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Family Law

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Irwin Mitchell , 20 OCT 2015

Sharland and Gohil: A few F words - Fraud, Floodgates, Full and Frank, Finality…

Hayley Trim

Professional Support Lawyer

@hayleytrim

Sharland and Gohil: A few F words - Fraud, Floodgates, Full and Frank, Finality…
I returned from a short holiday abroad on the afternoon of Thursday 15th October. I had promised I would write this piece many weeks earlier and pursuant to that proverbial law I learned shortly before I left that the judgments in Sharland and Gohil were due to be handed down on Wednesday 14th. I confess that despite sitting on a beach in 27˚C of sunshine, I was disappointed not to have been at work to experience the media headlines, the outpouring of legal community opinion and in particular the elation of my colleagues and their clients. Two Supreme Court judgments on matrimonial finance matters – it doesn’t happen every day.

I read the judgments online (on the beach). A victory for Mrs Sharland and Mrs Gohil. In my own opinion, and having had the privilege of attending the Supreme Court to observe some of the hearing, the right result. How has it been received? I scanned a few news pieces; the two predominant headlines appear to be 'dishonesty will not be tolerated' vs 'the floodgates will be opened'. I’ll discuss that a bit later on.

In his excellent address to the Jordans Family Law Conference on 8th October, Christopher Wagstaffe QC considered some of the big questions that the Supreme Court would be likely to address in their judgments. I have added a couple of my own.

What are the consequences of non-disclosure discovered after an order has been made in financial remedy proceedings? Does it make a difference if the non- disclosure is inadvertent or fraudulent? Does fraud 'unravel all' in matrimonial cases? What is 'material' in the Livesey v Jenkins sense? Does a party who compromises their claim while acknowledging that they don't believe that the other has told the whole truth forfeit their right to bring a claim for set aside when evidence of nondisclosure subsequently emerges? If the court is prevented from carrying out its duty under the Matrimonial Causes Act as a result of non-disclosure, how does that impact upon the order it makes? Ultimately, when will the court set aside an order that has been made (whether pursuant to an agreement or following a contested final hearing) in the absence of full and frank disclosure? And by what procedure should an application to set aside for nondisclosure be made?

I will not repeat the facts of Sharland and Gohil, which are now well known and set out in Amy Royce-Greensill’s article and of course in the Supreme Court press releases.

Separate judgments were given in each case. The Supreme Court was unanimous in finding in both cases that the wife's claim to set aside should succeed. So why did the highest court in the land find that the Court of Appeal had got it wrong?

Sharland

Lady Hale gives a succinct and clear judgment in Sharland. Is there a 'special magic,' she asks, about orders in matrimonial proceedings that prevents the general principle that 'fraud unravels all' from applying? From that point on I suppose the writing is on the wall. The Family Court has been criticised in recent years for considering itself 'different' from other divisions of the court (Prest, Imerman etc). How could such a fundamental principle apply any differently in the Family Court to elsewhere?

Well, family orders are different, Lady Hale confirms. It is trite law that the Family Court’s jurisdiction cannot be ousted by the parties and an agreement to compromise financial remedy claims is not a binding and enforceable contract. The authority of a consent order derives from the court’s endorsement of an agreement, which it may or may not bestow having looked at the circumstances of the case. Of course, in most cases the court will give great weight to the fact of the parties’ agreement and will only make further enquiry or decline to make an order where alarm bells ring. So that is one difference between family proceedings and other civil proceedings where the parties’ agreement to compromise of itself creates a binding contract.

However, Lady Hale points out that, although a consent order derives its authority from the court, the agreement of both parties remains a pre-requisite. The court cannot summarily make an order dismissing claims unless the parties agree.

Therefore, if there are factors (such as non-disclosure) that vitiate one party’s consent, the basis of the agreement may be undermined and there may be good reason for a consent order to be set aside.

