England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM SOUTHAMPTON COUNTY COURT
(His Honour Judge Anthony Thompson QC)

		Royal Courts of Justice Strand London WC2 Tuesday, 24th July 2001

Tuesday, 24th July 2001

1. LADY JUSTICE HALE: I shall ask Wilson J to give the first judgment.
2. MR JUSTICE WILSON:
3. Before the court is an application for permission to appeal against an order made in civil non-matrimonial proceedings by Judge Anthony Thompson QC sitting in the Southampton County Court on 23 March 2001.
4. In the course of argument yesterday counsel for both sides agreed that, were this court minded to grant permission to appeal, it should treat this hearing as the hearing of the appeal. The court then indicated that, for reasons which it would explain, it was minded to grant permission.
5. Accordingly this judgment will explain my reasons for having agreed with my Lady that the court should grant permission to appeal and indeed for now proposing that it should allow the appeal.
6. The appeal raises questions as to the circumstances in which affidavits of means sworn by a party in matrimonial proceedings may be the subject of disclosure and inspection in separate civil proceedings to which he is a party and as to the identity of the court which should be asked to resolve any such issue.
7. The appellants are claimants in the civil proceedings (which I will call "the partnership proceedings") which are on foot in the Southampton County Court. The respondent is the defendant and counterclaimant in those proceedings.
8. The decision of the circuit judge on 23 March, from which the appeal is brought, was to allow an appeal from an order of a district judge of that court dated 15 February 2001. So the appeal to this court is a second appeal within the meaning of section 55 of the Access to Justice Act 1999.
9. The respondent has also recently been a party to divorce proceedings taking place in the Portsmouth County Court. In those proceedings, launched by his wife in 1999 and continuing actively in 2000, he filed three affidavits of means. Apparently they were narrative affidavits, not in the Form E set by the Family Proceedings Rules 1991. Also filed in those proceedings was a report from a forensic accountant prepared upon the joint instructions of the respondent and his wife.
10. The order of the district judge in the partnership proceedings on 15 February was for disclosure by the respondent to the appellants of three documents or groups of documents:

(1) the report of the accountant filed in the matrimonial proceedings. The respondent complied with that order and afforded the appellants inspection of the report, to which I will return in paragraph 30.

(2) the letters passing between the respondent and the solicitor having conduct of his case in the matrimonial proceedings, insofar as they relate to matters raised in the partnership proceedings. Not surprisingly the respondent's appeal against that order was upheld by the circuit judge on 23 March and the appellants do not seek to appeal against that part of his order.

(3) the respondent's affidavits of means filed in the matrimonial proceedings, insofar as they relate to matters raised in the partnership proceedings. The respondent also appealed successfully against that order. It is against the setting aside by the circuit judge of the order for the disclosure of the respondent's affidavits of means that the appellants bring this appeal.

