Posted: 23/10/2015
Sharland (Appellant) v Sharland (Respondent) [2015] UKSC 60
Gohil (Appellant) v Gohil (Respondent) [2015] UKSC 61
The purpose of this article is to provide a brief summary of the full judgments which can be found here and here. Practitioners are also recommended to consider paragraph 37 onwards of the Sharland judgment which provides practical guidance on how to apply to set aside a consent order, an area which was previously described by the President of the Family Division as a ‘procedural quagmire’.
The Supreme Court recently handed down two landmark judgments, Sharland and Gohil. The two cases have generated a great deal of press coverage. Although they were heard together, separate judgments were given dealing with Mrs Sharland’s and Mrs Gohil’s leave to appeal to the court on the grounds that the financial settlements which they had reached with their husbands had been impacted by their husband’s fraudulent non-disclosure.
Full and frank disclosure is a fundamental cornerstone upon which financial negotiations and proceedings are based. The recent judgments demonstrate that the courts will not tolerate an approach to disclosure which is anything less than transparent, particularly if a party’s non-disclosure is intentional. The matter of Gohil establishes that the court will err on the side of the receiving party if it appears that a spouse is obfuscating information which should be disclosed.
In Gohil, the Supreme Court set aside a consent order which previously concluded Mrs Gohil’s financial claims and in Sharland, the Supreme Court agreed that a draft consent order between the parties should not be sealed. Both cases will now be returned to the High Court for reconsideration. The exact financial outcome of the decisions is yet to be seen, but the Supreme Court has taken a firm stance towards non-disclosure which will undoubtedly have a widespread impact on the conduct of existing and future cases.
In assessing matters, the Supreme Court relied heavily on the leading case of Livesey (formerly Jenkins) v Jenkins [1985] AC A24. Livesey remains the appropriate precedent for practitioners to rely upon when acting on behalf of a party who wishes to challenge a consent order. A consent order can be challenged if the court concludes that full and frank disclosure is likely to have led the court to make a different order.
The Supreme Court has made it clear that not all forms of non-disclosure will result in the setting aside of a consent order. It will depend upon whether the non-disclosure is material to the order made by the court. Mr Sharland and Mr Gohil were both found to have been misleading and fraudulent in their approach to disclosure. If non-disclosure is intentional, it will be deemed material and it will be presumed that proper disclosure would have led to a different order, unless that party can show, on the balance of probabilities, that it would not have done so. The presumption is reversed if the non-disclosure is inadvertent.
Importantly, the judgments provide clear guidance that one party to financial remedy proceedings cannot absolve the other spouse of the duty of full and frank disclosure. The Supreme Court held that a recital to this effect in Mrs Gohil’s consent order was invalid and the duty of disclosure is not a duty that can be contracted out of.
Mrs Sharland and Mrs Gohil agreed financial settlements with their respective husbands which were then embodied in the form of a consent order (in the matter of Sharland, the consent order was only in draft form and had not been sealed). The Supreme Court concluded that the consent orders should either be set aside, or as in the matter of Sharland, not sealed and both wives’ financial claims against their husbands be reconsidered.
Mrs Sharland agreed in July 2012 that she would receive over £10 million in cash and property, and 30% of the net proceeds of sale of ‘Appsense’ shares, a company in which her husband had a substantial shareholding. In 2004, Mrs Gohil agreed that she would receive £270,000 in final settlement of her capital claims and periodical payments of £6,000 per annum from 1 January 2005 until her re-marriage or death. Mrs Gohil’s maintenance was paid until 2008, after which date no payments were made.
During the course of a contested hearing in July 2012, Mr and Mrs Sharland entered into an agreement to settle matters between them. A consent order embodying the agreement was drafted, but not formally sealed by the court. Before the consent order could be sealed, reports appeared in the press indicating that Appsense was being prepared for an IPO, with an anticipated market value of between US $750 million and US $1 billion.
Before the parties had reached the settlement in July 2012, each spouse had instructed their own expert to value Appsense. Both valuers approached their task on the grounds that there were no plans for an IPO. This was founded on the husband’s written evidence at the time which stated that an exit, although theoretically possible at any time, was likely to be at least three, five or seven years after 2012. When questioned on the matter in oral evidence, Mr Sharland had even gone as far as to say “one thing is for sure there’s nothing on the cards today.”