The second difference from other civil proceedings is that each party has a duty to the court to make full and frank disclosure of his or her financial circumstances. Unless that duty is complied with, the court cannot carry out its own statutory duty and as such any order made pursuant to a failure to disclose is liable to be set aside.

Although the duty of full and frank disclosure and the role of the court in matrimonial proceedings differentiates them from other civil proceedings, it would be 'extraordinary' said Lady Hale if the victim of non-disclosure in a matrimonial case were to be in a worse position than any other civil litigant.

It is against this background that the test for set aside per Livesey v Jenkins is examined and elucidated. Essentially, Lady Hale finds that there is a difference between innocent or inadvertent non-disclosure (as indeed had been the case in Livesey itself) and deliberate or fraudulent nondisclosure.

In the former case (innocent non-disclosure) the test is that with which we have become familiar: the party alleging non-disclosure must show that there has indeed been non-disclosure and that it is material such that had the court been in possession of the full facts at the time it made the order it would have made a substantially different order. As an aside, it will be very unusual for there to be genuinely innocent non-disclosure when one considers the warning inscribed on the first page of the Form E, or the messaging that is clear when parties complete a Statement of Information Form.

However, if fraud is demonstrated, materiality will be assumed. Pursuant to the case of Smith v Kay a party who has practised deception with a view to a particular end that has been attained cannot be allowed to deny materiality. Fraud does indeed unravel all as Briggs LJ had stressed in his dissenting judgment in the Court of Appeal, subject to the proviso below. If the wronged party demonstrates that there has been deliberate (ie fraudulent) nondisclosure, the burden of proof reverses for the second part of the test: it will be for the non-discloser to show that 1. the fraud would not have influenced a reasonable person to enter the agreement and 2. that the court would not have made a significantly different order at the time it did, irrespective of whether the parties agreed. These two conditions recognise the two requirements of a consent order – the agreement of the parties and the endorsement of the court fulfilling its statutory duty.

The Supreme Court found that Sir Hugh Bennett at first instance had misinterpreted Livesey, which draws a distinction between triviality and materiality as at the date the order was made. Sir Hugh had indicated that he would have adjourned the wife's claims to see what in fact became of the intended IPO. Since in fact the IPO had not taken place by the time he came to reconsider the matter, he decided that the consent order should stand. However, the Supreme Court stressed that the judge had to look at the facts at the time the order was made, not with the benefit of hindsight – the judge had not taken into account the ability of the husband to control the process and the timing. The husband's nondisclosure had operated on the expert valuers, the wife and the court. The Supreme Court felt that had the facts been available at the time of the original order, the wife would not have entered the agreement and the court would not have made the order. The court would not have been in a position to make that order at that time anyway without the wife's consent. The hearing would have had to be completed.

The failure of the judge to reopen the hearing deprived the wife of the right to a fair hearing and prevented the court from carrying out its statutory duty to take into account all the relevant circumstances.

The wife was not required to cross-examine the husband once his affidavit revealed deliberate non-disclosure. The burden switched to the husband to demonstrate that the court would have made the same order notwithstanding his deceit.

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Gohil

Lord Wilson gives the leading judgment in Gohil to which Lord Neuberger adds a further supporting judgment. The primary question posed by Lord Wilson is whether the Ladd v Marshall principles that govern the adducing of fresh evidence upon an appeal are applicable to an application to set aside an order for non-disclosure. Ladd v Marshall provides that in order to be admitted on an appeal, new evidence must not have been able to be obtained at the trial with reasonable diligence; it would probably have had an important influence on the result; and it must be apparently credible.

The Court of Appeal had found that Moylan J had not only taken into account inadmissible evidence from the criminal proceedings against the husband, which the CPS had obtained from foreign countries through the mutual legal assistance scheme, but that the remainder of the evidence had not satisfied the Ladd v Marshall test and so it was also inadmissible. The Court of Appeal considered that since the wife could have brought an appeal rather than a fresh action, she should not be able to get around the evidential rules of an appeal.

