The Supreme Court handed down the decision today in the combined appeals of Alison Sharland and Varsha Gohil. Both ex-wives appealed to the Supreme Court following non-disclosure by their respective ex-husbands during their divorce and financial proceedings, which they claimed led them to accept far lower financial settlements than they otherwise would have done.
The principal asset in the case of Sharland was the husband's majority shareholding in a private company, AppSense Ltd. During the divorce and financial proceedings Mr Sharland claimed this was worth £31.5million; Mrs Sharland said £47.25million, and the parties subsequently agreed a financial settlement on the basis of those figures. Shortly afterwards, Mrs Sharland discovered that AppSense was being prepared to float on the New York Stock Exchange at a value of $1billion. Mrs Sharland applied back to Court, claiming that she had agreed to the financial settlement on the basis of Mr Sharland's fraudulent non-disclosure. The Court of Appeal held that the husband had been misleading and dishonest and that the consequences of his behaviour could lead to "criminal prosecution, civil contempt proceedings and/or a costs penalty". However the finding of fraudulent disclosure was not in itself sufficient automatically to set aside an approved Court order; rather the Court has to be satisfied that a substantially different order would have been made. The appeal was dismissed.
The facts surrounding Mr and Mrs Gohil's divorce provide some similarities. During the financial proceedings the wife accepted the amount of £270,000 in settlement of her claims. It later transpired that Mr Gohil had been worth considerably more and he was subsequently jailed for fraud and money laundering sums of up to £37million. During his criminal trial evidence emerged that he had intentionally misled the Court and Mrs Gohil during the financial proceedings. However, the Court of Appeal held that the evidence from the husband's criminal trial could not be used in the family proceedings and they could not therefore prove Mr Gohil had been dishonest in the original proceedings.
The Supreme Court unanimously allowed both wives' appeals.
Lady Hale, delivering the lead judgment in Sharland, emphasised the absurdity of the situation in which a victim of a fraudulent misrepresentation in financial remedy proceedings following divorce could be left in a worse position than a victim in civil proceedings. Indeed, "fraud unravels all" and it follows that an order obtained on the basis of fraudulent representations should be set aside in those circumstances. It was held that the Judge would not have made the order he did had Mr Sharland provided the required documentation. The original order has therefore been set aside and the case will go back to the Family Division to be heard afresh.
In the case of Gohil, Lord Wilson, delivering the lead judgment, found that the High Court judge at first instance was correct to have concluded that Mr Gohil had been guilty of material non-disclosure. The High Court order was reinstated and the 2004 financial order set aside. Again, the case will now go back to the Family Division to be heard once more.
The impact of these decisions is likely to be significant and it is anticipated will apply to smaller asset cases as well as the high value cases such as these. The importance of the principle of full and frank disclosure has been clearly reinforced.
The judgments also raise issues regarding how Courts should deal with cases where the disclosure provided is later found to be either insufficient or inaccurate, and even deliberately misleading. Such false representations can lead to a substantially different result and can leave the financially weaker spouse (often the wife) in a very unfair position. Criticism has been made in the past of a system which is often referred to as a "cheat's charter"; almost encouraging the wealthy spouse to hide assets. Given the inadequacy of the current sanctions available to the Court to prevent non-disclosure (such as the drawing of adverse inferences and costs awards); the paying spouse may feel that concealment is worth a try, when weighed against the impact on his/her case of disclosing the full extent of his/her assets. Going forward, however, any awards made or settlement arrived at on the basis of fraudulent or dishonest representations may be capable of being set aside if the aggrieved spouse can show that the outcome would have been substantially different.
The Supreme Court has made it clear that dishonesty in legal proceedings will not be tolerated; a message which should provide a welcome relief to many.