Full and frank disclosure – is it time for a review?

Posted by familylaw on 22nd October 2015

The Supreme Court has allowed both wives’ appeals in the cases of Sharland and Gohil.

Briefly, both cases involved big money and both husbands had failed to disclose relevant information to their wives and the court during the negotiations and proceedings which led to the making of orders in their divorces.

Mr Sharland failed to disclose in sworn evidence to the court that his software business was about to be the subject of an Initial Public Offering on the stock market. The omission represented a difference in valuation of the company of many millions of pounds. The resulting order was very much more favourable to Mr Sharland than it would have been had he told the truth about his plans for the company.

Mr Gohil, a former solicitor, claimed before the court in his divorce proceedings to have modest assets and income, whilst concealing the true extent of his wealth in the names of various associates and companies. In this case, the difference between Mr Gohil’s declared situation and his actual wealth was also very large. Mrs Gohil did not believe her husband’s disclosure, but was unable to prove otherwise at the time. She heard the opinion of a judge at a dispute resolution hearing conducted on the false assumption that Mr Gohil’s disclosure was correct. Reluctantly, she agreed to settle her claims, insisting on a clause in the agreement recording her scepticism. In this case also therefore, the husband had benefitted by his fraud.

Both women appealed. Mrs Sharman relied on the facts which had already been established by the court, but rejected as grounds for appeal in the lower court. Mrs Gohil had come across new information confirming her suspicions about her husband’s misleading disclosure.

The Supreme Court allowed the wives’ appeals holding that:

• The duty of disclosure of complete financial information in family proceedings is to the court; one spouse cannot excuse the other from complying with this duty.

• The consent of the parties must be valid. If there is a reason that invalidates a party’s consent to a settlement there may also be good reason for the court to set aside a consent order.

• Memorably, the court upheld the general principle that ‘fraud unravels all’. In other words, unless the fraud was so trivial that it would not have made a difference to the outcome, the court will set aside an order which is tainted by fraud.

These cases are extreme examples of a situation which regrettably is not uncommon in the family courts; the failure of one party to provide a full and frank disclosure of their financial situation. Mrs Gohil’s battle (for that is what it became) lasted for 11 years during which time she found herself unable to afford continued representation. It took Mrs Sharland 3 years from the date of the original order to obtain redress for her husband’s fraud.

What can be done by those facing similar situations in their divorce cases, particularly in cases involving less substantial assets? Until relatively recently, it was permissible for a party to rely on documentation in their possession belonging to their spouse, provided certain conditions were met. This strategy enabled a spouse to demonstrate their former partner’s fraud swiftly and in a cost effective manner. Unfortunately, this right was frequently abused by parties who conducted wholesale raids on their partner’s personal papers and computer records in search of the ‘smoking gun’.

Following cases decided in 2009 and 2010 the option of disclosure of the opponent’s documents has been largely denied to parties. A spouse who interferes with their former partner’s documents may find themselves liable to civil and or criminal sanctions, unless they deal with the matter in a very careful and specific manner. In practice this requires the solicitor for a party producing documentation belonging to the other party not to read it, but instead to send it unread, in a sealed envelope to the opponent or their solicitor with a request for disclosure to the extent that the information is considered relevant.

Parties are also encouraged to make use of injunctive remedies to reveal incriminating documentation or prevent its disposal. Such measures are either beyond the financial reach of the average hard pressed litigant or cost more than the benefit to be gained from the exercise.

Until now, the pendulum has swung in favour of the fraudulent spouse. The innocent spouse experiences the frustration of actually having important information to discredit their partner’s disclosure, but finds themselves “gagged” and having very limited means of bringing it to the attention of the court. This cannot be sustainable. It is obvious that when a spouse who has assets which are capable of being hidden is faced with a claim for a share of them, it is an entirely predictable outcome that some of those individuals will do their best to look after their own interests above their duty to the court, hide them and avoid the consequences of a fair hearing if they can. To pretend otherwise is naïve.

There is surely a pressing case for judges to wake up to the reality that the pendulum has swung too far in favour of the spouse who chooses to hide information or assets, it is to be hoped that the fairness and duty of frankness advocated by the court in these appeals should redress that imbalance. Time to re-visit the restrictive rules of self help then?

Need some advice? Get in touch today