UZN v UZM – Dissipation of Assets and Adverse Inference– A Lawyer’s Perspective Part 2

By Susan Tay of OTP Law Corporation

This is part 2 of my article on the case of UZN v UZM. In Part 1 of my article here, I gave some background on the rationale behind dividing matrimonial assets.

You can read the one from the perspective of a forensic accountant, Wan Yew Fai of Strix Strategies Pte Ltd, here.

Both Wan Yew Fai and I are part of PracticeForte Advisory, a multi-disciplinary grouping of professionals. We often work as a team in matrimonial cases especially when the matrimonial estate comprises of more complex portfolios like shares, equity in companies, real estates in different countries and intricate family businesses.

This is thus a joint effort to give 2 perspectives on the recent Court of Appeal case of UZN v UZM. One from the accounting expert and one from a family lawyer. I also split my article into 2 parts.

Here I will dive straight into the case of UZN v UZM.

Facts of UZN

In UZN v UZM [2020] SGCA 109, the Court of Appeal dealt with how it should draw an adverse inference against a spouse who failed to provide full and frank disclosure of his assets.

This is a case of a 14-year childless marriage when the husband had initiated divorce. Highly acrimonious, by the time of the Court of Appeal (CA) judgment, proceedings had been ongoing for 6 years. With no children issues, the ancillary matters dealt mainly with how matrimonial assets should be split, maintenance and costs. The wife was working in the husband’s law firm for 13 years as a manager before she found out about his affair. She was apparently sacked around the same time.

The long and short of it is this: the wife was awarded S$763,440.88 or 40% of the matrimonial asset in the High Court of Singapore as her share in the matrimonial pool.  This amount was increased to S$1,129,181.58 (at only 32% of the matrimonial pool) after she appealed to the CA.

What actually happened in the two courts that caused the difference?

It was how the CA drew adverse inference differently from the High Court.

Disclosure Obligations

The CA sets out the absolute duty of disclosure by spouses in divorce proceedings as follows:

Unlike proceedings in civil trials, the determination of the pool of matrimonial assets in family proceedings takes place in the absence of cross examination (unless, exceptionally, cross-examination is specifically ordered by the court). …. these procedural constraints result in the parties’ duty of full and frank disclosure taking on particular significance. Each party’s discovery obligations must be strictly observed; since it is ultimately for the court to decide which of the parties’ assets belong in the matrimonial pool, it is not for the parties to tailor the extent of their disclosure in accordance with their own views on what constitutes their matrimonial assets(emphasis added)

Undervaluation of Assets

It then went on to explain the four different types of undervalue of matrimonial assets as:

  1. Inadvertence
  2. Intentional concealment
  3. Wrongful dissipation
  4. Innocent dissipation

Differences in the category of undervaluation may have different consequences where the court is concerned.

Adverse Inference

In a case where a spouse hid assets beyond the reach of the other spouse by refusing to disclose the full extent of his/her worth, the one recourse for the other spouse has always been adverse inference. Simply put, it is akin to drawing a negative conclusion against the non-disclosure spouse.

The court does this in 2 ways:

  1. The quantification approach where the court adds back into the pool of assets what it believes to be the worth of assets that the non-disclosure spouse tries to hide or
  2. The uplift approach where the court increases the percentage of the other spouses’ entitlement to the pool of assets.

In the example of UZN, after the High Court went through the parties’ assets based on their respective accounting experts’ reports, it drew adverse inference against the husband using the uplift approach. The wife’s proportion was increased by an additional 8% to 40% instead of 32%. This was despite the High Court agreeing with the expert that the cash balance in the Husband’s bank account cannot be a mere S$500. The High Court also made a finding that the husband’s undisclosed assets came up to some $1.62m in cash. It did not add into the pool this discrepancy which would have been the quantitative approach. The matrimonial pool size was calculated to be just over $1.9m without the discrepancy.

In the CA however, the treatment was to use the quantitative approach instead. Not only did the CA add back into the pool the said $1.62m, it also added a whole host of other expenses like legal costs, expenses for the upkeep of the firm, and jewellery. These added yet another $200,000 into the matrimonial pool and the matrimonial pool size bloated to $3.73m.

Using the quantitative approach and without increasing the wife’s percentage entitlement, the wife got, as a result, almost one third more.

My Observations

In my view, adverse inference using the uplift method often yield unsatisfactory outcomes. A percentage uplift in the region of 10% is hardly enough of a dent to dissuade a spouse who is determined to dissipate the assets.

Look at the case in UZN. If the High Court had adopted the quantification approach and added what it deemed to be the size of the undisclosed assets i.e. $1.62m, the total pool of assets would have been S$3.52m. At 32% of $3.52m, the wife’s share would have been S$1.126m which is really quite a bit more than 40% of $1.9m.

It is interesting to note that the High Court also treated his adverse inferences between the spouses differently. There was a hybrid of both approaches as he also drew adverse inference against the wife for the S$10,000 legal costs she spent. This he used the quantitative approach by adding the amount back into the pool. It would have been consistent if he also used the quantitative approach for the husband’s assets.

It is clear that the quantitative approach yields a better and perhaps more equitable split for the other spouse. I use the word equitable also to reflect that adverse inference should have a real negative effect on the non-disclosure spouse.

The CA has made it clear that a quantitative approach is the more appropriate approach to take when there is a finding on the value of the undisclosed assets:

When a court makes findings in respect of the value of undisclosed assets, those findings should be reflected in the manner in which the court gives effect to the adverse inference. This is true whether the court’s findings provide a basis for making a reasonable estimate of the value of the undisclosed assets, or are direct pronouncements on what the undisclosed assets are worth.

Legal and accounting experts’ help thus played a critical role for the wife in this case as the Courts were able to make the necessary findings on the values, resulting in a quantitative approach that gave her more.

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