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You are here: BAILII >> Databases >> England and Wales High Court (Family Division) Decisions >> US v SR [2014] EWHC 175 (Fam) (31 January 2014) URL: https://www.bailii.org/ew/cases/EWHC/Fam/2014/175.html Cite as: [2014] EWHC 175 (Fam) |
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FAMILY DIVISION
B e f o r e :
____________________
US | Applicant | |
and | ||
SR | Respondent |
____________________
Mr James Ewins and Miss Fitzrene Headley (instructed by Levison Meltzer Pigott) for the Respondent
Hearing dates : 14th to 25th October and 8th November 2013
____________________
Crown Copyright ©
Introduction : preliminary observations
Background
The Husband's employment history
"I found it extremely disquieting to think that someone is digging into my personal life (particularly in circumstances where I have always given full and frank disclosure within the Family Proceedings) [sic] it has been alarming to discover the extent of SR's determination to do whatever it takes to achieve her aims." (my emphasis)
The Wife's position and contribution to family life
The Law
"There are issues in the case as to the extent to which the Husband has lied to this court and/or to others. Indeed, it is part of his case that he has misled banks and individuals as to his financial circumstances in the past but he says he has told me the entire truth. First, I must decide whether or not he did deliberately tell lies. If I find that he did, I have to ask myself why he lied. The mere fact that someone tells a lie is not in itself evidence that the person concerned had undisclosed assets. An individual may lie for many reasons. They may possibly be "innocent" ones in the sense that they do not denote a false presentation of his current financial position. They may be lies to bolster a true case; or to protect someone else; or to conceal some other disreputable conduct or out of panic, distress or confusion. In this case, earlier lies may have been intended to conceal a collapsing financial empire. More recent ones may have been to conceal previous wrong doing."
"In cases of this kind, where the duty of disclosure comes to lie upon the husband; where a husband has – and his wife has not – detailed knowledge of his complex affairs; where a husband is fully capable of explaining, and has the opportunity to explain, those affairs, and where he seeks to minimise the wife's claim, that husband can hardly complain if when he leaves gaps in the court's knowledge, the court does not draw inferences in his favour. On the contrary, when he leaves a gap in such a state that to alternative inferences may be drawn, the court will normally draw the less favourable inference – especially where it seems likely that his able legal advisers would have hastened to put forward affirmatively any facts, had they existed, establishing the more favourable alternative."
"In directing myself as to the proper approach I am of the view that a petitioner who brings a claim for ancillary relief assumes the burden of proving that there are the resources available to meet her claim. In my judgment the extravagant lifestyle that was adopted during the marriage up to and after repossession of Red Lion Yard and, not unimportantly, after the breakdown of the marriage, leads me to infer that this respondent who had gone to elaborate lengths to preserve his wealth, had the means to support that lifestyle. The evidential burden now falls on him. This is not ordinary civil litigation."
Butler-Sloss LJ held that Ward J was not displacing the general duty of the applicant to prove her case. She had, in his view, prima facie discharged that duty and the husband had failed to comply with his obligation of disclosure in the particular circumstances of this type of litigation.
"There must surely be a sound evidential basis for reaching a conclusion as to the scale of undisclosed assets. The court should not be led into a knee-jerk reaction that says simply because evasiveness and opacity is demonstrated there is some vast sum salted away. This is not to say that the court has to put a precise sum on the scale of the hidden assets, let alone to identify by reference to evidence where they are or what they compromise : see Al-Khatib v Masry at para [89] and Ben Hashem v Al Shayif at para [70][4]."
"[16] Pulling the threads together it seems to me that where the court is satisfied that the disclosure given by one party has been materially deficient then:
(i) The court is duty bound to consider by the process of drawing adverse inferences whether funds have been hidden.
(ii) But such inferences must be properly drawn and reasonable. It would be wrong to draw inferences that a party has assets which, on an assessment of the evidence, the court is satisfied he has not got.
(iii) If the court concludes that funds have been hidden then it should attempt a realistic and reasonable quantification of those funds, even in the broadest terms.
