Fraud unravels all: the Supreme Court divorce judgments in Sharland and Gohil

The Supreme Court has today given two judgments (Sharland v Sharland, and Gohil v Gohil) about re-opening divorce settlements on the grounds of fraud. Sharland lays down a new test in cases involving fraud, which should mean more settlements are reopened in future.

Alison Sharland agreed a divorce settlement with her husband, who’d told the court he had no plans to float a company of which he owned about two-thirds. But then she realised that in truth, he was already preparing for an initial public offer—which made his shares more valuable than they’d seemed. The divorce judge found that he’d acted fraudulently, but refused to set aside the divorce settlement and hold a fresh hearing, because in fact the IPO had not gone ahead, and now seemed unlikely; so the court was unlikely to order a different settlement, after all. The Court of Appeal upheld that ruling (though Lord Justice Briggs dissented, saying in effect that “fraud unravels all”).

Varsha Gohil always thought her husband (who was a solicitor) was concealing his assets, but she reached a divorce settlement with him so as to achieve finality. Later, though, she went back to court alleging non-disclosure. Then her husband was charged with, and then convicted of, money laundering—and sentenced to ten years in prison. The judge set aside the divorce settlement, because he would probably have made a different order had he known of the fraud. But the Court of Appeal reversed this, saying the judge had applied the wrong approach, and relied on material obtained in the criminal case which (because of a separate Court of Appeal ruling) was not admissible evidence in the divorce.

The Supreme Court has allowed both women’s appeals today. In Sharland, in a unanimous judgment (all seven Justices agreeing with Lady Hale) the court held that Briggs LJ has been correct in the Court of Appeal. Fraud does indeed “unravel all”.

Where fraud is established, that in itself will normally mean a financial order on divorce should be set aside (paragraph 32 of the Sharland judgment). The only exception is where the fraudulent husband can satisfy the court that knowledge of the fraud would have made no difference either to his wife or the the court (para. 33).

This approach modifies the principles that apply in cases of innocent or negligent non-disclosure, laid down in the 1980s in Livesey v Jenkins. As Lady Hale said (§32),

a party who has practised deception with a view to a particular end, which has been attained by it, cannot be allowed to deny its materiality.

She went on (§35)—

The wife was entitled to re-open the case, when she might seek to negotiate a new settlement or a rehearing of her claims when all the relevant facts were known. Thus, in my view, Briggs LJ was also correct in the third reason that he gave for allowing the appeal. The wife had been deprived of a full and fair hearing of her claims.

It’s actually in the Gohil judgment that Lord Neuberger explains most clearly the legal importance of Lady Hale’s approach in Sharland (see §44 of Gohil).

If there had been … non-disclosure, but it had been accidental or negligent, the wife would also have had to establish that the effect of the non-disclosure was such that the 2004 order was substantially different from the order which would have been made (or agreed) if the husband had afforded proper disclosure—see per Lord Brandon in Livesey v Jenkins [1985] AC 424, 445. However, as the non-disclosure alleged by the wife in this case is said to be intentional, then, if there was such non-disclosure, the 2004 order should be set aside, unless the husband could satisfy the court that the 2004 order would have been agreed and made in any event—see per Lady Hale in Sharland v Sharland [2015] UKSC 60, paras 29-33.

In Gohil (again a unanimous judgment, all the Justices agreeing with Lord Wilson) the court agreed that the divorce judge, Mr Justice Moylan, had applied a wrong test—based on the Ladd v Marshall criteria for bringing fresh evidence in appeal. But Lord Wilson went on (para. 25 of the judgment)—

Separately, however, the judge conducted the correct exercise and held that it yielded the same conclusion … Moylan J did conduct a full fact-finding hearing and did find as a fact, no doubt on the balance of probabilities, that the husband had been guilty of non-disclosure. He also found–as to which there could be no live dispute–that the non-disclosure was “material” …

That last finding was of course unnecessary, applying Lady Hale’s new Sharland approach in fraud cases.

Nor was the Moylan J’s ruling entirely dependent on the inadmissible criminal evidence (§42)—

I conclude that, even if he had referred only to the evidence admissible before him, Moylan J would still properly have found the husband to have been guilty of material non-disclosure in 2004; that his order dated 25 September 2012 should therefore be reinstated; and that the wife’s claim for further capital provision should therefore proceed before him.

An interesting additional point in the judgment relates to recital 14 to the consent order giving effect to the divorce settlement, which said—

And upon it being recorded that the petitioner [wife] believes that the first respondent [husband] has not provided full and frank disclosure of his financial circumstances (although this is disputed by the first respondent); but is compromising her claims in the terms set out in this consent order despite this, in order to achieve finality.

This was obviously included by the husband’s lawyers to try to protect him from any later “comeback” from Mrs Gohil, Lord Wilson said. But the husband had a duty to make full and frank disclosure to the court—a duty that the parties could not wish away by any agreement. Lord Wilson concluded that (§22)

In the present context, namely that of a financial order in divorce proceedings, a form of words such as recital 14 has no legal effect.

In terms of procedure, both judgments strongly suggest (Gohil, §18; Sharland, §42) that applications to reopen divorce settlements on grounds of fraud should be made to the family court, which has power to set aside its own financial orders—and not by appeal.