Mrs Sharland entered into the financial settlement with her husband on the basis that there were no plans for an IPO. On this basis, Appsense was valued by the experts to be worth between £60m and £88m in July 2012. This was substantially less than the values which emerged in the press prior to the sealing of the consent order. Seeking to rely on Mr Sharland’s non-disclosure, Mrs Sharland asked the court not to seal the consent order. She asked the court to revisit her financial claims given that she had compromised her position and entered into a settlement based on a far lower valuation of the company.
The Court of Appeal found that the husband’s plans for an IPO had been in “full swing” in July 2012. It concluded that Mr Sharland had knowingly misled both the expert valuers and his evidence at the hearing had been false. However, as no IPO had taken place and under the draft order, the wife had “by far the greater share of the liquid assets”. The Court of Appeal concluded that it would not have made an order which was substantially different from the order which would have been made had there been full disclosure at the outset. Mr Sharland’s non-disclosure was not so material that it should result in the setting aside of the consent order.
The Supreme Court disagreed with this approach and highlighted that family law is different from civil proceedings. In contrast to civil cases where a contract derives authority from the parties’ consent, entering into a consent order in family proceedings derives authority from statute (the Matrimonial Causes Act 1973). It is the court’s independent duty to assess the consent order against the factors set out in the statute to decide if the agreement should be binding on the parties.
As established in Sharland, the parties’ consent to enter into an agreement can be vitiated. If consent is vitiated then the court may conclude that there is good reason to set aside a consent order. Where there is an absence of full and frank disclosure, the court will apply the principles from Livesey, namely that if the absence of full and frank disclosure has led to the court making an order which is substantially different from the order which it would otherwise have made, a party has the right to apply to set aside the consent order.
The Supreme Court concluded that Mr Sharland’s approach was fraudulent, that the consent order should not be sealed and the matter should return to the High Court for further directions.
The agreement Mrs Gohil reached in 2004 somewhat paled in comparison to the estimated £35m in wealth which Mr Gohil was revealed to have accumulated following an investigation which led to his arrest and eventual 10 year sentence for money laundering and fraud.
Mrs Gohil applied to the High Court alleging new evidence had come to light in the criminal proceedings which demonstrated that Mr Gohil had not given full and frank disclosure when she entered into the agreement to settle her financial claims.
Following an eight day hearing, Moylan J set aside the consent order and determined that Mrs Gohil’s application for a further hearing of her claims on the grounds of Mr Gohil’s fraudulent non-disclosure should take place. In his judgment, Moylan J placed great emphasis on some of the evidence relayed to him from the criminal proceedings against Mr Gohil.
Mr Gohil appealed Moylan J’s decision and the Court of Appeal ruled in his favour. The Court of Appeal dismissed Mrs Gohil’s application concluding that the evidence which had come to light as a result of the criminal proceedings meant that there was no admissible evidence to support Moylan J’s conclusions of material non-disclosure.
The Supreme Court unanimously allowed Mrs Gohil’s appeal, reinstated Moylan J’s setting aside order and remitted the matter to be re-heard before Moylan J.
The Supreme Court held that:
Lord Neuberger summarised the principle that: “… where a party’s non-disclosure was inadvertent, there is no presumption that it was material and the onus is on the other party to show that proper disclosure would, on the balance of probabilities, have led to a different order; whereas where a party’s non-disclosure was intentional, it is deemed to be material, so that it is presumed that proper disclosure would have led to a different order, unless that party can show on the balance of probabilities, that it would not have done so."
Penningtons Manches’ comment: “In the past, the Court of Appeal’s approach to a spouse’s non-disclosure of assets has sent out a confusing message, appearing to operate in favour of dishonest or opaque spouses. This was particularly disappointing as the impact of intentional non-disclosure is likely to cause an already weaker financial party to suffer further injustice.
“Practitioners and spouses alike will welcome the Supreme Court’s clarity and clear stance that non-disclosure will not be tolerated with many commenting that Briggs LJ’s original dissenting comment in the Court of Appeal case that ‘fraud unravels all’ was the right and logical approach throughout.
“Ultimately, the dishonest behaviour of two husbands has been condemned and this will set a clear precedent for the way non-disclosure of material financial information is viewed by the family courts.”
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