Fraud and non-disclosure of information in divorce cases

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Slee Blackwell Barrister Roderick Moore takes a look at the Supreme Court’s decisions in two leading cases, Sharland v Sharland and Gohil v Gohil , which set down new principles to be applied in divorce cases where one party has been prejudiced by fraudulent misrepresentation or non-disclosure of key financial information by another.

Failure to provide full and frank disclosure in divorce cases

In summary, the cases of Sharland and Gohil establish that where an agreement to compromise an ancillary relief application in a divorce case has been reached on the basis of a fraudulent misrepresentation or failure to provide full and frank disclosure of all relevant information and documents, it will be automatically unravelled.

This is encouraging news for parties to divorce proceedings who have lost out as a result of their former spouse intentionally hiding or restricting key documents and information about the extent of their finances so as to deceive the court.

The only exception to this new rule is if the perpetrator of the fraud can prove that the fraud would not have influenced a reasonable person, and that, regardless of what the position of the parties would have been had there been full disclosure, the Court would not have made a significantly different order.

The law had previously been established in a case called Livesey v Jenkins where the judge had said:

“It is not every failure of frank and full disclosure which would justify a court in setting aside an order of the kind concerned in this appeal. On the contrary, it will only be in cases where the absence of full and frank disclosure has led to the Court making, either in contested proceedings or by consent, an order which is substantially different from the order which it would have made if such disclosure had taken place that a case for setting aside can possibly be made good. Parties who apply to set aside orders on the ground of failure to disclose some relatively minor matter or matters, the disclosure of which would not have made any substantial difference to the order which the court would have made or approved, are likely to find their applications being summarily dismissed…”

However, Livesey was not a case of fraud, and the essence of the recent appeals was whether, in cases of fraud, the innocent party should face a lower hurdle in seeking to unravel agreements and consent orders.

The judge in Sharland stated:

“There is no need for us to decide in this case whether the greater flexibility which the court now has in cases of innocent or negligent misrepresentation in contract should also apply to innocent or negligent misrepresentation or non-disclosure in consent orders whether in civil or family cases. It is clear…that the misrepresentation or non-disclosure must be material to the decision that the court made at the time. But this is a case of
fraud…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. Furthermore, the court is in no position to protect the victim from the deception, or to conduct its statutory duties properly, because the court too has been deceived…”

Adding:

“The only exception is where the court is satisfied that, at the time when it made the consent order, the fraud would not have influenced a reasonable person to agree to it, nor, had it known then what it knows now, would the court have made a significantly different order, whether or not the parties had agreed to it. But in my view, the burden of satisfying the court of that must lie with the perpetrator of the fraud. It was wrong in this case to place upon the victim the burden of showing that it would have made a difference…”

Burden on the guilty party

So, under these new principles the innocent party first has to prove that there has been non-disclosure. If they can do so, then the previous agreement will be set aside, unless the guilty party can proves that:

a) that the innocent party would have been indifferent to the undisclosed information (in other words, they would still have signed up to the same agreement); and
b) that the Court would have not have made a significantly different order.

It is suggested that, unless the non-disclosure is utterly trivial, the burden on the guilty party will often be challenging to discharge. It is very hard to prove a negative.

Challenging fraud and non-disclosure in divorce proceedings

There has been for many years a good deal of uncertainty as to the correct route to challenge a consent order procured by fraud. It has been described as a “procedural quagmire”. However, following Sharland, it is now clear that there is a simple choice: either appeal (out of time if necessary), or apply to vary, suspend or rescind the consent order under s31F(6) of the Matrimonial and Family Proceedings Act 1984.

It appears that an application can be made back to the same court that made the original order, and within the same proceedings. The only significant residual uncertainty concerns cases where the original trial was heard in the High Court (as opposed to in the Family Court), and that uncertainty derives from s17 of the Senior Courts Act 1981. As the court explained in Gohil:

“There is therefore need for definitive confirmation, whether by a rule made pursuant to section 17(2) of the 1981 Act or otherwise, of the jurisdiction of the High Court to set
aside a financial order made in that court. A substantive order will bring the existence of ordinary civil proceedings to an end and will therefore require any attempt to set it aside to be made within a fresh action. But the same effect has never been attributed to a financial order made in divorce proceedings; so there is no need to provide that the jurisdiction of the High Court to set aside its financial orders be invoked by fresh action, rather than an application within those proceedings. It is nowadays rare, however, for a financial order to be made in the High Court: it is normally made in the family court and, when made there by a High Court judge, he or she sits in that court as a judge of the Court level. It seems highly convenient that an application to set aside a financial order of the family court on the ground of non-disclosure should, again, be made to that court and indeed at the level at which the order was made; and this convenient solution seems already to have been achieved by the provision of the Matrimonial and Family Proceedings Act 1984 recently inserted as section 31F(6), under which the family court has power to rescind any order made by it.”

In making the choice, it is important to note that the Court of Appeal itself has recognised that it is an inappropriate forum for an inquiry into disputed issues of fact; plainly many applications of the kind under consideration will involve factual disputes.

Disclosure obligations cannot be waived

One spouse cannot exonerate the other from their duty to provide full and frank disclosure. The duty is owed to the other party and to the Court. The Court is disabled from exercising its duty under s25 MCA if there has not been full and frank disclosure. As the judge said in Gohil:

“One spouse cannot exonerate the other from complying with his or her duty to the court”

A re-opened divorce case does not have to start at the beginning

A final point is one of some practical importance, particularly relating to the cost benefits and practicalities of revisiting a final order. According to the court in Sharland:

“… it should be emphasised that the fact that there has been misrepresentation or non-disclosure justifying the setting aside of an order does not mean that the renewed financial remedy proceedings must necessarily start from scratch. Much may remain uncontentious. It may be possible to isolate the issues to which the misrepresentation or non-disclosure relates and deal only with those.”

Roderick Moore is a barrister specialising in divorce law, particularly issues relating to money, property, businesses and investments. He works closely with solicitors in our family law department and together they are able to provide clients with a one stop shop. If you require guidance on the financial implications of a divorce or relationship breakdown then contact us on Freephone 0808 139 1606 or email us at [email protected]