Sharland and Gohil: a warning to dishonest divorcees

Ms Sharland and Ms Gohil were both married to husbands who deliberately failed to disclose aspects of the financial wealth prior to entering into a financial settlement on divorce and as a result applied to the Court to have the Court orders set aside, and their cases re-opened.

Mr Sharland, a multi-millionaire software developer, claimed that his shares in a company in which he was the majority shareholder were worth £31.5 million. However, he failed to disclose the fact that he was actively pursuing a flotation of the company by way of an initial public offering (IPO), which valued the company at over £600 million.

Mr Gohil, a solicitor from London, was jailed for 10 years for fraud and money laundering worth nearly $60 million some six years after his divorce. During the criminal trial the prosecution identified realisable assets of £35m, significantly more than he had disclosed on his divorce.

The Supreme Court held that both Ms Sharland and Ms Gohil were entitled to have their financial orders set aside and the relevant proceedings re-opened. What has changed as a result of these cases? Will it be easier to set aside orders in the future?

What has changed?

Prior to Sharland and Gohil, there was no distinction drawn between accidental or deliberate non-disclosure.

Where an applicant wanted an order set aside on the basis that there had not been full and frank disclosure, the burden would be on them to prove that the non-disclosure was material to the making of the original order, and that had the non-disclosure not occurred, the court would have made an order substantially different to the one it made.

However, the Supreme Court has now drawn a clear distinction between intentional or fraudulent disclosure and accidental, innocent or negligent disclosure.

In cases of intentional, fraudulent non-disclosure the burden of proof should be flipped onto the dishonest divorcee. The order should be set aside unless the non-disclosing party could show that at the time of the order:

(a) the fraud would not have influenced a reasonable person to agree to the order; and

(b) had the court known the fraudulently non-disclosed information, it would not have made a significantly different order.

Where the disclosure is accidental, it will still be necessary for the applicant to show that the omission was 'material' and that had it been disclosed, the resulting order would have been substantially different.

Can you waive your right to full and frank disclosure?

Ms Gohil believed at the time of her divorce that her husband had not disclosed all his resources. Despite her suspicions she entered into a settlement. A recital was included in the consent order recording her suspicions but explaining that she was nevertheless compromising her claims in the interests of finality.

In formally acknowledging her belief that Mr Gohil had more assets than he had disclosed, had Mrs Gohil forfeited her right to set aside the order?

The Supreme Court ruled that the words of the recital had no effect. Ms Gohil had not forfeited her right to seek a set aside – one spouse cannot exonerate the other from complying with his/her duty of full and frank disclosure.

Will the floodgates be opened?

Will 2016 see a flood of scorned spouses applying to courts across England and Wales for their financial settlements to be set aside, and their cases re-opened as suggested in the media?

By reversing the burden of proof in cases of fraudulent non-disclosure, the Supreme Court has undoubtedly made it easier to set aside an order on that basis.  However, I do not believe that we will see the 'flood' of new claims predicted by the media. 

Cases of non-disclosure, whilst not unheard of, are (fortunately) far from commonplace.  The duty of full and frank disclosure during financial cases is taken seriously by the courts and orders will be made for information to be produced in order to ascertain the true position.  Ultimately, a refusal to provide information sought and ordered by the court can result in a prison sentence. 

Applications to set aside must not be undertaken lightly. Even if the applicant succeeds in obtaining evidence of the non-disclosure (not an easy task), there is still the defence available to the dishonest spouse to show that had they disclosed the 'non-disclosed' information, it would not have led to a substantially different order.

Furthermore, (and perhaps more significantly) once the order has been set aside, that is not the end of the matter.  There is then the task of identifying what the correct settlement should be, and enforcing that order. 

That being said, the judgments are an illustration of the court's toughened stance on non-disclosers and Mr Sharland and Mr Gohil's treatment by the Supreme Court should stand as a severe warning to dishonest spouses.

If a spouse is dishonest it can have serious consequences; if they deliberately withhold information during their financial proceedings, they run the real risk of their order being overturned further down the line. This will be a costly legal battle, with the dishonest spouse likely to find themselves on the wrong side of a sizeable costs order.

Finality will only come where there has been honesty. 

If you require further information on anything covered in this briefing please contact Elizabeth Burch ([email protected] ; 020 3375 7174) or your usual contact at the firm on 020 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, January 2016