Sharland v Sharland [2015] UKSC 60

Mrs Sharland agreed a divorce settlement based on her husband's dishonest evidence about the value and imminent IPO of his company. The Supreme Court held that fraud unravels matrimonial consent orders, allowing her to reopen the financial proceedings.

Facts

The parties married in 1993 and separated in 2010, having three children, including a son with severe autism. The principal dispute in their financial remedy proceedings concerned the husband’s substantial shareholding in AppSense Holdings Ltd, a successful software company. The parties’ valuers disagreed sharply on its worth, both proceeding on the basis that no Initial Public Offering (IPO) was planned.

The husband gave written and oral evidence that an exit was unlikely for between three and seven years and that

“[o]ne thing is for sure – that there’s nothing on the cards today”

. During the July 2012 trial before Sir Hugh Bennett, the parties reached an agreement under which the wife would receive over £10m in cash and property plus 30% of the net proceeds of sale of the AppSense shares whenever realised. The judge approved the agreement.

Before the consent order was sealed, press reports revealed AppSense was being actively prepared for an IPO valuing the company at US$750m–US$1bn. The wife invited the judge not to seal the order. Documents subsequently disclosed by the husband showed that IPO planning had been “in full swing from January to August 2012” and that he had met potential bankers the week after the hearing. Sir Hugh found the husband’s evidence had been “seriously misleading” and “dishonest”.

Issues

The central issue was the impact of fraud upon a financial settlement agreed between divorcing spouses and embodied in a court order: whether the principle that “fraud unravels all” applied to matrimonial consent orders, or whether the victim must additionally demonstrate that disclosure of the truth would have led to a substantially different order, applying Lord Brandon’s dictum in Livesey v Jenkins [1985] AC 424.

Arguments

Wife (Appellant)

The husband’s fraud vitiated her consent and the basis of the order. She had been deprived of a full hearing of her claims. Once fraud was established, the order should be set aside without her having to prove she would have obtained a substantially different outcome.

Husband (Respondent)

Relying on Livesey, the husband contended that an order would only be set aside where non-disclosure had led the court to make an order substantially different from one it would otherwise have made. As no IPO had in fact occurred, the order was not materially different, and the wife had failed to cross-examine him on his affidavit.

Judgment

The Supreme Court unanimously allowed the wife’s appeal. Lady Hale gave the lead judgment.

The Court confirmed that matrimonial consent orders derive their authority from the court rather than from the parties’ agreement, but emphasised that valid consent remains a sine qua non. A vitiating factor in that consent may therefore justify setting the order aside.

Drawing on contract analogies, Lady Hale noted that fraudulent misrepresentation has always entitled the victim to rescission, unlike innocent or negligent misrepresentation where the court has greater flexibility under the Misrepresentation Act 1967. Citing Smith v Kay (1859) VII HLC 749, a party who has practised deception to achieve a particular end cannot deny its materiality.

The Court held that Lord Brandon’s “emphatic word of warning” in Livesey was directed at relatively minor instances of inadvertent non-disclosure, not fraud. In fraud cases, the burden lies on the perpetrator to show that the fraud would neither have influenced a reasonable person to agree to the order nor have led the court to make a significantly different order. Sir Hugh had wrongly placed that burden on the wife.

The husband’s misrepresentations had coloured both valuers’ approaches and the wife’s assessment of the proportionality of the settlement. Sir Hugh himself had said he would not have made the order he did when he did had he known the truth. Once that was established, he should not have re-made the decision on the available evidence; the wife was entitled to reopen the case.

Procedural observations

The Court addressed the “procedural quagmire” identified by Munby J in L v L. An application to set aside a financial remedy order for fraud, mistake or material non-disclosure may be brought either by appeal or by application to a first instance judge within the matrimonial proceedings, the family court having power under section 31F(6) of the Matrimonial and Family Proceedings Act 1984 and FPR 4.1(6). Lady Hale endorsed the view in CS v ACS and BH that paragraph 14.1 of Practice Direction 30A (stating that appeal was the only route) was ultra vires.

The Court further noted that renewed proceedings need not start from scratch; issues may be isolated, as in Kingdon v Kingdon.

Implications

The decision establishes that, in matrimonial financial proceedings, fraud generally unravels a consent order. The Court drew a clear distinction between innocent non-disclosure (governed by Lord Brandon’s materiality test in Livesey) and fraudulent misrepresentation or deliberate concealment, where the burden shifts to the fraudster to demonstrate immateriality.

For practitioners, the case is of considerable practical importance. It reaffirms the duty of full and frank disclosure in family proceedings, confirms that a victim of fraud is not required to prove that the order would have been substantially different, and clarifies the procedural routes available for setting aside financial remedy orders. It also signals the family court’s flexibility under modern case management to focus only on those issues affected by the non-disclosure.

The decision matters principally to divorcing spouses and civil partners, and to those advising them, by ensuring that dishonest litigants cannot retain the benefit of settlements procured by deception. The Court expressly left open whether the more flexible approach to innocent or negligent misrepresentation in contract should apply to comparable non-fraudulent cases in family proceedings, and declined to address the correctness of the trial judge’s tapering analysis.

Verdict: Appeal allowed. The consent order made on 19 July 2012 was not to be perfected, and the matter was remitted to the Family Division of the High Court for further directions.

Source: Sharland v Sharland [2015] UKSC 60