11. I must now explain the nature of the partnership proceedings.
12. The appellants and the respondent were partners in a recruitment agency called "Ramsey Hall Associates". They conducted business through a company called Ramsey Hall Ltd ("the company"). Three shares in the company have been issued. Each of the three shares was vested in the name of each of the three partners.
13. On 31 January 2000 the respondent left the partnership. On 28 February 2000 he transferred legal title to his share in the company into the joint names of the appellants. On 9 August the appellants issued the partnership proceedings. They alleged that, following certain minor adjustments, the respondent's current account with the partnership was overdrawn at the date of his departure from it in the sum of £86,552. They claimed that sum as due to them.
14. On 8 September 2000 the respondent filed a defence and counterclaim. The gist of the document was that an account should be taken of the value of the net assets of the partnership at the date of his departure from it and that he should be entitled to one third of them; that, if his current account was in debit, that was a factor to be brought into the overall accounting exercise and that it could not be the subject of an isolated claim by the appellants. The respondent averred that the main asset of the partnership was the company; that up to 28 February 2000 each of the three parties had held his respective share on trust for the partnership and that following that date the appellants similarly held the share which he had transferred to them on trust for the partnership. He contended alternatively that, if the company was not held as a partnership asset in that way, the appellants had, since the date of the transfer of his share to them, held it upon resulting trust for him. He alleged that the value of his one third interest in the company at the date of his departure from the partnership, whether that interest be held through his interest in the partnership or otherwise, was about £378,000; and, in alternative formulations but principally in the form of a request for an account, that was the sum or principal sum which he counterclaimed.
15. By their reply filed on 4 October the appellants joined issue with the allegation that the company had at any time been an asset of the partnership. They contended that each share in the name of each of the three partners had been held for the benefit of that partner alone; that the respondent had ceded his share to them on 28 February; that the assets of the partnership were negligible; and that the respondent simply owed what he had overdrawn, namely the sum which they had claimed.
16. On 29 November 2000 a district judge held that the claim was misconceived and that, in accordance with the respondent's counterclaim, there should be an overall account. So he gave summary judgment for the respondent upon the claim and directed that the counterclaim should proceed and indeed that a preliminary issue, namely whether the company was an asset of the partnership, be heard on 26 and 27 February 2001.
17. Thus the date 15 February 2001, being the date of the controversial order for disclosure made by another district judge, was only eleven days prior to the hearing fixed for the preliminary issue. The respondent's appeal against that order was fixed to be heard on 23 February, so that the hearing of the preliminary issue might proceed as fixed. But the court proved unable to hear the appeal on 23 February. So it was adjourned to 23 March and the preliminary issue was postponed to be heard on 2 and 3 August, namely Thursday and Friday of next week. I greatly hope that those dates will not need to be postponed again.
18. The respondent's appeal was duly heard by the circuit judge on 23 March. I have already explained the result of the appeal and I will address the judge's reasoning in paragraph 27.
19. Under section 55(1) of the Act of 1999 it is only the Court of Appeal which can give permission for a second appeal such as this. So the appellants duly sent their notice of application for permission to this court. It came first before my Lady for consideration on paper. On 25 May she refused permission to appeal. Unusual though it may be to refer exclusively to written reasons, I need to do so in this case. My Lady wrote:

"(1) An application for permission to inspect documents filed in the ancillary relief proceedings should have been made to the district judge in those proceedings: see Family Proceedings Rules 1991, rule 10.20(3). The other party to those proceedings clearly has an interest in whether or not such disclosure should be permitted.

(2) The court having jurisdiction in the ancillary relief proceedings has a discretion whether or not to permit disclosure: see eg S v S (Inland Revenue: Tax Evasion) [1997] 2 FLR 774; R v R (Disclosure to Revenue) [1998] 1 FLR 922; A v A; B v B [2000] 1 FLR 701, esp at pp 712 - 713.

(3) That is the forum in which to consider the balance to be struck between the privacy interests of the parties to the matrimonial proceedings and the fair administration of justice in both the matrimonial and the partnership proceedings. In any given case, the balance may well come down in favour of disclosure: if so, it would then be difficult to argue that the material was not relevant for the purpose of disclosure under the CPR."

20. The response of the appellants to those reasons was to ask for the facility to renew their application at an oral hearing but, without prejudice to their contentions, to make application for disclosure under rule 10.20(3) to a district judge of the Portsmouth County Court in the respondent's matrimonial proceedings. Their application, made on notice to the respondent and his wife, is returnable before a district judge on the day after tomorrow, namely 26 July. It is not yet known what stance, if any, the respondent's wife will adopt in relation to it. So, if this appeal is despatched today and if the pending application is duly determined on the day after tomorrow, then, unless that decision itself becomes the subject of permission for yet another appeal, the long-awaited hearing of the preliminary issue can take place on 2 and 3 August.
21. The appellants believe that the respondent is likely to have given totally different evidence in his affidavits of means in the matrimonial proceedings from his evidence in the partnership proceedings. The grounds for their belief have not been made clear. But it seems that they believe that, in his affidavits of means, he is likely not to have said that the company was an asset of the partnership; likely to have averred not only that he had transferred his share in the company but that he had no further interest in it or entitlement in respect of it; and likely to have said that he was owed nothing in respect of his former partnership with the appellants and indeed perhaps, on the contrary, that it was he who owed them a substantial sum by reference to his overdrawn current account. The appellants wish to test the evidence which he will be giving against them, both in respect of the preliminary issue and generally, by cross-examination of him upon his affidavits of means.
22. Rule 10.20(3) of the Family Proceedings Rules 1991, to which my Lady referred in her reasons and under which the appellants have now issued their application, provides as follows:

"Except as provided by ... paragraphs (1) and (2) of this rule, no document filed or lodged in the court office other than a decree or order made in open court shall be open to inspection by any person without the leave of the district judge, and no copy of any such document, or of an extract from any such document, shall be taken by, or issued to, any person without such leave."

