US v SR

In financial remedy proceedings, deliberate non-disclosure and lies may justify adverse inferences, but they do not automatically establish the existence or value of further hidden assets. The applicant retains the burden of proving the resources available, although the court may draw reasonable inferences from admissible evidence, lifestyle, business activity and the circumstances of the non-disclosure.

Notional reattribution requires clear evidence of wanton dissipation or disposal intended to defeat the other spouse’s claim. It must be approached cautiously and does not recreate cash actually available to the spouse. Litigation misconduct ordinarily affects costs, while matrimonial misconduct may affect the substantive award under Matrimonial Causes Act 1973, s 25(2)(g), where it would be inequitable to disregard it.

The parties had been married since 2000 and had three children. Their cross-applications for financial remedies followed a highly contentious breakdown involving Russian and English property, extensive allegations of non-disclosure, and substantial litigation costs.

The Wife alleged that the Husband continued to conceal income and assets after admitting that he had hidden offshore earnings and fabricated financial documents. The Husband alleged that the Wife had disposed of Russian properties without authority, at substantial undervalues, and had dissipated the proceeds.

The hearing was confined principally to fact-finding on the parties’ assets, alleged non-disclosure and whether sums should be notionally reattributed to the Wife before the distribution stage.

1. Adverse inferences and non-disclosure. The court applied the civil standard of proof. The Husband’s admitted lies were deliberate and serious, but they did not by themselves establish that he continued to hold undisclosed assets. An adverse inference required a proper evidential foundation and had to be reasonable and based on admissible evidence. The court found that the Husband had ultimately given a full account of his assets and rejected the Wife’s case that he retained further substantial property, shares or income.
2. The court adopted the structured approach summarised in NG v SG: the court must consider adverse inferences where disclosure is materially deficient, but must avoid speculation; if hidden funds are found, they should be quantified realistically; direct evidence should be considered first, followed by business activity and lifestyle. The court also applied the caution in Prest v Petrodel Resources Ltd that silence or non-disclosure requires a reasonable evidential hypothesis before useful inferences can be drawn.
3. Types of adverse inference. The court distinguished a finding that assets actually exist and are available from notional reattribution, which treats a dissipated or undervalued asset as notionally retained for distribution purposes. The latter is a fiction and does not make unavailable funds available to meet future needs.
4. Conduct. Matrimonial misconduct and litigation misconduct attract different consequences. Matrimonial misconduct may affect the substantive award under Matrimonial Causes Act 1973, s 25(2)(g), where it would be inequitable to disregard it. Litigation misconduct, including defective disclosure, ordinarily sounds in costs. Only in rare cases will litigation misconduct involving the destruction of assets affect quantification.
5. Reattribution. Applying Norris v Norris, Vaughan v Vaughan and N v F, the court required clear evidence of wanton dissipation or a disposal intended to defeat the other spouse’s claim. The Wife’s sale of Property B at a very substantial undervalue was wanton and reckless. The court therefore offered a notional reattribution of £1 million, representing the approximate headline undervalue. It did not reattribute the proceeds of Property K or the garage because the evidence did not establish that the expenditure was wanton or reckless.
6. The court rejected the contention that the property transactions were shams. A spouse seeking to extend a financial claim to assets held by another person must identify a proper legal basis for doing so; artificial or questionable arrangements alone are insufficient.
7. Costs were reserved for further submissions. The application concerning the order for sale of Property R was not determined within the fact-finding exercise.

First-instance fact-finding judgment in cross-applications for financial remedy orders. The court deferred the final distribution and costs decisions.