The impact of non-disclosure and misconduct in financial remedy proceedings

As family law professionals we well know, divorce and separation are rarely entirely smooth sailing. Division of assets, child arrangements, and the breakdown of a relationship can cause heightened emotions, leading to tensions and disagreements. As a result, in some cases, one or both parties can behave poorly during proceedings, for example lying or intentionally misleading the court, failing to produce requested evidence and missing deadlines.

Although historically, the family courts have been rather reticent to impose cost sanctions to punish litigation misconduct, the updated FPR rules have increased court powers to make costs orders against parties who behave poorly.

Over the past eight months since the change in April 2024, there have been several examples of the court’s new robust approach to cost sanctions, both for failure to engage in NCDR but also for pursuit of flawed arguments or misconduct in proceedings. Notably, Helliwell v Entwistle [2024] EWHC 1298 (Fam), where the court ordered the respondent Husband to pay the applicant Wife £75,000 towards her costs, for overblowing his claims and pursuing a case against a prenuptial agreement that he had signed willingly, having received independent legal advice.

In family law proceedings, each party is generally responsible for their own costs. However, cost sanctions are applied to penalise poor behaviour or non-compliance, so one party pays the other a set amount to cover or contribute to their costs.

A reported judgment was recently handed down, where the authors instructed Philip Perrins, Barrister at 1GC Family, representing the applicant Wife in a divorce and financial remedies case. This was an interesting example of how cost orders are imposed within a needs case.

In NW v BH [2024] EWFC 118 (B), the parties had been married for three years, having cohabited for ten years prior. At the time of the final hearing, three of their four children were dependent minors. During the marriage, the couple had lived in four houses, and had been in receipt of financial and legal assistance from both sets of parents in the form of loans when the Husband’s business ventures were in trouble. The Husband also received inheritance upon the death of his father during the marriage.

There were further complicating factors in addition to alleged loans and inheritance, including the business interests, third-party interests and property valuation disputes. Importantly, the Husband’s repeated non-disclosure, refusal to cooperate with proceedings and intervention of his mother in his defence added layers of complexity which significantly and unnecessarily increased the costs in the case.

NW v BH was a needs case, as although there appeared to be a number of assets, primarily in the form of businesses, there was minimal liquid capital available to rehouse each party and the dependent children. The court’s main aim was to ensure financial stability for both, and for the children. The marriage ended on bad terms, and there were several Children Act as well as Family Law proceedings. The Wife fled the family home with the children and was then refused re-entry by the Husband.

The Judge, Recorder Rhys Taylor, awarded each party their respective business interests, although the Wife transferred her interest in the property business. Pending sale, the Wife was given full control of the family home and ownership over the sale. The Husband is to receive £100,000 of net proceeds from sale. The overall division amounted to 75.76% to the Wife and 24.4% to the Husband.

The Judge questioned the Husband’s evidence, also noting a lack of compliance, particularly in regard to statements of truth which are required under the FPR. There were multiple examples of non-disclosure, which allowed the court under NG v SG (Appeal: Non-disclosure) [2011] EWHC 3270 to make adverse inferences about assets, including that there may have been hidden assets, or the Husband’s documentation was wilfully misleading.

As a result, he was stung with a costs order amounting to £20,000.

It must be noted, however, that this was a limited sanction, because the case was needs based and the Judge had a duty to provide for both parties.

This is not the first, nor will it be the last, example of how misconduct in financial proceedings can impact. Family practitioners should be aware of the changes and movement in the justice system and make clients aware of the impact that hiding assets, intentionally misleading the courts, or non-disclosure can have. This should be done from the outset of a case.

It is preferable, where possible, for divorce and separation disputes to be resolved outside of the court process, using NCDR methods such as mediation or collaborative divorce. Clients should be made aware that court is a last resort. However, through the stages of financial disclosure and negotiation, full and frank information must be provided, otherwise parties risk either an unfair settlement, or being penalised by the court.

Siobhan Vegh and Natalie Nero are Senior Associates, and Rebecca Sutton is a Solicitor, all at Stowe Family Law