Confidentiality of court documents

Every now and then a legal case gets reported that we at CFLP think is worth bringing to your attention. It happened this week, when the High Court’s judgment in HMRC v Charman and Another was released. In this case, the court confirms once again that documents produced for the purposes of obtaining a court order to divide finances on divorce are unlikely to be made available to anyone else, unless there is a strong public interest in favour of revealing them.

In 2006, the courts heard Beverley Charman’s application for a financial order relating to the divorce proceedings between herself and her husband John Charman. What made this case particularly special was that the assets in the case were about £131m, and the end result was that Mrs Charman was awarded £48m as her fair share (36.5%). The outcome was upheld in the Court of Appeal, and the judgment of that court is still regularly referred to by practitioners for important principles of family law. If you’re interested, you can find the Court of Appeal’s 2007 judgment here.

At a rather late stage in those proceedings, questions were raised about Mr Charman’s tax status. A significant potential liability was said to rest on the question of the exact date when he ceased to be resident in England and moved to Bermuda. The court dismissed the husband’s application to have this factor taken into account and the matter did not hold up the case, but it appears that Her Majesty’s Revenue and Customs took a while to get round to finalising their demand for payment. They eventually made a request for £11.5m in back tax from Mr Charman in respect of the years between 2001 and 2008. Unsurprisingly, he has appealed the assessment.

In order to prepare for Mr Charman’s appeal, HMRC asked to see certain documents that arose from or were provided to the court for the financial proceedings on divorce. They wanted the whole transcript of the divorce proceedings in the High Court, a copy of Mr Charman’s late application to the court about the effect of his tax position, copies of all documents which were the subject of that application and all documents, evidence and submissions in support, copies of all witness statements and written submissions in the divorce proceedings, any judgment or note of judgment dismissing the tax application, and an unpublished schedule to the High Court judgment. What HMRC really wants to see was a report prepared by a forensic accountant on behalf of the husband setting out his estimated potential tax liability for the purposes of the divorce proceedings.

The law about confidentiality of documents in family proceedings is currently found in rule 29.12 of the Family Procedure (Amendment) Rules 2012. This states that “Except as provided by this rule or by any other rule or Practice Direction, no document filed or lodged in the court office shall be open to inspection by any person without the permission of the court, and no copy of any such document shall be taken by, or issued to, any person without such permission.”

It was common ground that HMRC would need the permission of both Mr and Mrs Charman to access to what they wanted, or they would have to apply to court. No agreement was forthcoming from Mr Charman (although Mrs Charman apparently had no objection to disclosure!) so the application was made, and Coleridge J, who heard the original case 6 years ago, was called upon to adjudicate. Both sides argued that the public interest supported their position, either for or against ordering that HMRC should be supplied with the documents.

The judge reviewed the law, which gives the court a discretion to order disclosure of confidential documents if it is in the public interest to do so. The authorities speak of the necessity of weighing the public interest in people paying the correct amount of tax with the public interest in full and frank disclosure taking place in financial proceedings on divorce.

After considering the law the judge came down squarely in Mr Charman’s corner: the public interest in upholding the duty of disclosure in divorce proceedings is “of paramount importance” to enable the court to fulfil its obligations under the Matrimonial Causes Act 1973 to consider all the circumstances of the case when deciding how to split family assets. The court acknowledged that there is a considerable risk that if people think that by telling the truth to the family court about their financial position they will leave their affairs open for combing through by HMRC or anyone else, they will not make the necessary disclosure to the court and the court won’t be able to do its job.

The judge said, “As a general rule documents and other evidence produced in ancillary relief proceedings (now called financial remedy proceedings) are not disclosable to third parties outside the proceedings save that exceptionally and rarely and for very good reason they can be disclosed with the leave of the court. The fact that the evidence may be relevant or useful is not by itself a good enough reason to undermine the rule.”

In this case, it is worth noting that HMRC had prepared a routine tax assessment, which the husband was appealing – they were not alleging tax evasion. There have been cases in the past where judges have ordered that documents can be disclosed to tax authorities because of the suspicion of evasion or illegality. However, the court’s robust approach to this particular request and the statements made in the judgment show that circumstances really do have to be exceptional for the public interest in the correct payment of tax to outweigh the importance of complete disclosure of financial affairs for divorce purposes.

Those entering family court proceedings should be reassured that the confidentiality of what they produce to support their case is likely to be fiercely guarded against requests from other authorities, with very rare exceptions. If you’d like to talk to anyone about what this judgment means for you, you can call Adam, Gail, Sue or Simon on 01223 443333.