We asked an experienced family law barrister to take a look at the long anticipated judgment in the appeals of Sharland v Sharland [2015] UKSC 60 and Gohil v Gohil [2015] UKSC 61.

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Will this verdict lead to the opening of the floodgates for thousands of unmeritorious claims in line with the comment of Mr Sharland’s lawyers or is it a victory for common sense and a defeat to dishonesty?

The judgments were handed down together but it is Baroness Hale’s judgment in Sharland that will be be of greater long-term legal significance.  Arguably this case fundamentally reconsiders the threshold that needs to be crossed before a consent order can be reopened and arguably lowers significantly what was previously a high hurdle to cross.

The previous leading case was Livesey (formerly Jenkins) v Jenkins [1985] AC 424.  Here a wife failed to inform the court or the husband that she was about to remarry again when he agreed to sign over his 50% share in the former matrimonial home to her.  The House of Lords held that the wife had a duty of full and frank disclosure throughout the proceedings even where an agreement had been reached between the parties but then in the speech of Lord Brandon the problems began.  He stated that only where the absence of full and frank disclosure had led to the court making an order "substantially different from the order which it would have made if such disclosure had taken place" would a case for setting aside the order could be made good.  The court set aside the order in Livesey but subsequently the hurdle set by Lord Brandon was a high one to cross with courts determining that not withstanding significant dishonesty consent orders should stand if they were more or less in the right ball park and indeed that was the decision of the Court of Appeal in Sharland with a strongly worded dissenting judgment from Briggs LJ.

The facts were that Mrs Sharland agreed to take the majority of the parties’ liquid assets but only a 30% share in the husband’s shares in his software company when they were sold.  Agreement was reached between the parties during the final hearing in July 2012 after both had given evidence to the court but before the court had heard from competing experts about the potential value of the husband’s shares.  Both valuers had valued the company on the basis that there would not be an Initial Public Offering (IPO) of Shares and the dispute between them was whether overall the company was worth £60 or nearer £90 million. 

Following the agreement there were media reports about a share issue in the husband’s company which placed its overall value at somewhere between £750 and £1,000 million.  Subsequently the husband disclosed documentation that showed that there had indeed been plans for an IPO in 2013 and that the husband had lied during the course of his oral evidence during the trial.

He argued successfully that consideration of an IPO had been abandoned. Therefore his non-disclosure would not actually make a difference to the order the court would make.  The Court should therefore uphold the consent order.  Both the High Court and the Court of Appeal accepted this assertion. Both courts made reference to the fact that counsel for the wife had not sought to challenge the husband’s case that the plan for an IPO had been abandoned.

Baroness Hale took a very different view and said the following:

“32. It would be extraordinary if the victim of a fraudulent misrepresentation, which had 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. As was held in Smith v Kay (1859) VII HUC 749, a party who has practised deception with a view to a particular end, which has been attained by it, cannot be allowed to deny its materiality. 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...”

It had been found in the Court of Appeal below that the case was not analogous to fraudulent misrepresentation in a contract because it was court’s function to approve the consent order.  Therefore there was more to the order than the parties’ agreement unlike a contractual agreement. Baroness Hale turned this logic on its head commenting that the court had no power to make such an order without the consent of both parties. Therefore their agreement and the evidence that had lead to that agreement were a fundamental part of the consent order.

She was clear at paragraph 33 that a fraud such as this one would only not vitiate a consent order where,

“…The fraud would not have influenced a reasonable person to agree to it, nor, had it known then what it knows now, would the court have made a significantly different order, whether or not the parties had agreed to it…” 

In that case,

“…The burden of satisfying the court of that must lie with the perpetrator of the fraud. It was wrong in this case to place upon the victim the burden of showing that it would have made a difference.”

She continued:

“35. …The wife had been deprived of a full and fair hearing of her claims… The application and cross-application before him related to whether or not the order made on 19 July 2012 should be perfected. There was no need for the wife’s counsel to cross-examine the husband, as the documents he had now disclosed revealed that he had deceived the court.”

It seems extremely likely that this judgment is going to mark a significant change in how the courts approach the issue of non-disclosure and whether it should vitiate a consent order.  Whether the failure to disclose is material is now going to be assessed against the affect it has had on the parties’ negotiations and agreement not merely against the arithmetical affect it may have had on the value of the parties’ assets. 

However, whether a great deal will change in the reality of the coalface of the Family Court remains to be seen.  Neither Mrs Sharland nor Mrs Gohil has actually obtained any more money.  They have both had their cases remitted to the High Court to be considered again.   

The solicitors for Mr Sharland already appeared to be rehearsing their arguments on national media yesterday when they commented that she had already received generous provisions in form of a number of properties and other capital.  It is certainly not unusual for one party to take a large share of more secure capital assets in return for a lesser share of less certain speculative assets like shares.  It is also unclear to what extent the value of the company would actually be any different if an IPO was planned but then did not happen.  It was also argued in the High Court that the wife’s interest in the shares could be the subject of a tapering award meaning that the wife will receive less if they are not sold for some time as their value will then have been affected by the husband’s endeavours post marriage and will cease to be purely matrimonial assets.

Mrs Gohil’s case offers great potential for optimism. There are significant assets that were not in the original matrimonial pot although whether anything will remain after the Confiscation Proceedings arising from the husband’s multiple criminal convictions for fraud again remains to be seen.

Fundamentally, it seems unlikely that Sharland is unlikely to give rise to thousands of attempt to reopen consent orders.  There will be some applications but the major hurdle of proving non-disclosure will remain for most litigants.  Casting suspicion or questioning whether the facts add up is far easier than actually proving that there are actual hidden assets when the person with custody and control of those assets does not want to admit it.

Sharland may herald some change in the approach of the courts to issues of non-disclosure.  The drive to settle in all courts of first instance is an increasingly loud clamour with judges voicing concerns about the costs to the parties and the cost to the public purse when there are fewer judges and fewer courts and the promise of more spending cuts to come.  Whilst there is merit in the reminding litigants that the aim is to achieve agreement for their mutual benefit whilst they still have something worth arguing about there must be the risk that important issues are not being litigated when they should be.  One wonders whether the courts will shout so loudly about not asking questions and raising issues when a failure to secure full and frank disclosure is now more likely to see everything litigated again

Sharland may also lead to fewer litigants pleading poverty at the time of divorce only to dramatically bounce back once the financial remedy proceedings have concluded.  One can but hope that there might be fewer examples of businesses suddenly doing poorly or work drying up if litigants are aware that everything could be considered afresh if that poverty turns out to have been fictional and temporary.

What must be true is that litigants who have managed to pull the wool over the eyes of their former spouses and the courts and are now openly living the proverbial life of Riley will be anxiously looking over their shoulders in the light of this decision and if Sharland opens the floodgates against them that is clearly no bad thing.