(iv) In making its judgment as to quantification the court will first look to direct evidence such as documentation and observations made by the other party.
(v) The court will then look to the scale of business activities and at lifestyle.
(vi) Vague evidence of reputation or the opinions or beliefs of third parties is inadmissible in the exercise.
(vii) The Al-Khatib v Masry technique of concluding that the non-discloser must have assets of at least twice what the claimant is seeking should not be used as the sole metric of quantification.
(viii) The court must be astute to ensure that the non-discloser should not be able to procure a result from his non-disclosure better than that which would be ordered if the truth were told. If the result is an order that is unfair to the non-discloser it is better that the court should be drawn into making an order that is unfair to the claimant."`
"…. There must be a reasonable basis for some hypothesis in the evidence or the inherent probabilities, before a court can draw useful inferences from a party's failure to rebut it. For my part, I would adopt, with a modification which I shall come to, the more balanced view expressed by Lord Lowry with the support of the rest of the committee in TC Coombs & Co (A Firm) v IRC [1991] 2 AC 283, [1991] 2 WLR 682 at 300 and 696 respectively :
'In our legal system generally, the silence of one party in the face of the other party's evidence may convert that evidence into proof in relation to matters which are, or are likely to be, within the knowledge of the silent party and about which that party could be expected to give evidence. Thus, depending upon the circumstances, a prima facie case may become a strong or even an overwhelming case. But, if the silent party's failure to give evidence (or to give the necessary evidence) can be credibly explained, even if not entirely justified, the effect of his silence in favour of the other party may be either reduced or nullified.'
"[45] The modification to which I have referred concerns the drawing of adverse inferences in claims for ancillary financial relief in matrimonial proceedings, which have some important distinctive features. There is a public interest in the proper maintenance of the wife by her former husband especially (but not only) where the interests of the children are engaged. Partly for that reason, the proceedings, although in form adversarial, have a substantial inquisitorial element. The family finances will commonly have been the responsibility of the husband, so that although technically a claimant, the wife is in reality dependent on the disclosure and evidence of the husband to ascertain the extent of her proper claim. The concept of the burden of proof, which has always been one of the main factors inhibiting the drawing of adverse inferences from the absence of evidence or disclosure, cannot be applied in the same way to proceedings of this kind as it is in ordinary civil litigation. The considerations are not a licence to engage in pure speculation. But judges exercising family jurisdiction are entitled to draw on their experience and to take notice of the inherent probabilities when deciding what an uncommunicative husband is likely to be concealing. I refer to the husband because the husband is usually the economically dominant party, but of course the same applies to the economically spouse whoever it is."
"The criterion of conduct under s 25(2)(g) of the Act is clearly stated to be relevant if the court concludes that it would be inequitable to disregard it. But it does seem to me that a clear distinction must be drawn in all these cases between what might loosely be described as marital conduct and what might conveniently be described as litigation conduct. It seems to me as a matter of construction that s 25(2)(g) is plainly aimed at marital misconduct. If the applicant's misconduct is limited to misconduct within the ancillary relief case long after the separation of the parties, it is, in my judgment, questionable whether that factor should go to diminish the quantum of the financial award.
This question arose in the case of P v P (Financial Relief : Non-Disclosure)[1994] 2 FLR 381. In that case the applicant wife had been exposed (coincidentally by Mr Mostyn's cross-examination) to have been guilty of considerable misconduct of the financial case. He relied upon a decision of Lincoln J in B v B (Real Property : Assessment of Interests)[1988] 2 FLR 490 in submitting that, as a result of that misconduct, the court should reduce the wife's award on the application of the s 25(2)(g) criterion. In ruling on that submission, I said (at 392H) :
'It seems to me that in such a case such price as is to be paid by the dishonest litigant is a price in costs, not in reduction of the appropriate share of the available assets. The suggestion contained in the last sentence of Lincoln J's judgment that maxims of equity should be applied to deny or reduce relief I cannot follow. It seems to me that the court has a duty to discharge a statutory function on the application of the statutory criteria, and maxims of equity have nothing to do with it.'
