Family Law Hub

Sharland v Sharland [2014] EWCA Civ 95

W's appeal against a ruling that, despite a deliberate failure by the H to give full and frank disclosure, any order which would have been made if proper disclosure had taken place would not have been substantially different from the heads of agreement incorporated into the draft, unsealed order which was approved.

  • In a tweet: Even deplorable non-disclosure may not result in re-opened proceedings 

    Summary: The facts of this appeal case should be familiar as we recently covered the High Court decision. Here we see W appealing Mr Justice Bennett's order that her application to re-open her claim for financial remedies be dismissed on the grounds that the husband's ("H") non-disclosure was immaterial.  

    During the course of a final hearing in July 2012, W and H reached an agreement and the judge subsequently made a Rose order. However, the following month W applied to the court for the order not to be sealed and in due course made an application for the hearing to be resumed on the ground that her consent to the proposed order had been obtained by fraudulent non-disclosure on the part of H. The non-disclosure complained of was his failure to inform her and the court about arrangements to float in New York, by means of an initial public offering (IPO), a company, AppSense Ltd, of which he owned 63% of the shares. 

    The essence of the agreement compromising the parties' claims was that W would receive about £10.355million in cash and properties and H about £5.64 million in cash and properties. In addition, H had agreed to pay W a deferred lump sum equal to 30% of the balance of the proceeds (net of CGT and costs) of any disposal by him of any of his shares in AppSense, after payment of £4m into trust for their child T and a payment of £1,714,286 to W. W had asserted that H's shares were worth £47.25 million whilst the husband had valued the shares at £31.5 million.

    H's evidence at the original hearing was that it was most unlikely that there would be an IPO (or other steps leading to a disposal of his shares) in less than three years' time and probably not until five or seven years' time.  

    On W's application to reopen, Sir Hugh Bennett ruled (in a preliminary judgment) that he retained jurisdiction, as the order had not been sealed. In his substantive judgment he found that H's evidence at the original hearing had been seriously misleading and indeed dishonest because, contrary to his assertion that no disposal of any kind was likely for at least three years, planning for an IPO in early 2013 had been in full swing from January to August 2012. The judge decided that, had H disclosed the preparations for an IPO at the original hearing, he would have progressed the hearing as far as he could and then adjourned to wait to see whether an IPO did in fact take place in early 2103, and its terms. 

    However, by the time of the hearing of W's application to reopen, it was clear that the IPO had not in fact taken place. 

    W's grounds for appeal were that:

    • she had been tricked into an agreement that she would not otherwise have made; and 
    • in the absence of a full trial, at which H could have been cross-examined about his plans for realising the value of his shares in the company, the judge was not in possession of sufficient information to enable him to reach any reliable decision as to what order he would have made at the conclusion of the proceedings. 

    Meanwhile, H argued that the judge had applied the law properly and had been entitled to reach the conclusion that the order based on the agreement was no less favourable to W than that which would have been made if there had been full and frank disclosure and the case had run its course. 

    Held: Interestingly, the Court of Appeal was divided. Lord Justice Moore-Bick and Lady Justice Macur both dismissed W's appeal; however, Lord Justice Briggs decided to give a dissenting judgment, allowing W's appeal.  

    Turning to the majority view first, Moore-Bick LJ considered the speech of Lord Brandon in Livesey v Jenkins [1984] UKHL 3 and drew out three relevant points of principle:

    • the court's power to make orders for financial provision are derived solely from the relevant statutory provisions; 
    • there is no distinction to be drawn for this purpose between orders made following a disputed hearing and orders made by consent of the parties; and
    • when the court embodies in a consent order terms agreed between parties, the legal effect of those terms is derived from the order itself rather than the parties' agreement. 

    He held that the judge had correctly applied the principles set out in Livesey v Jenkins

    • W's contention that the court should set aside the order whenever it is satisfied that proper disclosure might have led to a different outcome, unless the respondent can persuade the court that no purpose would be served by doing so, was inconsistent with the principles in Livesey v Jenkins; 
    • the fact that in this case H had not merely failed to disclose matters relating to AppSense, but deliberately and dishonestly concealed them did not make a difference. Moore-Bick LJ stated:

    "Both parties are under a duty to give full and frank disclosure of all circumstances that might have a bearing on the court's decision, an obligation which is not dissimilar to the obligation of disclosure in connection with a contract uberrimae fidei. It follows that a failure to give such disclosure, whether innocent, negligent or deliberate, is a serious abuse of the process sufficient to engage the court's remedial jurisdiction. The court's power, in an appropriate case, to set aside an order, whether made by consent or otherwise, obtained following non-disclosure is broad enough to enable it to deal with the whole range of cases and provides the principal remedy for the default, whatever form it may take. It follows that a failure to disclose relevant circumstances, although not equally culpable in all cases, has the same effect in relation to any order affected by it. Although in Livesey v Jenkins the House was not concerned with a case of fraudulent non-disclosure, it cannot have escaped Lord Brandon's attention that in many cases a failure to disclose relevant circumstances will in fact involve the deliberate withholding of information thought to be damaging to the interests of the party which holds it. When parties have the benefit of legal representation inadvertent failures to make proper disclosure should be relatively rare. As a result, non-disclosure is most likely to occur because a party has chosen to withhold information from his or her lawyers with a view to promoting his or her own interests. It would be surprising if Lord Brandon had confined his analysis intended to the relatively uncommon cases of inadvertent non-disclosure and I do not think he intended to do so. Fraud would provide an additional ground for rescinding the compromise if the agreement had had contractual effect, but, as the cases show, it did not. The critical factor, as Livesey v Jenkins shows, is the effect of the non-disclosure on the court's own decision embodied in its order. Deplorable though his conduct may have been, I do not think that the husband's dishonesty adds anything of significance to the case, although it may be a matter to be taken into account when the court comes to consider the question of costs."

