Sharland v Sharland [2015] UCSC60

Written by Sam Carroll

October 21, 2015

This case involved an appeal to the Supreme Court by the wife who had, midway through the trial in the financial remedy proceedings, reached agreement with the husband as to the final distribution of their assets.

The agreement reached was such that the wife was to receive over £10m in cash and property, and a 30% share of net proceeds of sale of the husband’s shares in his company. In addition the parties were to set up a trust for their eldest son into which each would pay £1m immediately and from the sale of the husband’s company shares, he would later pay £4m. The husband was also to pay child support for each of the three children.

This agreement was approved by the Judge and a draft consent order was drawn up. However before the consent order was sealed by the court, reports appeared in the news that the husband’s company was being prepared to go public on the stock exchange. Those reports suggested that the company was likely to be valued between US $750m and US $1000m.

This contrasted significantly with the valuations each party had commissioned on the company. The wife’s valuer had concluded the company as a whole was worth £88.3m and the husband’s valuer had concluded the company was worth £60m. Both valuations were based on there being no plans for an initial public offering and in evidence at the trial, the husband’s evidence was that there was certainly no plans at that time for him to sell his interest. His words were, “one thing is for sure – that there is nothing on the cards today”. Whilst the order had been drawn up as a draft, approved in principle by the Judge but not sealed by the court, it was still necessary for the wife to apply for the order to be set aside, or indeed, as she did, to appeal against the order.

The Court of Appeal

At the Court of Appeal the court by majority dismissed the wife’s appeal.  The court found that the wife had to satisfy the Judge that he should set the order aside and the wife was criticised for not having cross examined the husband on the evidence he had given. Further, she had to show that the absence of full and frank disclosure had led the court to making an order ‘substantially different from the order which it would have made if such disclosure had taken place’.

However there was a strong dissenting in judgment in the Court of Appeal, that of Briggs LJ. He said that the husband’s fraud undermined the basis on which his shareholding had been valued and therefore the ability of the wife to address how proportionate it was for her to agree a discount below her claimed 50% (having agreed to a 30% share in the proceeds of sale of the shares, on the basis that she had received more than half the other family assets). Briggs LJ also found that the husband’s fraud created a false basis for the wife accepting a reduced share of the sale proceeds i.e from 50% down to 30%. This had been on the basis that the husband had indicated there were no current plans for him to sell his interest in the company and therefore the wife was anticipating having to wait for her share of the sale proceeds.

Briggs LJ took the view that once the Judge had decided the husband’s fraud had undermined the parties agreement and the consent order that should have been the end of the matter. This was because the general principle that ‘fraud unravels all’ is just as applicable to court orders as it is contracts. Secondly, the husband shouldn’t be allowed to keep the wife to an order tainted by his material fraud by re arranging his affairs to bring them into line, after the event, with the false picture originally portrayed by him [15]. Thirdly, the wife had been deprived of a full hearing of her claim.

The Supreme Court

The Supreme Court agreed with the finding of Briggs LJ, first and foremost on the basis that fraud does indeed ‘unravel all”. It was not incumbent upon the wife as the victim of the fraud, to show that the fraud would have substantially changed the decision made.

The only exception, the court noted, was where the court was 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 the court known then what it knows now, would it have made a significantly different order (whether or not the parties had agreed to it).

The court noted however that the burden of satisfying the court of this must lie with the perpetrator of the fraud and it is wrong to place that burden upon the victim.

The matter has been referred back to the Family Division of the High Court for further directions. Most unfortunately this family are also engaged in proceedings in relation to the care of their oldest child. The court recognised not only how unfortunate it is for a family to be looked in proceedings for so long. It also impressed how important it is to provide full and frank disclosure, enter into consent orders finalising their financial affairs rather than finding themselves locked in costly litigation.

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