Lord Wilson, however, pointed out that the overarching issue in a set aside application is the failure to make full and frank disclosure. It would have been the duty of the husband at a hypothetical final hearing to provide disclosure; it was not the duty of the wife to adduce evidence of his resources. The set aside application before Moylan J had been her first opportunity to adduce any evidence to the court. The Ladd v Marshall test therefore has no relevance to an application to set aside for non-disclosure. Lord Wilson described the Court of Appeal’s decision as a rare aberration. In order to reinstate Moylan J’s decision to set aside the 2004 consent order, the Supreme Court recognised that it would have to find that Moylan J would have reached the same decision on the admissible evidence (excluding the evidence from the criminal proceedings which had been judged inadmissible). Lord Wilson reviewed the judge’s findings and felt that there was sufficient there that he would have reached the same conclusion even without the inadmissible evidence.

It was open to Moylan J to draw adverse inferences against the husband that he held assets in 2004 that he had failed to disclose given his obfuscation about the origin of the assets and other findings about his lack of credibility.

Lord Neuberger confirms his agreement with Lord Wilson’s judgment and adds that the court should not remit the issue for determination where there has been material non-disclosure provided it would not result in unavoidable injustice to the husband. The Supreme Court therefore had to be satisfied that: (i) Moylan J would have decided that there had been material non-disclosure even without the inadmissible evidence; or (ii) the Supreme Court could conclude for itself that there had been material non-disclosure; or (iii) if the issue was remitted for re-hearing the judge could only realistically come to that conclusion on the admissible evidence. Ultimately he found that all three of those options applied and therefore Moylan’s judgment could be upheld rather than being remitted for re-determination.

Moylan J now faces the unenviable task of determining the extent of the husband’s current assets and the extent to which they represent the proceeds of crime in order to establish what would be a fair award to the wife.

An extremely important element of Lord Wilson’s judgment is that a party’s duty to the court to give full and frank disclosure cannot be avoided by the agreement of the parties. Therefore, the recital in the original consent order, which was an apparent concession by the wife that despite her belief that the husband had not disclosed all his resources she was compromising her claims in the interests of finality, had no effect. This is discussed further below.

Procedure

Another area of welcome clarification from the Supreme Court is in relation to procedure. The Family Procedure Rule Committee has set up a 'Setting Aside Working Party' to look into clarification of the procedure for setting aside orders, which Munby J as he then was called 'a procedural quagmire' in L v L back in 2006. More recently in CS v ACS and BH [2015] Munby P held that the terms of Practice Direction 30A restricting challenge to a consent order to the appeals procedure only to be ultra vires.

The options available to the victim of nondisclosure currently are:
  1. to seek leave to appeal out of time; 
  2. to commence a fresh action; and
  3. to issue an application within the matrimonial proceedings.
The Supreme Court confirmed that all of those avenues are legitimate but endorsed the work of the Working Party and suggested that an appeal will not be the best route where there are disputed facts to be determined since an appeal court is not designed to resolve factual issues. This was demonstrated by Gohil where the Court of Appeal had not been in a position to review the factual evidence. A court at the same level as that which made the original order, including magistrates, is the most appropriate forum. Clarification of the rules will be most welcome.

Lady Hale points out that just because an order is set aside, the case does not have to start again from scratch. There may be areas of common ground, the points affected by the non-disclosure may be isolated and there should be robust case management to further the overriding objective.

Other matters

In a final comment in Sharland Lady Hale notes that in relation to whether there should have been a tapering award to recognise that as time passed post-separation the business would become less of a matrimonial asset, there is room for more than one view and it would not be appropriate to comment. This therefore remains an area of discretion open for argument. In many ways, it appears that the parties’ respective approaches to the potential for a tapering award was a bar to resolving matters without the need for a hard-fought appeal.

