Fraudulent Non-Disclosure In Divorce Proceedings

In matrimonial proceedings it is the aim of every family lawyer to obtain a settlement for their client which is fair and reasonable having regard to the particular facts and circumstances of the case.

When negotiating a financial settlement each party is under an obligation to make full and frank financial disclosure of their income and assets.  Within Court proceedings this is normally done in a document called a Statement of Information or a Financial Statement (Form E).

Once a settlement has been agreed the aim is to conclude the settlement by way of a Consent Order. The Consent Order will confirm the financial settlement reached ideally by way of a clean break order.

A clean break order will mean that neither party will be able to make any other financial claim against the other (excluding claims for children) in the future.

A failure to make full and frank financial disclosure can lead to serious consequences. Firstly, it could amount to Contempt of Court which could lead to criminal proceedings under the Fraud Act 2006.  Secondly, it could lead to the setting aside of a settlement and Consent Order for a fraudulent non-disclosure.

The setting aside of a Consent Order for a fraudulent non-disclosure is illustrated in the recent Supreme Court case of Sharland v Sharland [2015].

Sharland v Sharland

Case details

The Sharland case involved an appeal by the wife for fraudulent non-disclosure in relation to a financial settlement agreed with her husband.

In this case the parties married in 1993 and separated in 2010.  There were three children of the family.  One child suffered from severe autism requiring full time care by the wife for the rest of his life.

The husband was an entrepreneur who held a substantial shareholding within a software company which he had developed.  In the financial proceedings and negotiations between the parties an issue arose as to the value and manner of distribution of the husband’s shareholding within the company.

Both parties instructed valuers to value the shares upon the basis that there were no plans for an Initial Public Offering of the company.  At the hearing the husband gave evidence confirming there was no Initial Public Offering, “on the cards today”.

The parties reached a settlement at the hearing by which the wife agreed to receive 30% of the net proceeds of sale of the company, whenever that took place, together with further assets including £10 million in cash and property.

At the hearing the Judge approved of the settlement reached between the parties and a draft Consent Order was prepared confirming the settlement reached.  However, before the Consent Order was finalised and sealed by the Court the wife became aware following reports in the press that the company was being actively prepared for an Initial Public Offering.  This was expected to value the company at a figure far in excess of the valuations prepared for the hearing.

When the wife discovered the above she immediately contacted the Court and asked the Judge not to seal and issue the Consent Order. The wife asked for a further hearing.

At this further hearing the Judge found that the husband’s evidence had been dishonest and that, had he disclosed the Initial Public Offering plans, the Court would have adjourned the financial proceedings to establish whether it was going to go ahead.

However, by the time of the further hearing the Initial Public Offering had not taken place and was not now in prospect.  In view of the position the Judge declined to set aside the Consent Order on the grounds that he would not have made a substantially different order in the financial proceedings. The wife appealed. The Court of Appeal upheld the Judge’s order and the wife appealed to the Supreme Court.

The Supreme Court unanimously allowed the wife’s appeal. The Supreme Court ordered that the Consent Order would not be sealed and issued and that the wife’s application for a Financial Order was to be returned to the Family Division of the High Court for further directions.

In the Court of Appeal Lady Hale in her judgment stated that it:

“is in everyone’s interest that matrimonial claims should be settled by agreement rather than by an adversarial battle in Court.  The financial resources of the family are not whittled away by the often substantial legal costs involved.  The emotional resources of the family are not concentrated on conflict.  The future relationship between the adult parties is not soured, or further soured, by that conflict”.

Lady Hale went onto say in her judgment that this case was one of fraud, “It would be extraordinary if the victim of a fraudulent misrepresentation in a matrimonial case was in a worse position than the victim of a fraudulent misrepresentation in an ordinary contract case, including a contract to settle a civil claim”.

Comment

The moral of the Sharland v Sharland case is that it serves as a reminder that there is no scope whatsoever for a party in matrimonial proceedings to be anything other than absolutely honest when disclosing their financial position.