judge had ‘erred’ by adopting the Kingdon approach.

A key argument of the wife’s appeal was her contention that judicial statements at the highest level endorsed the concept that fraud unravels all, noting Lord Brunswick’s declaration in Hip Foong Hong v H Neroira & Co [1918] UKPC 65 that ‘a judgment that is tainted and affected by fraudulent conduct is tainted throughout…’. However, the court cautioned against application of the mantra in this case, noting that fraud does not necessarily unravel all, although it maintained that the husband’s fraudulent behaviour was in any event sufficient reason to require a rehearing of the case in its entirety.

Alex Carruthers is a partner at Hughes Fowler Carruthers hfclaw.com