A more extreme case is M v M (Financial Provision : Party Incurring Excessive Costs)[1995] 3 FCR 321. At 330H I said :
'Conduct is only relevant insofar as the wife relies upon the manner in which the husband has conducted these proceedings. Ordinarily speaking, it seems to me that the manner in which proceedings are misconducted is to be reflected in orders for costs rather than directly in the scale of the awarded sum. However, this seems to me to be the exceptional case where the husband's strategy has been so extreme that it would be inequitable to disregard it. It seems to me that it is appropriate to look at the quantification of the wife's share not of what remains today but of what would remain today had that policy of waste and destruction not been pursued.'"
"Only in the rarest cases will the litigation misconduct have so squandered assets as to require reflection in quantification (as an example see M v M[cited above]). Of course there will also be cases in which the court discerns both marital misconduct and litigation misconduct. In those cases it is open to the court to reflect the marital misconduct in the quantification of orders and the litigation misconduct with costs penalty."
"The situation in relation to the alleged disposals of Property B and Property K is potentially different. If the court is satisfied that W either retains a beneficial interest in either (or both) of the properties or else is likely to receive a financial benefit in respect of either or both of them in the future, this can be reflected in the computation of the assets now and ought to be reflected in costs. If, however, the court finds that the disposals were genuine but irresponsible transactions at an undervalue, there is some tension in the authorities as to whether that should be reflected either by a notional reattribution to W of such sum as will fairly represent the 'loss' (ie. at the 'computation' stage) or by an adjustment at the 'distribution' stage of the case (cf. Le Foe v Le Foe & Woolwich plc [2001] 2 FLR 970, FD)".
(i) A spouse cannot be allowed to fritter away or dispose recklessly of assets and then claim as great a share of what was left as he or she would have been entitled to if they had behaved reasonably : Norris v Norris [2003] 1 FLR 1142 approving Martin v Martin [1976] Fam 335 per Cairns LJ;
(ii) However, an important caveat to that principle is that a notional reattribution has to be conducted very cautiously, by reference only to clear evidence of dissipation (in which there is a wanton element) and the fiction does not extend to the treatment of sums reattributed to a spouse as cash which he can deploy in meeting his future needs : Vaughan v Vaughan[2008] 1 FLR 1108, CA per Wilson LJ;
(iii) A party seeking to attribute to the other assets which no longer exist must identify either a disposal of assets with the aim of defeating their claim or the wanton dissipation of funds. Short of such a disposal or dissipation, a party could do what he or she wished with their money : N v F (Financial Orders : Pre-Acquired Wealth)[2011] 2 FLR 533 per Mostyn J.
It is, perhaps, not without significance that during the FDR hearing in May last year, Mostyn J himself was to observe of the Wife's position (ie. inasmuch as there was a transfer at an undervalue, it was brought about by necessity) that, whilst intellectually pure, the process of reattribution does not actually recreate any actual money. In circumstances where, as I have already described, the majority of the visible assets in this case are likely to be required to meet the future needs of these parties and their children in their different circumstances, absent findings that either the Husband has a continuing and substantial income stream and/or has access to significant assets which he has yet to disclose, needs are likely to dominate the distribution process. In these circumstances, and in the light of the need for caution highlighted above, I may need to tread with care before proceedings down the road to reattribution depending on the findings I make after my analysis of the evidence.
My observations about the parties as witnesses
The Wife
The Husband
"I wanted to admit it but I didn't know how. To continue the lie was the only thing I could think of and I know that was wrong."
The acquisition of and subsequent dealings with the property portfolio in England and Russia
Property K
Property R
Property A
Property B
The Garage at Property B
"You knew well that I was flying to Moscow … you knew well that I cannot sale [sic] anything without your content [sic] and I am not doing that … you knew that to get ownership paper for garage I need your notarise content for Register Cadastar … you knew well that I don't have finances to continue further."
Events as they unfolded after April 2010 when the Wife became aware of the Husband's relationship with GS: the parties' visits to the office of a local notary and the documents which they executed on those occasions
The Property R Power of Attorney and the Property A Deed of Gift transactions : 8 April 2010
"Patient is depressed, is crying. Continues to take Zoloft and alprazolam. Will benefit from in-patient treatment and psychotherapy."
