Vardags — Leading solicitors for high net worth individuals

Sharland v Sharland: Court of Appeal judgment

The Court of Appeal has this week given judgment in the controversial case of Sharland v Sharland EWCA Civ 95, agreeing (two judges to one) with Sir Hugh Bennett’s initial decision that the husband’s fraudulent non-disclosure should not lead to the parties’ financial provision order being set aside, because the court had not been led into making a substantially different order to that which it would have made had the disclosure been proper.

The parties married in 1993 and separated in 2010 and have three children. The husband was the financially-stronger party and was a high earner. The parties reached a settlement agreement halfway through the hearing of the wife’s financial claim in July 2012. The largest asset in this case was the husband’s shareholding in a company called AppSense, which he founded and of which he owned 63 percent.

The agreement stated that, in addition to receiving the larger share of the cash and properties (£10.35 million worth), the wife was to receive 30 percent of the net proceeds of sale of the husband’s shareholding, when he sold it. As part of his evidence, the husband had said that an IPO was one way in which he could realise his shareholding but that this would not be on the cards for several years. This order was approved by Sir Hugh Bennett. Before the court could seal the order, however, the wife discovered evidence that the husband had been involved in talks, since early 2012, with investment bankers about an IPO of AppSense occurring in early 2013. She wished to resume her claim for financial relief and have a hearing, setting aside the order.

Sir Bennett ordered the husband to produce an affidavit detailing these talks. The husband did so and Sir Bennett found that the wife’s discovery was correct. The husband had deliberately concealed information about a planned IPO in early 2013. At this stage it was April 2013, however, and an IPO had not taken place.

Sir Bennett referred to the leading non-disclosure case of Livesey v Jenkins AC 424, in which Lord Brandon said the following:

"it will only be in cases when 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."

Using this test, Sir Bennett was of the opinion that, despite the husband’s fraudulent non-disclosure, he would not have made a substantially different order to the settlement agreement he had approved, had he known about the IPO talks. He would have had to adjourn the July 2012 hearing to see what happened with the IPO. Had he adjourned the proceedings, it would have become clear that no IPO took place. The fact that the wife was to receive a percentage of the net sale proceeds, whenever the shares were sold, and not a specific sum, was also important here.

The wife appealed to the Court of Appeal. Moore-Bick LJ and Macur LJ agreed with Sir Bennett’s analysis of Lord Brandon’s speech in Livesey v Jenkins, considered him correct to apply the substantial difference test, and dismissed her appeal. The former judge held that the husband’s dishonesty was not relevant here; non-disclosure is non-disclosure and it is an abuse of process whatever form it takes, “whether innocent, negligent or deliberate”. He acknowledged that it seems unusual to ignore such dishonesty but noted that whether an order should be set aside “must depend on the nature of the non-disclosure and its effect on the outcome of the proceedings”.

Briggs LJ disagreed, claiming that the principle 'fraud unravels all' should have applied here. He considered that when fraudulent non-disclosure has led to a consent order, the rule should be that the innocent party “need only show that the non-disclosure has deprived her of a real (rather than fanciful) prospect of doing better at a full hearing”. This test is, clearly, dissimilar to the substantial difference test to which the other judges adhered. Macur LJ voiced her opinion that such an approach would simply spawn satellite litigation and that the husband would be punished enough because he had perjured himself and that was not without consequence.

The Court of Appeal judges themselves, therefore, have opposing views on this tricky subject. It undoubtedly seems wrong for one to be allowed to hold his or her spouse to an agreement that was reached as a result of fraudulent non-disclosure. Does this matter, however, if the order that would have been made had all the facts been available would not have been substantially different?

Pragmatically, the current approach avoids opening up more orders to challenge and putting more pressure on the already struggling court system.

For more on Sharland v Sharland, click here

If you would like to know more about the issues covered in this article, Vardags offers a free consultation to qualifying individuals.

For high net worth and ultra high net worth individuals or their companies, our confidential enquiry line is staffed 24 hours. Call 020 7404 9390 today.