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Sharland and Gohil case implications

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The necessity for parties to provide full and frank disclosure of their assets during financial proceedings relating to divorce has been strongly emphasised in two recent landmark cases at the Supreme Court.

After four months of waiting, the Supreme Court have finally handed down the much anticipated judgments in two cases in which one party failed to fully disclose details of their assets to the other party in financial proceedings relating to divorce. These cases are the first of their kind to reach the Supreme Court.

The two cases, Sharland v Sharland [2015] UKSC 60 and Gohil v Gohil [2015] UKSC 61  were heard at the same time by the Supreme Court. The key facts of the cases and details of the recent judgments are summarised below.

Sharland v Sharland


The facts:

The husband and wife were married in 1993 and separated in 2010 after 17 years together. They are not yet divorced.

Financial proceedings were first heard in July 2012. The husband, a computer software entrepreneur, had developed a successful business in which he held a substantial shareholding. His liquid assets at the time of proceedings, in addition to his shareholding, were valued at £17m.

The value of this shareholding has been in dispute throughout proceedings. Both parties instructed a valuation expert to value the shareholding in the company. Both valuations were prepared on the basis that the company had no plans for an initial public offering (‘IPO’).

The wife’s case was that she should receive 50% of all the liquid assets, and 50% of the net proceeds of the sale of shares in the company, as and when they were sold. The husband’s case was that the assets should be divided equally but that he should retain all the shares in the Company, with the wife receiving the whole of her share from the liquid assets.  

Both parties gave evidence at the hearing. The husband asserted in his evidence that an exit from the company in the next seven years after July 2012 was unlikely. He gave the impression that the company was contemplating various exit strategies but only when the time was right. He said in his evidence that an exit was not ‘on the cards’ at the time of proceedings.

The parties reached an agreement during proceedings, after the parties had given evidence but before the evidence of the valuers had been given. This agreement was drawn up into a draft consent order – therefore the case was settled by consent rather than an order from the court. The agreement provided for the wife to receive £10m in cash and property and 30% of the net proceeds of sale of the shares.

Before the order was sealed, reports appeared in the paper that the company was preparing for an IPO which was expected to increase the value of the Company to $750m-$1000m. The wife immediately applied for the hearing to be resumed and the order not be sealed.

The husband was ordered to file an affidavit responding to the wife’s allegation of non-disclosure, in which he denied that there was any imminent IPO or that he had misled the court. He had annexed documents to this affidavit which the judge said showed that the husband had knowingly misled the expert valuers and had given false evidence.

Perhaps surprisingly, given this acknowledgement that the husband’s evidence had been false, the judge agreed that the order be sealed.  This decision was made on the basis that the order that he was being asked to be sealed was not substantially different to the order he would have made had there been full disclosure.

The wife appealed this decision at the Court of Appeal and this appeal was dismissed. The court applied the case of Livesey in which Lord Brandon has said that an order would only be set aside in cases where the absence of full and frank disclosure had led to the making of an order which is substantially different to the order which would have been made had full disclosure been given. According to the Court of Appeal’s understanding of Livesey - the wife’s legal team should have challenged the husband’s evidence at the hearing and had failed to cross examine the husband on his affidavit.

The wife applied to the Supreme Court to appeal this decision.

The judgment

Lady Hale identified in her judgment that this was a case of fraud. She said that the requirements for setting aside a consent order should be that –

At the time of the consent order - had it not been for the fraud:

The burden lies with the perpetrator of the fraud to evidence to the court that this is not the case, which the husband in Sharland failed to do.

She said that the judge at the first hearing had been clear that the non-disclosure as to the husband’s plans for the Company were highly material to the decision in July 2012 and that this non-disclosure had ‘coloured’ the valuers as to the valuation of the husband’s shareholding. Therefore, the husband’s fraud played as significant part in the wife entering into the consent order and the court approving it.

Lady Hale also found that he wife had been ‘deprived of a full and fair hearing of her claims’ and the Court of Appeal’s finding that the wife’s legal team should have cross examined the husband was incorrect.

Gohil v Gohil


The facts:

The parties married in 1990 and the wife petitioned for divorce in 2002. The husband was a partner in a law firm in London.

In financial proceedings, he disclosed that his net assets at – (£311,512.)

The case was settled at a Financial Dispute Resolution meeting in April 2004 and an order documenting the settlement was agreed. The order provided that the husband should pay the wife a lump sum of £270,000 and was also required make periodical payments for the benefit of the wife and the children.

The order included a recital from the wife that she believed that the husband had not provided full and frank disclosure but that she was compromising her claims in the terms set out in the order regardless to achieve finality.

The wife applied for the order to be set aside in 2007 on the grounds of the husband’s non-disclosure, but her real evidence to support this came in 2010.

As a result of wife’s attendance at husband’s criminal trial for money laundering offences in 2010, she knew that husband’s disclosure in 2004 that his net asset position was minus (£311,512) was wrong.  Husband was indeed found guilty of money laundering offences of £25m.

Due to delay caused by the husband’s conviction and subsequent imprisonment for money-laundering offences, the wife’s application for the 2004 consent order to be set aside was heard in 2012.

Mr Justice Moylan granted the wife’s application for the consent order to be set aside, relying on evidence from the criminal trial of the husband which was not admissible, according to the Court of Appeal.

The husband appealed Moylan’s decision to set the order aside and this was allowed by Court of Appeal.  The wife appealed to the Supreme Court.

The Judgment

The Supreme Court allowed the appeal thus, allowing the consent order to be set aside.

Lord Wilson gave the leading judgement finding;

Lord Neuberger, referencing the Sharland judgment, confirmed that the perpetrator of the fraud has the burden of proving that the fraud was immaterial in the sense that had there been no fraud, the terms of the final order would not have been substantially different, to what they were.

However, Lord Neuberger stated that there is a presumption that:

‘where a party’s non-disclosure was intentional, it is deemed 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’.
 

Conclusion

Setting out the presumption that any non-disclosure is presumed to be material, demonstrates that the former leading judgment in this area of law: the Court of Appeal in Livesey is wrong.

Livesey required the applicant to prove: non-disclosure; and that because of this the court would have made a substantially different order.

Now, it is clear that non-disclosure of finances on divorce, if found to be dishonest is fraud.  And, if non-disclosure is found, two presumptions follow.  The first is that it is material, and the second is that the court would have made a substantially different order had it not been for the fraud/non-disclosure.

These presumptions should deter a divorcing party from not disclosing, because he/she will have the difficult task of proving the non-disclosure was immaterial, in the sense that had there been full disclosure, the innocent party would have entered into the agreement the court would have made a similar order.

Both cases will now be re-heard by the Family Division of the High Court and unfortunately involve further litigation for all parties. It will be extremely interesting to hear the outcome of these cases and indeed what financial rewards the wives receive - particularly in comparison to the previous settlements.

If you have any questions about the content on this blog or would like any advice in respect of financial proceedings relating to divorce, please contact a member of the family team

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