Property R : further Power of Attorney and spousal consent to sale; Property B, Property K and Property A : spousal consents to sale : 24 June 2010
"Main points :
2.1 Family house in England. Outstanding mortgage should be paid up promptly. The house should be transferred to the kids.
2.2 The Trust should be set up to cover all and every possible cost of our kids [sic] educations (private schools, Oxbridge Universities including living costs, post-graduate education, etc).
2.3 All Moscow properties will remain in my ownership and shall be excluded out of any settlements.
2.4 Living cost/maintenance of £10,000UKP per month after tax, adjusted annually to keep up with level of UK salaries.
2.5 ½ of your future income (onshore and offshore), personally guaranteed by your Kazakz partners.
2.6 The lump sum of $10,000,000USD after taxes to me personally as compensation.
2.7 You will undertake to spend 10 weeks every year with our kids, but without anyone of your new family."
"As a matter of some urgency, however, we shall be grateful if you could let us have your client's Undertaking not to deal in any way with the 4 properties held in her name in Russia. Whilst they are held in her name, they are marital assets and only came to be vested in your client's name for tax reasons".
"When US made those gifts as part of his decision to try and manage if not resolve his financial affairs with SR my client relied upon the same. Additionally, in and by his actions US ensured that henceforth the properties were SR's separate property and fell outside of the marriage and thus outside of any application with respect to the marriage….".
The incident at the hotel in London : 30 June 2010
The subsequent sales (and purported sale) by the Wife of Property K, Property R and Property B and the progress of the litigation
Property K
Property B
"I just wanted access to liquid funds quickly so that I was in a position to instruct lawyers in Russia to continue litigation and by then I did not want to continue to litigate in London. The sale was to give me a fighting fund in Russia. I was offered that money and I took it."
Property R
The English divorce litigation
"In terms of the issue of maintenance it is clear … that our client does not receive any maintenance from your client for her or the children. Whilst he meets the mortgage and a few bills relating to FC (a property owned by him) our client meets all of the other household and day to day expenses for her and the children here and in Russia without any assistance from your client. This is the reason that her finances are stretched and she is unable to meet any additional expenses. As a result, and given your client's legal obligations in terms of maintenance, our client has had no option but to use funds from the Property B monies and will continue to do so."
"He confirms that he has an account with this bank with this number. He had forgotten about this account as it was opened in or around February 2011, with minimal or no use since. The account was opened at a time when our client was considering moving to Dubai however that plan did not come to fruition. Our client has requested copies of twelve months' bank statements for this account which will be forwarded as soon as the same are received."
"It looks like H Bank. It quacks like H Bank. It lays an egg like H Bank."
And a moment later,
"There is nothing in this point. It is time, I think, for you to get off the horse of suspicion and start talking – if you want my opinion."
He was to conclude his remarks with this parting shot,
"As things stand, non-disclosure against the husband is completely unproven. You wanted my opinion about that. You have it. We all agreed that we would stand or fall at these documents. To retreat to the position that they are fake is singularly unclassy, in my view. So you have to now comply with your duty, which is to use your best endeavours to reach agreement at this FDR…..".
"… it is relevant to SR's harassment of me that she retains the vast majority of the assets and the income whereas I am without any earned income";
"Within the Family Proceedings it is my case that I have no income, apart from a modest pension (SR does not accept this) and the total assets of the family are assessed between £4 million and £5 million in broad terms. It is common ground between us that the Russian Properties and FC together make up almost all of the wealth of the family (save for my pensions) ….";
"GS has been assisting me in locating and compiling documents for the Family Proceedings (such as writing to my banks to provide financial disclosure and internet research within the public domain into SR's activities against me and GS…";
[of the H Bank paying in slip and the Wife's use of an enquiry agent] "I found it extremely disquieting to think someone is digging into my personal life (particularly in circumstances where I have always given full and frank disclosure within the Family Proceedings) …".
That last statement was, of course, a blatant lie.
