Non-Disclosure: Don’t run the risk!
We previously commented (see previous article) on Varsha Gohil’s and Alison Sharland’s non-disclosure applications to the Supreme Court. In those cases, both appellant wives were seeking to persuade the court that it should set aside their divorce settlements on the basis that their husbands had been dishonest and deliberately misled them and the court about the true value of their assets during the financial remedy proceedings.
Overturning the decisions of the Court of Appeal, this week the Supreme Court unanimously decided in favour of the ex-wives as a result of the material non-disclosure by the husbands regarding their financial circumstances. In the case of Mrs Gohil, the court ruled that the original Consent Order should be set aside. In Mrs Sharland’s case, the court sent the matter back to the High Court for further directions as the Consent Order had not been sealed.
In Gohil v Gohil, Mrs Gohil already had serious reservations about her husband’s financial disclosure when she agreed to the Consent Order. Unfortunately, due to money laundering allegations against Mr Gohil in 2008 for which he was convicted in 2011, her application to set aside the order (which was commenced in 2007) was delayed. Eventually in 2012 the High Court allowed her application. However, as the court had inadvertently given considerable weight to inadmissible evidence that was taken from the husband’s criminal proceedings, the Court of Appeal allowed the ex-husband’s appeal.
In overturning the Court of Appeal’s decision, the Supreme Court concluded that even without the inadmissible evidence, the High Court would still have found the husband to have been guilty of large-scale material non-disclosure in 2004 based on the admissible evidence. His evidence was found to have been “unconvincing and inconsistent”. In the circumstances, there was no risk of any injustice to the husband by re-instating the High Court’s decision.
The Supreme Court’s decision provides some helpful clarity on non-disclosure cases. It confirms that where a party’s non-disclosure is accidental or negligent, the other party would need to show that the relevant Consent Order was substantially different from the order which would have been made or agreed had proper disclosure taken place. However, where the non-disclosure is intentional, it is deemed to be material leading to the presumption that proper disclosure would have led to a different order unless a party can show otherwise. In this case, since the duty of full and frank disclosure had been intentionally breached, the High Court had correctly ruled in Mrs Gohil’s favour.
In Sharland v Sharland Mrs Sharland had originally asked the High Court judge not to seal the Consent Order, despite it having been previously agreed, after becoming suspicious about the true value of her husband’s software business. The Supreme Court unanimously upheld her appeal, overturning the decisions of the two lower courts (where the judges had decided that Mrs Sharland could not demonstrate that a significantly different outcome would have been reached had the extent of the husband’s fraud been known at the time of the financial remedy proceedings). The onus was on the husband to show that his fraud would not have influenced the outcome of the financial remedy proceedings.
In reaching its decision, the Supreme Court reminded us that, in order to determine how best to divide matrimonial assets pursuant to Section 25 of the Matrimonial Causes Act 1973, a court is required to conduct an independent assessment. This will be heavily influenced by what the parties have agreed and in particular by the information that they disclose.
The Supreme Court also highlighted the fact that a Consent Order cannot be made by the court without the agreement of the parties. Considering that common law contracts agreed between parties can be rescinded in cases of fraudulent misrepresentation after being executed, it would be extraordinary if victims of a fraudulent misrepresentation in matrimonial cases were to be in a worse position. The decision demonstrates what the impact of fraud is likely to be in matrimonial cases.
The general message is clear. In order to have some finality and prevent a Consent Order from being set aside, parties should be upfront and honest about their true asset position from the outset. Whether or not these decisions are likely to open the floodgates will remain to be seen. In the meantime, anyone considering whether to withhold information about their wealth in divorce proceedings should take note of these cases.
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