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Alice IMG_3645The long-awaited judgments in the cases of Mrs Sharland and Mrs Gohil (Gohil v Gohil [2015] UKSC 61) were delivered by the Supreme Court on 14 October 2015.  The central theme to both cases was that of fraud, and its impact on matrimonial settlements and the basis upon which they have been reached.

The Supreme Court has now confirmed that in family proceedings, just as in civil proceedings, fraud vitiates a party’s consent and entitles the wronged party to revisit an unperfected order, or appeal, set aside or issue fresh applications in the case of a sealed order.

The Facts

Mr and Mrs Sharland married in 1993 and separated in 2010.  They have three children, the eldest of which has a severe form of autism.

Mr Sharland is the founder, and substantial shareholder in, AppSense Holdings Ltd, a successful software business.

The final hearing was heard by Sir Hugh Bennett between 9 and 13 July 2012. Before the judgment was handed down the parties reached a negotiated settlement on 13 July 2012.  The settlement gave Mrs Sharland just over £10m in cash and properties, together with a deferred lump sum of 30% of the net proceeds of sale of Mr Sharland’s AppSense shares.  A trust would be set up for the eldest son with £1m contributed immediately from each party and a further £4m from Mr Sharland from the share sale proceeds. Periodical payments for the children were also agreed.

On 25 July 2012 the terms of the draft Order were approved by Sir Hugh Bennett.  However, before it was sealed, the wife discovered that, contrary to the husband’s evidence that no initial public offering (IPO) was contemplated, detailed planning within the company for an IPO had been ongoing behind the scenes.  Indeed, in July and August 2012,media reports stated that the value of the company was somewhere between US$750m and US$1b, substantially more than either party, or the single joint expert, had estimated.

The Order never having been sealed, the wife applied for the hearing, which concluded on 13 July 2012, to be resumed on the ground of material non-disclosure.  The husband subsequently cross applied for the wife to show cause why the Heads of Agreement entered into on 13 July 2012 should not be made into an Order of the Court and sealed accordingly.

On 11 December 2012 Sir Hugh Bennett ordered the husband to file an affidavit dealing with the alleged material non-disclosure.  The case then came back before him in April 2013.

Sir Hugh Bennett considered firstly whether the husband was guilty of material non-disclosure, and secondly, if so, the issue of materiality and the impact of this material non-disclosure upon the outcome.

In terms of the first issue, he found that the husband’s evidence could “only be categorised as dishonest” in light of the documents which he had subsequently disclosed to the Court.

In terms of materiality, he considered the House of Lords’ decision in Livesey (formerly Jenkins) v. Jenkins [1985] FLR 813, namely whether the absence of full and frank disclosure led the Court to make an Order “which is substantially different from the order it would have made if such disclosure had taken place”, per Lord Brandon.  The judge considered what the Heads of Agreement of 13 July 2012 gave the wife, namely the far greater share of the liquid assets, that her contribution towards the youngest child’s trust was far less than the husband’s and a deferred lump sum upon the disposal of any shares in the company by the husband.  In terms of the deferred lump sum he found it critical “that the wife will receive her 30% whenever the Husband realises his shares”, despite the fact that going forward the husband’s shares would become less and less of a matrimonial asset.

In light of this Sir Hugh Bennett concluded that “any Order which would have been made if proper disclosure had taken place would not have been substantially different from the Heads of Agreement incorporated into the draft unsealed Order”.  Therefore, notwithstanding the fact that the husband was guilty of non-disclosure, in all the circumstances the judge concluded that this non-disclosure was not material, and dismissed the wife’s applications.

The wife appealed.

Her appeal was heard by Lord Justices Moore-Bick, Briggs and Lady Justice Macur on 16 December 2013.

Moore-Bick LJ again considered the speech by Lord Brandon in Livesey. He found that “the critical factor, as Livesey and Jenkins shows, is the effect of the non-disclosure on the Court’s own decision embodied in its order”.  He concluded that the decision to set aside an Order resulting from the deliberate failure to give one party full and frank disclosure must depend on the nature of the non-disclosure and its effect on the outcome of the proceedings.   Moore-Bick LJ found that, despite the husband’s non-disclosure being deliberate and dishonest, there were good reasons for concluding that it had not resulted in an Order significantly different from that which the Court would otherwise have made.

