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Sharland and Gohil: A Cheat Sheet

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Sharland and Gohil
Parties Who Cheat – A Cheat Sheet

Michael Horton
Matthew Richardson

Extract:
A ‘cheat sheet’ to the recent key judgments about parties who cheat their disclosure obligations in financial proceedings
Don’t have the time or the energy to read two full judgments and get up to speed on the next hot topic in financial proceedings? Michael Horton and Matthew Richardson are here to help

Two connected October 2015 judgments of the Supreme Court on the subject of non-disclosure in family finance proceedings, and how it might enable agreements already reached, and orders already made, to be revisited

[Bracketed references are to the relevant paragraph in the relevant judgment, ‘S’ for Sharland and ‘G’ for Gohil]

This article offers:
A summary of the key points of principal to take from these judgments
A very broad step-by-step process for analysing a case where non-disclosure might be relevant
A look at what these cases don’t address when it comes to non-disclosure
Some thoughts for future cases

Headline points:
(1) Full and frank disclosure, both before and after proceedings are issued, is vitally important and its absence can enable one party to reopen or reverse a consent order
(2) Deliberate non-disclosure creates a presumption that a the non-disclosure is ‘material’, i.e. that it would have made a difference

Step 1 – Has There Been Full and Frank Disclosure? (‘FFD’)

The need for, and central importance of, FFD is reiterated

There are two key ingredients to a legitimate consent order
(1) Valid consent from the parties [S29]
(2) Valid approval from the court [S22, G22]
Both of which are fundamentally undermined if there is not FFD

FFD is as important pre-proceedings as within proceedings precisely because it properly enables people to avoid full proceedings – this is to be preferred where possible and FFD is crucial to the settlement process [S17]

FFD is a duty to the court in the first instance, not the other party [S22]

Assuming, then, that you have a case where matters have come to light that were not apparent at the time of the consent order, the next issues are

Step 2 – What are the Consequences of Non-Disclosure? and
Step 3 – Who has the Burden of Proving the Non-Disclosure is Important?

There are two broad types of non-disclosure:

(i) Fraud and deliberate non-disclosure

Allows a consent order to be set aside [S32], and creates a presumption that the non-disclosure was material, i.e. that a different order would have been made [S32, S35, G44], and so it is for the party who deliberately failed to disclose to show that in fact it does not make a difference to what would have been agreed and ordered anyway [S33]

(ii) Negligent or accidental non-disclosure

Can also enable a consent order to be set aside, but the burden of proving that the non-disclosure was material remains with the party seeking to challenge the order, rather than shifting to the party alleged not to have fully disclosed [G44]

The presumption is that the order is still valid [G44]

Step 4 – Defining ‘Material’ in ‘Material Non-Disclosure’

*NB – deliberate non-disclosure creates a presumption of materiality [S32, S35, G44]

So what does it mean for non-disclosure to be ‘material’?

“…such that the [challenged] order was substantially different from the order which would have been made (or agreed) if the [non-disclosing party] had afforded proper disclosure.” [G44]
…whereas what would not be material…

“…where the court is 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 it known then what it knows now, would the court have made a significantly different order, whether or not the parties had agreed to it.” [S33]
When considering if non-disclosure or fraud is material, the time at which the order was made is crucial, i.e. would this information have made a difference at the time the order was made, as opposed to if the division were to take place as of now. [S23]

Step 5 – Procedural Points

Procedurally an application to in any way revisit a consent order [on the basis of fraud/MND] is based in s.31F(6) Matrimonial and Family Proceedings Act 1984

Challenge can be brought by way of either a fresh application to court or an application to appeal against the consent order [S41, S42]

A ‘fresh’ application does not necessarily have to follow all the standard steps of a financial proceedings case, and can identify from the outset the narrow issues brought back before the court [S43]

The application to set aside should be to the level of court at which the order was made [G18(c-d)]

The Family Procedure Rule Committee will shortly be producing a consultation paper on the procedures to be followed on an application to set aside.  However, following CS v ACS & BH [2015] EWHC 1005 (Fam), Practice Direction 30A was amended to remove the statement (in paragraph 14) that the only way to re-open a financial order was by way of appeal.  For the reasons set out at [G18(a), (b)] an appeal is unlikely to be the better option.

A Practical Point About Recitals

The court makes the point that a recital on an order that one party suspects the other of non-disclosure is of no legal effect, as the FFD obligation exists anyway [G22]. However, the writers would observe that such a clause may well be a helpful part of a subsequent argument about whether the non-disclosure was or was not material, so practitioners may not be dissuaded from use of such recitals in the future

What These Cases Don’t Do

These cases don’t help with how to establish the fact of fraud or non-disclosure or create any new power or particular mechanism to do so

A Thought for the Future About Costs

There is an interesting point for the future, not addressed in Sharland or Gohil:
In the circumstances where
Party A applies to set aside an existing order
Party A establishes deliberate non-disclosure by party B
Party B then has the burden of showing it would not have made a difference
And party B succeeds in so showing

Who pays the costs?

Party A can argue that that party B deliberately failed to comply with their duty to give FFD

But party B can argue that the whole exercise was a waste of time because it made no difference, so party A has misjudged the need for proceedings

No doubt an argument that will be litigated in coming years

Links

Gohil
https://www.supremecourt.uk/cases/docs/uksc-2014-0200-judgment.pdf

Sharland
https://www.supremecourt.uk/cases/docs/uksc-2014-0074-judgment.pdf

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