23. Paragraph (1) of the rule entitles parties to the matrimonial proceedings to take copies without leave. But outside persons, such as the appellants, need leave before the court in which the matrimonial proceedings have taken place may issue them with, or allow them to take, copies of documents on file other than a decree or order made in open court.
24. I appreciate that parties in the position of the appellants may say in effect:

"We do not need to ask the court in the matrimonial proceedings to allow us to take copies of the respondent's affidavits. We will seek an order under Rule 31.12(1) of the Civil Procedure Rules in the proceedings in which we are parties that the respondent should disclose them to us and permit us to inspect them. After all, copies of the affidavits are in his control within rule 31.8 because they are in his possession or in that of his solicitors and, even if not, he has a right to take copies of the originals which have been filed in his matrimonial proceedings."

25. Speaking for myself, I would not go so far as to hold that it is impermissible to seek an order for disclosure in the proceedings in which the applicant for it is a party. But, with respect, I entirely agree with the thrust of my Lady's written reasons that the matrimonial court is the preferable forum for any such application. The affidavits will be on the file of that court so the district judge of that court, unlike the district and circuit judges in the present proceedings, can read them and better weigh their value if authorised for use in the other proceedings. Moreover the spouse of the respondent to the application must be allowed a voice in the debate; and the application of these appellants in the partnership proceedings, which even led to an order by the district judge for the production of a report commissioned jointly by the respondent and his wife for use in their matrimonial proceedings, was irregular if for no other reason than that no notification of it was given to his wife. The voice of the spouse is likely to be given proper attention if application is made in the proceedings to which she or he is a party.
26. But even more important in my view than the forum in which such an application is determined are the principles by which it should be determined. Whether the application is in the matrimonial proceedings under Rule 10.20(3) of the Family Proceedings Rules or in the civil proceedings under Rule 31.12(1) of the Civil Procedure Rules, the court has a discretion. Whichever be the forum, I see no reason why the requisite exercise of discretion falls to be conducted by reference to different principles. As is shown by the three reported decisions to which my Lady referred, the balancing exercise is sensitive and can be difficult.
27. Although, by coincidence, I was the author of two of those decisions, I would cite a fourth authority as being more useful in this context than any other. It is a decision of Goulding J in Medway V Doublelock Ltd [1978] 1 WLR 710, upon which I placed substantial reliance in the earlier of my decisions, namely S v S (Inland Revenue: Tax Evasion) [1997] 2 FLR 774. Mr Medway, the plaintiff, was engaged, as ex-husband, in matrimonial proceedings in which he had sworn affidavits of means. His ex-wife sent copies of them to the defendants, who proposed to use them in proceedings in the Queen's Bench Division in which they were being sued by a company controlled by the plaintiff. He sued in the Chancery Division for an injunction to restrain the defendants from using the copy affidavits in the proceedings in the Queen's Bench Division and to require them to deliver them up to him. So, because the copy affidavits were already in the hands of those who wished to use them, it fell, intriguingly, to a third forum to determine the dispute. At 714A Goulding J said:

"It is a strong thing, though necessary for matrimonial litigation, to make a man disclose all the details of his means. It seems to me that many husbands, and in these days perhaps many wives, would find it difficult to be frank with the court if adversaries in business, for example, could freely obtain and use the disclosures made in matrimonial litigation."

