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UK Supreme Court decision may open floodgates for variation of divorce settlements

Thursday, 15 October, 2015

Practitioners expect a significant number of applications to vary divorce settlements on the grounds of an ex-spouse's non-disclosure, after Varsha Gohil and Alison Sharland won their cases in the UK Supreme Court yesterday.

In two judgments released in February and March 2014, the England & Wales Court of Appeal ruled that the women should not be permitted to revisit their consent orders, despite the fact that their ex-husbands had fairly evidently concealed important aspects of their assets or potential assets.

The Sharland dispute turned on the value of a company owned by Mr Sharland. His expert valued it at GBP50 million while Mrs Sharland estimated it at GBP75 million, but both valuations assumed that it would not be sold in the near future. In fact, the husband was already preparing to float it on the stock exchange – an exercise that raised close to a billion dollars.

In Gohil, the ex-husband told the court that his assets were worth just over GBP300,000, which led Mrs Gohil to settle for GBP270,000, despite her doubts. Three years later Mr Gohil was convicted of fraud and money laundering of a sum of GBP25 million, and was jailed for ten years.

Both women sought to have the original orders overturned, but the Court of Appeal in both cases decided against them. Mrs Sharland was told that she had not shown that her settlement would have been substantially different if full disclosure had been made, while Mrs Gohil was told that the evidence used to establish non-disclosure was inadmissible because it came from criminal proceedings outside the UK.

The Supreme Court judgments (2015 UKSC 60 and 2015 UKSC 61) overturn both of these Court of Appeal rulings, though there are some notable differences between the cases.

Lady Hale in the Sharland case asserted that the victim of fraud in a matrimonial case should not be left in a worse position than the victim of fraud in an ordinary contract case. The general principle of 'fraud unravels all' should be upheld in both, so that a consent order procured by fraud must be set aside unless the perpetrator can prove that his misrepresentation had not made any difference to the outcome. It should not be up to the victim to prove otherwise, she said.

In Gohil, Lord Wilson said that the court should have been able to infer the husband's non-disclosure even without reference to the inadmissible evidence.

Ros Bever of Irwin Mitchell, who acted for both appellants, said she was 'thrilled that the Supreme Court had confirmed that the Family Court is not an exception to the general rule [that fraud unravels all] and that it is no more acceptable to lie there than it is in any other court'.

'The Supreme Court has made it clear that dishonesty in legal proceedings will not be tolerated', said Harriet Errington of Boodle Hatfield. The effect, she said, will be to re-affirm the established position that any award made or settlement arrived at on the basis of fraudulent or dishonest representations will be 'built on sand'. 'This means that if it transpires that such representations have been made in previous proceedings, these judgments re-affirm that the Court will open the doors for the aggrieved spouses to re-open their cases. Many spouses may be sleeping less soundly tonight', she said.

However, law firm Withers noted that not all instances of non-disclosure in divorce will result in such orders being set aside. 'In cases involving fraud, the victim will nearly always have a right to redress and the burden of proof will be with the perpetrator to show that a reasonable person would not have been influenced by the lies, or that the court would not have made a different order. Conversely, in cases involving inadvertent non-disclosure no such presumption will apply and the burden will be on the party seeking to overturn the order.' The Supreme Court may have fired the starting gun for the significant number of cases involving non-disclosure waiting in the wings, said Withers. 'This may be especially so for some ex-spouses who may have been pressurised into signing a waiver to disclosure', it said, noting that the Supreme Court said in Gohil that one spouse cannot exonerate another spouse from the duty to give full and honest financial information.