Macur LJ concurred.

Briggs LJ, however, strongly dissented.  He considered :-

  1. that the fact that the husband’s conduct was fraudulent was a “cardinal aspect” of the appeal (paragraph 35);
  2. that the general principle that “fraud unravels all is… no less applicable to Judgments and Orders of the Court than to contracts” (paragraph 35);
  3. there was no allegation of fraud in Livesey, only “simple non-disclosure” (paragraph 39);
  4. that Lord Brandon’s was “proposing a single comparison between triviality and materiality, as at the date of the order” (paragraph 40) rather than at any later date on which the order was reviewed; and
  5. that the fraudulent non-disclosure by the husband was a serious abuse of process and there is a public interest in the protection of the Court’s processes from fraud.

The wife’s appeal was dismissed by a majority.

Supreme Court Judgment

The wife’s appeal was heard together with Mrs Gohil’s on 8, 9 and 10 June 2015 before Lady Hale and Lords Neuberger, Clarke, Wilson, Sumption, Reed and Hodge.

Lady Hale gave the lead, and only, judgment in the wife’s appeal.

Lady Hale considered firstly the framework within which matrimonial claims are settled, and within that, the overarching duties placed both on the Court and the parties.  At paragraph 21 Lady Hale notes that “allied to the Court’s responsibility to safeguard both parties’ and the public interest is the parties’ duty to make full and frank disclosure of all relevant information to one another and to the Court.”

She looked once again at the case of Livesey and the principles it established.

Lady Hale emphasises the important distinction here is that “Livesey was not a case of Fraud” [own emphasis added] (paragraph 26). 

Lady Hale discusses two important distinctions between family and civil proceedings, namely that: –

  1. In family proceedings a Consent Order derives its authority from the Court and not from the consent of the parties; and
  1. There is always a duty of full and frank disclosure in family proceedings, whereas in civil proceedings this is not universal.

In respect of point one, Lady Hale agrees with the majority in the Court of Appeal.  However, she emphasises that a Court cannot make a Consent Order without the valid consent of the parties, and therefore if a party’s consent is vitiated then “there may also be good reason to set aside the Consent Order.” (paragraph 29).

What, then, would vitiate a party’s consent? Lady Hale makes clear that misrepresentation or non-disclosure must be material to a Court’s decision made at the time (per Lord Brandon in Livesey).  Here, however, Lady Hale emphasises that they are dealing with a case of fraud.  She states it would be “extraordinary if the victim of a fraudulent misrepresentation, which led her to compromise her claim to financial remedies in a matrimonial case, were in a worse position than the victim of a fraudulent misrepresentation in an ordinary contract case, including a contract to settle a civil claim…furthermore, the Court is in no position to protect the victim from the deception, or to conduct its statutory duties properly, because the Court too has been deceived” (paragraph 32). In this respect the Supreme Court fully endorses Briggs LJ’s position.

In terms of whether or not the Court would have made a significantly different order had it known at the time what it knows now (per Livesey) Lady Hale confirms that it was wrong to place this burden of proof on Mrs Sharland, and rather “the burden of satisfying the Court of that must lie with the perpetrator of the fraud” (paragraph 33).

Lady Hale confirms that, in remaking his decision in April 2013, Sir Hugh Bennett deprived Mrs Sharland of a full and fair hearing of her claims.

For these reasons the appeal was allowed and it was ordered that the Consent Order made in July 2012 should not be perfected and the matter returned to the Family Division of the High Court for further directions.

Implications

Mrs Sharland’s success, and that of Mrs Gohil, serves as a stark warning to spouses seeking to undermine their duty of full and frank disclosure. It is now for the non-discloser, rather than the innocent party, to prove that they have not deceived the Court and the other party; a burden of proof that will not be easy to dispel.

Misrepresentation, material non-disclosure and fraud will not be tolerated by the Courts and may result the reopening of otherwise settled matters, regardless of the passage of time.