Discussion

Are these judgments a licence to litigate? Isn’t there a point at which enough is enough and there has to be finality? Will these judgments open the floodgates? I’ve never really been a fan of the floodgates argument – if it means that there is justice, does it matter if more people have access to that justice?

On a practical level, media coverage of family law cases invariably increases the number of enquiries we receive. Often the enquiries are not directly on the subject of the judgment itself. An application to set aside is still not to be undertaken lightly and practitioners would be mistaken to advise their clients otherwise. The only real change of test is where it can be shown that there has been non-disclosure AND that it was deliberate. Where there is evidence of that then the victim of non-disclosure is in a better position than before. Further, there remains the prospect of litigation, not just to achieve the setting aside of the original order, but to then go on to establish what the correct settlement should be. The legal costs, not to mention the stress, anxiety and emotional cost of proceedings, may well outweigh the benefit. For many people, moving on will be of more value on many levels. However, for those who feel they have truly been wronged, the door is open a little wider to revisit an order that may have been obtained by fraud.

Lady Hale’s judgement in Sharland stresses the established sentiment supported by the vast majority of family lawyers that settling claims by agreement rather than adversarial court battles is in the interests of all those family members involved in and affected by matrimonial disputes, not least the children. I am very much a supporter of mediation and other non-court dispute resolution, but in certain cases court proceedings are unavoidable. That is particularly applicable where either party refuses to pay more than lip service to his or her duty to provide full financial disclosure. The Supreme Court has provided much needed clarification for those who want to seek resolution of their financial affairs without going all the way to a final hearing. The recital in the original consent order that Mrs Gohil believed there had not been full disclosure but that she was agreeing a settlement in the interests of finality was unusual and few lawyers would have advised Mrs Gohil to agree it. In the Supreme Court the recital put under the spotlight the question of whether a spouse who had suspicions of non-disclosure should agree a settlement at some stage before a final hearing or whether to do so would mean she would forfeit her right to seek to set aside that agreement if concrete evidence of non-disclosure later came to light. The upshot would be that she would have to pursue her case all the way to final hearing where she may or may not be able to show the existence of other assets.

The Supreme Court bluntly held that the recital was irrelevant. The duty of full and frank disclosure cannot be avoided by any agreement of the parties, and more to the point the court’s duty cannot be so avoided. This means that parties are free to enter agreements – they do not have to pursue a court-imposed result if they have expressed suspicion; personal autonomy is supported; and non-court dispute resolution can still be used as an avenue for settlement. The burden simply falls on the parties to be honest if they expect their agreements to stand.

It is about parties making an informed decision and the court endorsing an agreement that they have reached. We all have cases where an individual is settling a case in the knowledge that they are conceivably accepting a lesser award than they might achieve at trial. In those cases, we fully explain the situation to the client and to the judge considering the consent application. Ultimately, the court retains discretion and is able to exercise that discretion to make the requested order provided that the disclosure is full and frank.

There is no doubt that the judgment sends a clear message to those who fraudulently misrepresent their finances to the Family Court – an order made on that basis is highly likely to be set aside if evidence of the fraud emerges in the future. Whether that will deter those who are determined not to share their wealth with their former spouse is another matter. For us lawyers advising our slightly reluctant clients, however, the consequences of misleading the court can be clearly spelled out – there can be no finality unless there has been honesty.

It has been a long and arduous journey for the Sharland and Gohil families to get to this point and in my view family law owes them a debt of gratitude for enabling the Supreme Court to clarify the awful mess that the law on set aside was in. There are always going to be questions of degree and extent – at what point would a reasonable person be influenced to enter an agreement? Is that the same point at which a court would have made a significantly different order? How significant is 'significantly different'? But at least we now we know where the burden of proof lies and that the duty of disclosure cannot be avoided even by agreement. If the overwhelming message in the media is that dishonesty has serious consequences, then for once, I approve.

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