The Supreme Court has unanimously allowed two separate appeals where the wives in each case argued that their divorce settlements should be set aside.

The wives argued that their divorce settlements should not be upheld on the basis that they were unfair, because their husbands had not provided full and frank financial disclosure. They argued that the result of this was that they received less than they should have done, had proper disclosure been provided.

The Supreme Court has agreed with both wives and the two cases will now go back to the Family Division to be reassessed.

The facts

In Sharland [2015] UKSC 60, after giving evidence at final hearing, the parties reached an agreement (being a 50/50 split of the assets).  The judge approved the terms of the parties’ agreement and it was to be drawn up into a consent order.

The husband had a 2/3 ownership in a successful company. Shortly after the agreement was reached, the wife later became aware that the husband had been in discussions with investment bankers, actively preparing to launch the company on the stock market. This did not match with what the husband had said in evidence, and the company had been valued on the basis that there were no plans to sell to the public.

The wife applied to the court to stop the consent order being sealed (rubber stamped by the court) and to resume her financial remedy claim, on the basis of the husband’s fraudulent non-disclosure. The judge at first instance dismissed her appeal on the basis that her award would not have been substantially different if the husband had disclosed the dealings. The Court of Appeal also dismissed the wife’s appeal.

The parties in Gohil [2015] UKSC 61 reached an agreement about their finances on divorce in 2004 and a consent order was drawn up. The husband (a solicitor) was convicted of money laundering and was sent to prison for 10 years. The wife appealed to set aside the consent order on the basis that the husband failed to fully disclose his assets at the time.

The High Court agreed to overturn the original settlement in 2012. But the Court of Appeal then said it should be upheld, on the basis that the court could not use the evidence from the criminal trial (inadmissible evidence), so could not prove that he was being dishonest in the financial proceedings.

The considerations

In Sharland the Supreme Court considered three questions:

  • What is the impact of fraud on an agreement in financial remedy proceedings and/or a consent order approved by the court and is it different from, or the same as, it would be in other civil proceedings?
  • In financial remedy proceedings, does fraud give rise to separate remedies to those available in other instances of non-disclosure?
  • Where either fraud and/or material non-disclosure is established, does the refusal by the court to rescind the order (and so reinstate the trial process) sit at odds with the aggrieved party’s right to a fair trial?

The question in Gohil was the approach to take when there has been material non-disclosure by one party.

The outcome

In Sharland the Supreme Court said that each party had a duty to make full and frank disclosure to one another and the court. The court can approve an order agreed between parties, but the order dervies from a decision of the court, and not from the agreement of the parties. Mrs Sharland was deprived of her right to a full and fair hearing and so the case is to be sent back to the Family division for directions to re-open Mrs Sharland’s claims.

The Supreme Court unanimously allowed Mrs Gohil’s appeal and ruled that in light of the findings in admissible evidence, Mr Gohil would have been found guilty of material non disclosure in the financial remedy proceedings. This meant that the order of Mr Justice Moylan, the High Court judge who heard (and granted) Mrs Gohil’s original application to set aside the order in 2012, should be upheld.

What next?

Before today’s judgments, the law was not clear as to when a lack of disclosure was enough to set aside an agreement.

The outcome is likely to have wide-reaching implications and could open the floodgates for further challenges to divorce settlements.  However, increased awards are not guaranteed simply because a case is to be re-heard and therefore care should be taken before deciding to embark on this course of action.

Lord Wilson in Gohil has emphasised that the proceedings will not necessarily start afresh. But the court may choose to isolate the issues that the non-disclosure relates to and focus solely on those issues as part of the re-trial.

If you are concerned that this may affect your own situation, or that of someone you know, please contact us to discuss the options available.

The judgments in both cases can be read in full here and here.

This article first appeared on http://www.tltsolicitors.com on 14 October 2015

 

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