    • the argument that, had H given proper disclosure, W would have raised her sights and sought more was not persuasive, amounting to little more than saying that the parties might have compromised the claim on terms more favourable to her. They might have, but they might equally well have not. The judge was not in a position to determine what position either of the parties would have taken in negotiation, or what the outcome would have been. What he had to, and could, decide was whether he would have made a substantially different order if the facts had been disclosed.
    • as to the argument that W had been tricked into an agreement that she would not otherwise have made, this might have been a very powerful argument but for the way the case developed. W had agreed to accept 30% of the value of the shares whenever realised. If AppSense had in fact floated in 2013 she could have said with some justification that she had been tricked into making a disadvantageous agreement, but as things stood in July 2012 there was sufficient uncertainty for the judge to have waited to see how things developed, and in the event an early flotation did not take place.
    • W complained that in the absence of a full trial at which H could be cross-examined about his plans for realising the full value of the shares, the judge was not in possession of sufficient information to enable him to reach any reliable decision about what order he would have made at the conclusion of the hearing. However (per Macur LJ), having found that H was dishonest the judge had given W the opportunity to cross-examine H, which she had not been taken up. The judge had devised a process that was fair to both parties.

    Moore-Bick LJ concluded at:

    "It may be unusual for a judge to conclude that despite a deliberate failure by one party to give full and frank disclosure the resulting order should not be set aside, but ultimately that must depend on the nature of the non-disclosure and its effect on the outcome of the proceedings. In this case the husband's non-disclosure was deliberate and dishonest, but because of the rather unusual circumstances there were good reasons for concluding that it had not resulted in an order significantly different from that which the court would otherwise have made at the conclusion of the proceedings. In my view the judge was entitled to hold that the wife had not made out sufficient grounds for re-opening the hearing. That called for an exercise of judgment on his part and in my view his decision was one that was open to him.' 

    Briggs LJ delivered a powerful and detailed dissenting judgment. The essence of his reasons for departing from the majority is set out below:

    "In my view the judge's earlier conclusion that the husband's fraud undermined both the parties' agreement and the consent order which followed ought to have been the end of the matter, and to have led to the setting aside of the consent order, and an order for a new (or perhaps resumed) hearing. I consider that the second stage of the judge's analysis, by reference to the apparent position as at April 2013, leading to his conclusion that the consent order should not be aside, involved three errors of law or principle. The first is that it underrated the significance of the fact (as he had found) that the husband's conduct was fraudulent. The second is that he wrongly derived a special rule or principle from the final paragraph of Lord Brandon's speech in the Livesey case, or at least misapplied it. The third is that he overrode the wife's right to a fair hearing of her claim, in circumstances where her consent to a settlement had been vitiated by fraud, by an essentially summary determination of the relevant facts, on the basis of an affidavit from the dishonest husband which had only been ordered to be sworn to enable the court properly to determine whether there had been a material non-disclosure in the first place, and which was deployed only in the context of an interim application for a re-hearing ….' 

    Comment 

    In essence, what Moore-Bick LJ is saying is that an agreement to compromise a claim for financial relief should not be treated as a simple contract between the parties to which each was bound; misrepresentation by Party A of a kind that would ordinarily entitle Party B to rescind a contract does not necessarily entitle Party B to renounce a financial agreement and resume proceedings. The "critical factor" - when considering whether an order or agreement should be set aside on the ground of non-disclosure – is the effect of the non-disclosure on the court's own decision. The question for the court is not whether a party would have negotiated differently or settled on different terms but whether the court would have made a substantially different order if the facts had been disclosed.  

    Meanwhile, Briggs LJ puts forward the view that H's fraudulent conduct must be a cardinal aspect of the case and that "fraud unravels all". He felt strongly that H's fraud had tainted the process through which judgment had been obtained and that the public interest in the protection of the court's processes from fraud transcends other case management considerations such as finality, economy and speed.

Case note, published: 11/03/2014

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See also

  • W's appeal against a ruling that, despite a deliberate failure by the H to give full and frank disclosure, any order which would have been made if proper disclosure had taken place would not have been substantially different from the heads of agreement incorporated into the draft, unsealed order which was approved. Accordingly, notwithstanding that the husband was guilty of non-disclosure, the non-disclosure was not material and it followed that the wife's application was dismissed. The appeal was dismissed by a majority, Lord Justice Moore-Bick saying that "It may be unusual for a judge to conclude that despite a deliberate failure by one party to give full and frank disclosure the resulting order should not be set aside, but ultimately that must depend on the nature of the non-disclosure and its effect on the outcome of the proceedings. In this case the husband's non-disclosure was deliberate and dishonest, but because of the rather unusual circumstances there were good reasons for concluding that it had not resulted in an order significantly different from that which the court would otherwise have made at the conclusion of the proceedings. In my view the judge was entitled to hold that the wife had not made out sufficient grounds for re-opening the hearing. That called for an exercise of judgment on his part and in my view his decision was one that was open to him." Judgment, 10/02/2014, free

Items referring to this

  • Application by a former husband to set aside a consent order on the basis that, at the time of the agreement, his former wife failed to make full and frank disclosure in relation to a company of which she was both a director and shareholder. It was his case that the non-disclosure upon which he relies was a material factor in that he entered into the agreement to compromise his financial claims arising in the divorce proceedings on the basis of incomplete (and, on his case, misleading) information. Cases of Sharland v Sharland and Gohil v Gohil considered. Judgment, 17/02/2016, free

Published: 11/03/2014

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