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22 June 2020

‘The fruit of the poisoned tree’ – Bad behaviour in financial proceedings

In November 2019 I wrote about the extraordinary case of FRB v DCA, in which a husband had sued his wife for ‘paternity fraud’. He alleged that his wife had deceived him into believing that he was the biological father of her son, and kept up the deception for many years. He sought a court order that his wife should pay damages to compensate him for financial loss that he claimed to have suffered as a result.

The husband was unsuccessful in his application. The Judge, Mr Justice Cohen, decided that financial issues between a husband and wife should be dealt with in divorce and related ‘financial remedy’ proceedings. It was not appropriate in this case for the husband to bring a free-standing claim for damages against his wife.

However, the Judge hinted that the story was not over. Alongside his claim for paternity fraud, the husband had also issued divorce and financial remedy proceedings against his wife. The Judge indicated that the wife’s alleged deceit may be relevant to those financial remedy proceedings: if her conduct was considered sufficiently poor, then it could have ‘financial consequences’ for her in the divorce settlement.

This would make the case a very unusual one indeed. It is extremely rare for a court to consider the behaviour of the parties when dealing with financial remedies.

Over 15 days between 20 January and 14 February 2020, Mr Justice Cohen dealt with the final hearing in the financial remedy case. Within that judgment, he decided on the relevance of the wife’s behaviour to the outcome.

An ‘extraordinarily high standard’ of living

The Judge began his judgment by commenting on the astonishing scale of the litigation between the couple. He knew ‘of no other case where the breakdown of a marriage has engendered litigation on the scale witnessed in this case’. He said that ‘the scope of this case has encompassed almost every issue that can arise within a matrimonial finance case’.

He estimated that between the two of them, the couple had spent the staggering sum of £11.35 million on legal and other costs related to the breakdown of their marriage.

The husband’s financial arrangements were exceedingly complicated, including interests in several properties, companies and trusts. The couple were used to a lavish standard of living, employing a small army of staff to run their properties in London, Surrey, the French Riviera, India, New York and Switzerland. They flew around the world by private jet or on first class commercial airlines. In 2016 alone the wife had taken 44 flights by private jet, and ‘in just three months in 2017 had spent €150,000 in three visits to single shops buying fashion items’. The main family car was a Rolls Royce Ghost. The wife had a series of customised Ferraris.

After a detailed analysis of the husband’s assets, the Judge concluded that the husband had immediate access to £117 million of ‘matrimonial assets’. Despite the husband’s protestations to the contrary, the Judge also found that the husband held a valuable interest in a separate company. That interest was worth at least £54 million, but possibly as much as £108 million. By contrast the wife’s assets were worth less than £1 million.

A ‘blatant attempt’ to minimise assets

In reaching these conclusions, the Judge’s task was made substantially more difficult by the husband’s ‘significantly deficient’ disclosure of his financial arrangements. The husband failed to answer questions or provide evidence where he had been ordered to do so by the court. In some cases the husband failed to disclose assets at all, until the wife and her legal team had discovered them independently. He was ‘evasive’ in the witness box and ‘professed ignorance’ of transactions which the Judge found to be ‘unbelievable’. Despite detailed questioning, ‘vast swathes of transactions remain[ed] unexplained’.

The Judge concluded that the husband had ‘hidden from the court’s eyes the extent of his wealth’, and by doing so had deprived the wife ‘of the opportunity of her entitlement claim being fully considered’.

The relevance of the ‘paternity fraud’

Having made this stinging criticism of the husband, the Judge turned to consider the wife’s alleged ‘paternity fraud’. What relevance would it have to the outcome of the case?

The husband’s position was clear. He said that the wife’s deception was so serious that it would be ‘inequitable’ for the court to disregard it when determining a financial award. He stated, ‘if one partner deceives another, then they are not entitled to gather in the fruit from that poisoned tree’.

The wife disagreed. She accepted that she had had an affair with another man who she now knew to be the child’s father, but she denied that she had ever sought to deceive the husband about this. She said it was much a surprise to her as to the husband to learn that he was not the father of her child. For that reason she argued that her conduct was not bad enough to be relevant to the financial proceedings.

The Judge did not accept the wife’s case. Given the circumstances of the wife’s affair, he could not believe that ‘it never crossed [the wife’s] mind’ that the husband might not be the father of her child. He concluded that she was ‘very anxious to believe’ that the husband was the father, and ‘put the alternative to the back of her mind’. He noted the ‘devastating effect’ on the husband of discovering that he was not the child’s father. He therefore decided that the wife’s conduct was ‘so egregious that it would be inequitable to disregard it’.

Very unusually, the Judge therefore found that the bad behaviour was relevant to the outcome of the financial proceedings. He then had to face the ‘conundrum’ of how he should quantify the effect of that bad behaviour in financial terms.

Double jeopardy

The Judge found a neat way to solve – or rather, avoid – that difficult conundrum.

He accepted that the wife’s conduct could have the effect of reducing the size of the financial settlement she would receive. However, he also noted that the husband had failed to give full disclosure of his assets, and he fully expected that the husband had further assets which he had failed to disclose.

The Judge therefore concluded that it would be wrong to reduce the wife’s financial award. The husband’s failures to disclose had already had the effect of reducing the amount that the wife would receive. To further reduce that amount would be ‘to inflict a double jeopardy’ upon her, and allow the husband to profit from his own misconduct in the litigation.

The two wrongs therefore cancelled each other out, with one exception. The wife would receive a smaller amount of child maintenance from the husband, because the child’s biological father should also contribute to the cost of the child’s upbringing.

As a result the wife was awarded assets totalling £64 million and the sum of £60,000 per annum in maintenance for her son.

The lessons of this case

This case confirms that ‘paternity fraud’ can be treated as behaviour so bad that it will affect the outcome of financial remedy proceedings. That said, it will be a very unusual case in which paternity fraud plays a substantial role.

The more widely applicable lesson is this: lying to the court, or failing to give full disclosure of your financial assets, is an unwise and very high risk strategy. The husband has learned this the hard way. It is only the wife’s deception that has saved him from suffering far more severe punishment for his own.

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