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Fraud unravels all – a comment on the decisions by the Supreme Court in Sharland and Gohil

Beware! The Courts are now clamping down on those who give fraudulent or dishonest evidence or non-disclosure on a financial settlement between parties in divorce.

The Supreme Court gave two judgements on the 14^th October 2015 about re-opening divorce settlements on the grounds of fraudulent non-disclosure. The two cases involved the husbands supplying information that was clearly wrong, with the wives in both cases alleging that their husbands had deliberately misled them into accepting smaller settlements by hiding their truth wealth throughout the legal proceedings.

The Sharland v Sharland case primarily concerns the value of the husband’s substantial shareholding of a software business he developed. The husband had told the Court that he had no plans to float the company and that this was “not on the cards”. Both parties instructed valuers, who produced a valuation on that basis, reaching a settlement by consent. The wife agreed to receive 30% of the net proceeds of sale of the business shares whenever they took place, together with other assets. A draft consent order was drawn up on that basis but before it was sealed the wife found out that the husband had been lying as he had already prepared for an initial public offer, which would make his shares far more valuable than the valuation prepared for the hearing. The wife invited the Judge not to seal the Order and applied for the hearing to be resumed.

Even though the Judge did find that the husband had acted fraudulently, the Judge declined to set aside the Consent Order, on the basis that the initial public offer had not taken place and was not in prospect, the Court would not have made a substantially different order. The Court of Appeal upheld the Judge’s decision and the wife subsequently appealed to the Supreme Court, who recently unanimously allowed her appeal.

The Consent Order would not be sealed and the wife’s application would now be returned to the Court for directions.

In the second case of Gohil v Gohil, the wife had always suspected that her husband was concealing his assets but nevertheless, in order to finalise matters reached a divorce settlement with him. She then went back to Court alleging non-disclosure and her husband was then charged and convicted of money laundering. The Judge set aside the divorce settlement stating that he would have made a different order had he known about the fraud. The Court of Appeal reversed this decision saying that the Judge had applied the wrong approach and relied on material obtained in the criminal case which was not admissible evidence in the divorce case. The Supreme Court allowed the wife’s subsequent appeal.

The judgements make clear that knowledge of fraud will normally mean a financial order on divorce can be set aside, except where it can be satisfied that the knowledge of fraud would make no difference to the other spouse or the court.

This is likely to cause a new wave of settlements being re-considered by the Court in the future if there was a material deception in disclosing the true value of assets during divorce proceedings. It is worth noting that the Court previously adopted a fair stricter approach prior to these recent cases, in that it would only be in cases 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” that consent order would be set aside.

So how will this impact you? Firstly, it is imperative that if going through financial proceedings within divorce full and frank disclosure is provided, both before and after proceedings are issued, because its absence can enable one party to re-open or reverse a consent order. Secondly, deliberate non-disclosure creates a presumption that the non-disclosure is “material” and would have made a difference to the settlement reached between the parties.

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