28. At 714H-715B he said:

"To my mind, in the present case it is necessary to weigh against one another not two competing interests, public or private, but two applications of the same public interest in different sets of proceedings. It is what Lord Diplock described in the passage I have just read as the general public interest that in the administration of justice truth will out. Clearly that interest, if I am right, requires that disclosure of means made by parties under compulsion of the court or the rules in matrimonial proceedings should be treated as confidential. The obedience of those engaged in matrimonial suits to the requirements of the law is thereby much encouraged. But the same public interest of the full disclosure of information in litigation may be said to require a court - in this case the Queen's Bench Division - when considering whether a plaintiff company should provide security for costs to have before it the fullest information of the company's circumstances."

29. The judge went on to hold that, on the facts before him, the balance fell in favour of the plaintiff.
30. The balancing exercise to which Goulding J referred may now be cast in terms of a conflict between the rights of the spouses, on the one hand, and of those in the position of the appellants on the other, to a fair hearing in the determination of their civil rights and obligations under Article 6 of the European Convention on Human Rights. Fairness to the spouses may well favour the confidential environment most likely to promote candour, whereas fairness to those in the position of the appellants may well suggest that it be overridden. Also in play in favour of the confidentiality of the matrimonial proceedings is the right of the spouses to respect for their private and family life under Article 8 of the Convention, which has to be set against the rights of those in the position of the appellants under Article 6. But such conflicts may often be satisfactorily resolved by appropriate redaction of the documents filed in the matrimonial proceedings.
31. On 14 June 2001 Munby J gave judgment in Clibbery v Allan, reported in The Times on 2 July, a decision against which he gave permission to bring the appeal now due to be heard in this court before the end of this year. His judgment represents a far-ranging exegesis upon what might compendiously be called the privacy of certain family proceedings, including some proceedings for ancillary relief. But he does not suggest that a third party's request for disclosure of affidavits of means against the wishes of those, if any, who could disclose them voluntarily falls to be decided otherwise than by reference to the exercise of discretion and in the light of the considerations articulated by Goulding J and reaffirmed in S v S.
32. In the above context I turn to consider the way in which the review was conducted by the circuit judge. There is no doubt that the two conspicuously able counsel let him down; and they now properly accept responsibility in that regard. Not being family practitioners, they were unaware of authority referable to the exercise of the discretion and did not think of searching for it. In relation to the affidavits, the appeal was conducted without reference to authority; and proceeded at speed and in an impromptu manner. The judge explained his reasons for allowing the appeal as follows:

"It is perhaps not an uncommon feature of human nature and human life that when a business man is dealing with his business partners or with other businessmen he is always anxious to extol the virtues of his assets and claim the full amount to which he thinks he may be entitled, but when dealing with his wife or ex wife in relation to any claim for financial settlement, to plead poverty and really insist that his assets are pretty well worthless. Whether Mr Beard has gone down that road, I do not propose to speculate. It seems to me that the nature of this application for disclosure of the solicitor and client correspondence and the matrimonial affidavits is really an attempt to find out whether Mr Beard has gone down that road. Mr Aylwin says they suspect very much that he has done just that and that in these circumstances they ought to be entitled to have discovery of those documents. I find that argument unpersuasive."

33. Later he said:

"I do not think that it is appropriate for affidavits which are sworn in matrimonial proceedings to be the subject of cross-examination in what will be a hearing in public. Of course, if Mr Nayler and his partner want to embarrass Mr Beard and they think that they are in a position to do so, then no doubt they will invite the solicitor who acted for Mrs Beard to come and sit in court, opposite Mr Beard when he gives evidence on the trial of this preliminary issue. Then no doubt that will encourage him to be circumspect if he had not already intended to be so.

Be that as it may, I feel that documents which are privileged and documents in family proceedings which are intended to be kept in the private domain should not be aired in the public domain merely at the behest of another party who is in dispute with one of the spouses involved in the matrimonial proceedings. I think the order made by the learned District Judge, though understandable, was misconceived. I think it was plainly wrong and therefore it should be set aside."

34. At the end of his judgment, he added:

"Whatever Mr Beard may or may not have said in those affidavits ..., that would all relate to his financial position or his financial worth at the time when he was contesting his wife's claims for financial support. The key issue in this case is not what Mr Beard or anybody else was saying about it after the event, but what the position was at the material time."