"…I do not think she is over the edge; I think she is on the edge. I think she is capable of giving instructions today. I do not believe that she has been for the last three weeks."
"It was an act of desperation that I decided to squirrel away what funds I could in the hope that I would manage to preserve enough to eke out an existence in retirement if SR got her way."
The alleged break in at the Husband's Kazakhstan apartment
"There were scattered books, papers, drawing-books from K's shelves in the hall. The contents of the glass closet were on the floor. All cabinet doors were opened and all belongings were dragged out to the floor. All framed pictures were scattered. The large frame was lined through by something. The sofa was moved away, later I noticed there was no laptop near iPod in its usual place on the table. The laptop cable connected to the socket behind sofa was also missing. All documents were scattered on the table in the study, all table shelves were pulled out, the contents were removed and scattered on the floor. All cases were opened and thrown about. All childhood pictures of US and K were crumpled, torn, scattered on the floor. The closet safe was opened, cabinet doors were unlocked. The box with ultrasound investigation pictures and newborn K's belongings was flipped over and opened. All bureau shelves were pulled out, everything was looked up and down."
"This morning I was informed by my partner's parents that our apartment was broken into sometime over the past two days. Professional job – no forcing of steel door but professional entry. Experts do not believe a standard robbery since TV, DVD player, microwave etc all still there. All papers ransacked, many files taken, all cash gone and all photos defaced, destroyed including our baby-box with early memories. Our laptop gone and all memory disks. Not sure what if anything of my papers left but no doubt at all this has been conducted by SR. We cannot prove this although we are checking whether she visited Khazakstan but I believe she is too clever for this. Since we believe she has employed people to watch us in Kazakhstan we have little doubt. But again, as with PG Ltd she can act as she wishes."
The instruction of PG Ltd and other third party investigations
AOL : the hacking allegations
Conclusions and findings in relation to computation issues
(i) Has the Wife made out her case that there are other undisclosed assets which the Husband has yet to disclose? Principally, does he hold shares or own property either in his sole name or in the name of a third party entity over which he has effective control? Is he still in receipt of income from employment?
(ii) Is this a case where there should be reattributed to the Wife's account a notional sum to reflect her disposal of the properties (and use of the sale proceeds) without account to the Husband? If so, should that sum reflect the fact that she sold at an undervalue and what account should be taken of the fact that she says she spent some or all of the proceeds on meeting genuine expenditure needs for herself and the children? Is the Wife, as the Husband alleges, hiding cash from the sale of Property B? Are either of the sale transactions 'sham' in the sense that, if the properties have been transferred, either her sister or Mr O is holding the property they received for her exclusive benefit?
.
The Husband : allegations he continues to hold assets and/or income which he has yet to disclose
'You have stated that a key focus of your enquiry, and that of the Court, is in relation to the award of shares/options/related benefits to US ….. To confirm, my instructions are that there was not, and there never has been, any award to US of this nature in or by either K Ltd or any subsidiary company …'.
"The dates and times set in both the camera and the laptop were accurate to the current date and time when checked. As such, the dates stated in 2.1 above are accurate provided the dates on the camera and laptop have not been altered since the photographs were taken or copied to the laptop. … It appears that two of the four photos have been modified since they were copied onto the laptop, however it is not possible in the time available to ascertain the extent of
any modifications. ….. In addition to the above, the SD card [the camera memory card] does not contain any photographs from the relevant time period, and appears to be either a different card to that which was used to take the photographs in question, or has been reformatted since the pictures in question were taken."
"I know you were hoping to have a Conference call with your client this week and then to write to me with some suggestions about how to move matters forward in light of the fact we are now running behind the Court timetable as a result of your client's hospitalisation. I wonder if you have now had an opportunity to speak to your client and if you could update me as to the situation."