35. There was discussion in this court as to whether the judge held that the affidavits were irrelevant to the issues raised in the counterclaim including in particular the preliminary issue. If irrelevant, he would have had to allow the appeal without the need to conduct the balancing exercise. In my view the judge was certainly entitled to stress that the preliminary issue related to the actual structure of the partnership and the conduct of its operations rather than, directly, to what was said about them afterwards; and entitled also to bring his worldly scepticism to bear upon the presentations of some spouses in matrimonial proceedings. But, without seeing the affidavits, the judge could not have held that the respondent's admitted references in them to the partnership and the company could throw no light upon the matters in issue. I do not believe that he did so hold; but, if he did, I respectfully disagree with him. In my view the affidavits are likely to be relevant, although at the end of the enquiry they may prove to be of small consequence.
36. Discussion in this court proceeded to address whether the judge can be said to have accepted that any balancing exercise fell to be conducted. On any view there are parts of his judgment - in particular the opening sentence of the second passage which I have quoted in paragraph 27 - which seem to confer upon the confidentiality of affidavits sworn in matrimonial proceedings a paramountcy which runs counter to authority. On balance, however, I think that the judge did accept the need for a balancing exercise; but his undertaking of it by way of review had a perfunctory character unsurprising in the light of the degree of assistance given to him.
37. In any proper balancing exercise in this case one unusual feature calls for specific attention. It relates to the accountant's report commissioned by the respondent and his wife. The circuit judge was of course aware of the report; but its possible significance in this context was not drawn to his attention.
38. The district judge had made an order for disclosure of the report and, instead of appealing against that order, the respondent had complied with it. Subject to the failure to notify the respondent's wife of the application and to whatever submissions she might have made in relation to it, I am of the view, for reasons which I will explain, that that order was rightly made.
39. The accountant's report is dated 11 July 2000. Shortly thereafter and just prior to the issue of the partnership proceedings, the respondent's solicitors wrote to the appellants' solicitors as follows:

"We also mentioned to you in our letter of 6 July that there may be an issue concerning the value of our client's share in Ramsey Hall Limited. We now have in our possession a preliminary report from the Forensic Accountant jointly instructed by our client and his former wife, which runs into 150 pages including appendices. Although the report is expressed to be preliminary, it points to a market value of the company of £1,135,000 resulting in our client's share of £378,000 ... . We have already alluded to the meeting held on the 28 February 2000. ... We have previously stated that, at that meeting, our client was persuaded to divest himself of his share in the company for the nominal sum of £1 on the basis that that was all the share was worth. The other shareholders and indeed the company accountant expressed an opinion that there was, in effect, no value in our client's shareholding. Our client relied on those opinions, particularly of the accountant. On any analysis of the facts, that opinion was wholly incorrect.

The forensic report to which we refer was prepared for the purposes of other court proceedings and we are making enquiries about the extent to which that report may be disclosed to you.

Whilst, primarily, our client's claim for the full value of his share will be against the company, we are considering whether there may be an equitable set-off in respect of the claims the partnership are now pursuing. The partnership, in reality, was trading through the entity of the company and further it could be considered that the company, or at least its shares, were a partnership asset."

40. The suggestion that the company might be regarded as a partnership asset is, as we can all now see, taken directly from a paragraph of the accountant's report. A month later, in the respondent's counterclaim, it was the figure of £378,000 calculated by the accountant which was pleaded as the value of his interest, directly or indirectly, in the company. And, when he applied for summary judgment on the claim, the respondent by his notice referred to the accountant's report.
41. In the above circumstances it seems to me that, with whatever degree of irregularity, the respondent chose to make the accountant's report part of his case in the partnership proceedings; and I confess that I do not fully understand Mr Sisley's denial to us that the respondent was relying on the report. Be that as it may, the report has been adjudged relevant and has been disclosed and inspected pursuant to order. In relation to the issue in respect of the affidavits the feature which falls for particular consideration is that, in the report, the accountant said that he had listed in an appendix the documents upon which he had relied in writing it; and that the list in the appendix includes the respondent's affidavits of means.
42. In my view any proper balancing exercise of the factors relevant to the disclosure of the affidavits requires attention to be given to the fact that the compilation of a relevant document, already disclosed, has been effected by reference in part to them.
43. I conclude therefore that, through no fault of the circuit judge or at first instance of the district judge, the difficult discretionary exercise referable to the disclosure and inspection of the affidavits of means has not yet been carried out. On the day after tomorrow, in the preferable forum, the exercise is due to be conducted again, this time, no doubt, by full reference to principle and to all relevant features; and the district judge will then have the considerable advantage, denied even to us today, of being able to read the affidavits in controversy.
44. In my view the district judge should not be asked to make his decision in the shadow of a subsisting decision by a circuit judge in another court, being indeed the very judge assigned to hear the preliminary issue next week, to the effect that the affidavits should plainly not be disclosed. Although at the end of his submissions Mr Sisley disclaimed any intention to argue before the district judge that the decision of the circuit judge, were to it remain undisturbed, raised any formal estoppel, the district judge might feel compelled to consider that possibility or at least to afford a weight to the decision of the circuit judge which, with great respect, it cannot properly bear. The district judge should start with a clean slate and end with a decision entirely of his own making.
45. I respectfully concurred yesterday with the view of my Lady that permission should be granted to bring this second appeal because I took the view that the appeal raised an important point of practice, but, in particular, that, in the light of the need for the hearing on the day after tomorrow to proceed properly, there was a compelling reason for this court to hear the appeal and indeed to hear it forthwith.
46. With equal respect, I now propose to her that the appeal should be allowed not because the circuit judge's conclusion was necessarily wrong but because, through no fault of his own, the manner in which he reviewed the decision of the district judge was flawed.
47. LADY JUSTICE HALE: This case does indeed raise an important point of practice concerning the inter-relationship between disclosure under the Civil Procedure Rules and the rules governing the conduct of family proceedings. Ideally, the issue would be considered by the same Court of Appeal which will hear the appeal in the case of Clibbery v Allan; but both parties to this action are anxious to maintain the trial date next week and therefore that we should deal with this matter today.
48. It is clear that in a case such as this a balancing exercise is necessary both at common law and under the European Convention on Human Rights. On one side is the interest of the parties to civil proceedings in a fair trial of that dispute in which all relevant material is disclosed before the court. On the other side is the interest of both parties to family proceedings. They owe duties of confidence to one another in respect of information compulsorily disclosed in ancillary relief proceedings. The object of that is to facilitate full and frank disclosure of their financial circumstances in order to secure a fair trial of that issue. Third parties can only inspect those documents with the leave of the court: see Family Proceedings Rules rule 10.20(3).
49. The preferable forum for striking that balance is likely to be the matrimonial court, for the reasons given by my Lord, Wilson J. Either way, a proper balancing exercise has to be carried out. It is an exercise of some complexity and some delicacy. It cannot be the law that the privacy interests in the ancillary relief proceedings always trump the interests in the fair trial of the civil proceedings. This may be particularly so where a party to the civil proceedings objects to the disclosure of his own documentation in the family proceedings.
50. The object of the exercise of the discretion is always to do justice between all the parties involved. Hence, through no fault of the circuit judge, neither the appropriate procedure nor the appropriate principles were followed in this case. It is therefore right for us to allow the application, which is to be heard before the district judge the day after tomorrow, to proceed to consider all the relevant factors in the balancing exercise untrammelled by any decision of His Honour Judge Thompson who is to be the trial judge in the civil proceedings.
51. We will therefore give permission to appeal. By consent we will treat this hearing as the hearing of the appeal. We will allow the appeal, thus setting aside, as I understand it, paragraphs 1, 2 and 5 of the order of His Honour Judge Thompson QC of 23rd March 2001.
Order: Appeal allowed. Dealing first with the costs below, for paragraph 5 of the order of his Honour Judge Thompson we will substitute an order that the defendants are to have two-thirds of the costs of the appeal, subject to detailed assessment. There will be no order for payment on account. As far as the costs in this court are concerned we will make no order as to costs, and there will be no order on the application for a stay.