The Wife : reattribution issues
(i) the Wife's dealings with the Russian property portfolio were unauthorised and in breach of the clear representations which she was making at the time through her English solicitors;
(ii) she was at all material times aware that there was no consensus between the parties as to how their financial resources should be divided, far less an agreement which had been approved by the court;
(iii) she sold Property K and Property B (and attempted to sell Property R) as part of a strategy or course of conduct which was designed to liquidate the Russian portfolio without notice to the Husband and as quickly as possible before there was sufficient opportunity for traction to be established in the English proceedings;
(iv) because of my findings in relation to the Husband's lack of understanding of written and spoken Russian (at least as far as it extended to technical / legal documents), her actions necessarily involved an element of deception as to the nature and effect of the documents to which she procured his signature;
(v) because of the need for speed, and motivated in part by anger or spite, she was prepared to sell at a significant undervalue without any attempt at a commercial marketing exercise;
(vi) her actions have resulted in a considerable financial loss to this family.
"I wish also to make the point that, even in the Family Division, a spouse who seeks to extend [her] claim for ancillary relief to assets which appear to be in the hands of someone other than [her husband] must identify, and by reference to established principle, some proper basis for doing so. The court cannot grant relief merely because [the husband's] arrangements appear to be artificial or even 'dodgy'."
Other findings
The allegation of assault on 30 June 2010
The Wife's threats to the Husband contained in emails written on 19 October and 16 November 2010, and her letter to K Ltd (Mr I) dated 26 November 2010
The Wife disclosure of the Husband's lease to the Kazakh tax authorities on 20 June 2013
Hacking into the Husband's computer and the Kazakhstan break in
The Wife's commencement of the Russian divorce proceedings
The Wife's retention of the Husband's documents and her failure to make full disclosure of all her bank accounts in her initial presentation in Form E
The Land Registry document issued by the Kazakhstan Land Registry and obtained by the Wife as potential evidence of property ownership
Non-disclosure prior to the hearing of receipt by the Wife of rental income from Property B in 2010
Outstanding issues
Costs
'We suggest the cumulative effect of the true extent of W's deception on H, her contempt of court and her own serious non-disclosure at least neutralises the impact of H's lies.'
I venture to suggest that is a bold submission for any advocate to make in circumstances where the non-disclosure involved, as it did in this case, not simply an omission to disclose but the deliberate fabrication of false evidence which was put before the court as the truth. It may be that in terms of value, the sale of property by the Wife at a significant loss was greater than the sum which the Husband failed to disclose. I do not regard that fact alone as absolving him of a costs penalty for his own conduct. The sale of the properties had been disclosed. It was a significant feature of the case and its forensic unravelling was always likely to occupy a significant part of the time which had been allocated for hearing the case. The fact that the Wife has failed to persuade me that there was a justification for her actions and the fact that I have found she has not established her case in relation to the Husband's knowledge as to the nature of the property dealings and the documents they both signed does not, in my view, neutralise or reverse the burden of costs in terms of his own non-disclosure.
Pending sale of Property R
Note 1 The Wife’s costs to date (including fees paid to her two previous firms of solicitors) are £381,830 (of which £289,582 has been paid). The Husband’s costs according to the Form H which was sent to me after the conclusion of the hearing are £572,612.76 which includes an allowance of £15,000 for future costs. He has paid a total of £564,900 towards those costs. [Back] Note 2 When that joint submission was made to me on Day 6 of this hearing, at the beginning of the second week, I indicated that I would keep matters under review as the evidence progressed and, in particular, as it became clear what – if any – responses there were to the third party disclosure orders which I granted the previous week. [Back] Note 3 Judgment in Young v Young was handed down on 22 November 2013. [Back] Note 4 [2002] 1 FLR 1053, [2009]1 FLR 115 [Back] Note 5 In fact, it appears that two separate plots were purchased and both were subsequently the subject of the transfer of the property, with the residential dwelling house, to the Wife’s sister. [Back] Note 6 This was the lease to Mr D. [Back] Note 7 The Federal Security Service (FSB) is the Russian internal security and counterintelligence service which succeeded the KGB. [Back] Note 8 For present purposes, I have not included the sum of £60,000 in the reattribution schedule spent on the costs of the Russian proceedings. [Back] Note 9 The Wife’s evidence was that the proceeds of the garage at Property B had been spent entirely on the legal costs of the A v A hearing before Moylan J. [Back]