Consent Orders – Questions of Principle and Policy: Sharland v Sharland [2015] UKSC 60

 

Alex Thompson
Alexander Thompson

On 14th October 2015 the Supreme Court handed down judgment in Sharland v Sharland. At first glance the decision simply re-affirmed certain distinctions between consent orders in the family courts and those made in civil matters. At another level however the decision can be seen as an assertion that the family courts continue to take a traditionally robust view of questions of principle and of the requirements for full and frank disclosure while exhibiting a sophisticated understanding of modern families and financial arrangements. In allowing Mrs Sharland’s application and siding with the minority judgment of Briggs LJ in the Court of Appeal, the Supreme Court was not only adhering to the tenet of enforcing fair distribution of assets, but also demonstrating that the courts are not to be trifled with in situations where disclosure has been far from the standard required.

The Facts

The Sharlands separated after 17 years of marriage in 2010. During this time the husband had developed a software business, AppSense, the value of which was variously assessed at being between £60m – £88.3m. Although the husband’s case was for equal division of assets, he initially argued for Mrs Sharland’s share to derive entirely from liquid assets, while he would retain the unencumbered shares in AppSense. However agreement was reached during the hearing that the wife would receive £10m in cash and property and 30% of the net proceeds from the sale of the husband’s AppSense shares, whenever that might take place.

The draft consent order was drawn up. However, before it was sealed, it was reported that AppSense was ‘actively’ being prepared for an IPO which placed a value on the company of between US$ 750m – US$1,000m. In court, it was shown that preparations for the IPO had been in ‘full swing’ before and during the hearing was later shown in court, and the husband’s evidence was found to have been ‘seriously misleading’ and ‘dishonest’. The most interesting question was whether, per the established test in Livesey v Jenkins [1985] AC 424, the husband’s non-disclosure was material to the agreement and consequently to the pending consent order.

Material Non-Disclosure

Common law authority has long held that, while married couples may make whatever financial arrangements they choose after the breakdown of marriage (or, latterly, civil or same sex partnerships), such arrangements cannot oust the jurisdiction of the court. Baroness Hale (at para.13) noted that the authority of consent orders in the family courts derives from the statutory powers under s.33A Matrimonial Causes Act 1973. Concomitant to these powers is that the entitlement of one or other of the parties to renounce any such agreement is curtailed at the court’s discretion, with that party having to satisfy the court that the order should be set aside.

Further, while the court retains its own power to amend consent orders, this should not be done ‘lightly’ (Livesey, Hailsham L.C, at 430). One obvious reason to set aside an order is where non-disclosure inhibits the court’s ability to reach a fully-informed decision. Brandon LJ in Livesey (at.445) held that the relevant test was whether the court would have made a ‘substantially different’ order if full disclosure had been made. In the Court of Appeal in Sharland, Briggs LJ (para.46) held that a more pertinent test for when the non-disclosure was ‘fraudulent’ (which was not the case in Livesey), was whether the ‘non-disclosure has deprived her of a real (rather than fanciful) prospect of doing better at a full hearing’.

Fraudulent Misrepresentation

Baroness Hale’s judgment, which for the most part supported Lord Briggs’ dissenting judgment in the Court of Appeal, relied heavily on the phrase ‘fraudulent misrepresentation’. While this phrase is commonly found in contract law, Baroness Hale did not further explore whether the fit between contract and family law was a happy or exact match (para.32).

However, it appears to be more than mere convenient shorthand that Her Ladyship used this term. Rather, Baroness Hale’s judgment held that the very nature of the act was in and of itself the factor in establishing the materiality of the non-disclosure. That is, the behaviour of the party failing to make full disclosure, rather than the information not disclosed, was the proper test, and that this would be sufficient to vitiate any agreement and resulting consent order. Baroness Hale held this to be a matter of policy and principle.

In Sharland, the public policy justification was couched in the conventional terms that the courts owe society a duty to ensure that proper provision is made for dependent family members (para.18). There is no question that the agreement reached by the parties in Sharland made such provision in respect of the Sharlands’ children and for Mrs Sharland herself. Notwithstanding this, Baroness Hale bound together both the parties’ and the public interest stating that both impelled a duty on the parties of full and frank disclosure (para.21).

Notwithstanding this, Baroness Hale bound together both the parties’ and the public interest, stating that both impelled a duty of full and frank disclosure (para.21) on the two parties. In stating this, Baroness Hale appeared to give this principle a moral authority above and beyond the obvious fact that, without full and frank disclosure, the court would not have the tools to do its job properly and would be unable to reach the higher level of disclosure typically required in the family courts.

In her analysis (paras.29 – 36), although talking in the abstract Baroness Hale used the word ‘victim’ five times in positing a shift in the burden of proof from the perpetrator to the victim. This was part of a balancing exercise necessitated by what Baroness Hale baldly described as a ‘case of fraud’ (para.32) with deception practised upon both the victim and the court which would thereby be unable to properly ‘conduct its statutory duties’. Her Ladyship further felt that it would be ‘extraordinary’ to uniquely disadvantage the wronged party in a matrimonial case involving fraudulent misrepresentation as opposed to parties in contract matters in the civil courts (para.32).

Comments

In considering what is or is not material to the financial settlement in such cases, it is perhaps instructive to regard the initial agreement and the consent order as two different and distinct forms of obligation.

In the first instance, the agreement is between the parties only (and it is often the case that such agreements can be reached privately in family matters without reference to the courts at all). The consent order then merely affirms the agreement, binds the parties to the authority of the court and supplants or gives full legal force (de Lasala v de Lasala [1980] AC 546, Diplock LJ 560G-H) to the agreement between the parties. This is precisely the case in civil matters, where the contractual agreement between the parties is the basis of the authority of the order, and is far less likely to carry the overt constraints of consistency with public policy that inform decisions in the family courts.

However, unlike the civil courts, the court order in family matters may also be viewed as much as an agreement between the court and the public as between the court and the parties. Baroness Hale referred to this public policy requirement at para.18 in Sharland, and elsewhere referred to the duty of the courts to protect the interests of both the parties and the public. It is in this context that Mr Sharland’s non-disclosure becomes material. In agreeing to a 30% share of AppSense, Mrs Sharland’s overall lump sum might have been as low as £18m (Mr Sharland’s valuer’s estimate) or as high as £300m (the upper end of the projected IPO valuation).

It remains the case however, that her proportion of the asset would remain unchanged and any windfall accruing to the husband at whatever date would proportionally accrue to the wife in equal terms. Even if the disclosure was far from full and frank, it was largely immaterial in respect of the agreement between the parties and the money the wife would expect to receive. As a matter of policy between the courts and the public, however Mr Sharland’s non-disclosure (which was variously held to be ‘fraudulent misrepresentation’ (S v S [2014] EWCA Civ 95, Briggs LJ at para.29); deliberate and ‘dishonest’ passim) was significant and highly material.

Clarity in financial matters in the family courts and the concealment of assets might be as straightforward as inadvertent or deliberate non-disclosure (as in Sharland)), or might take the form of the movement and concealment of assets either physically or, increasingly, through ever more complex financial instruments. In Sharland, it seems unlikely that the courts would have reached any significantly different arrangement (notwithstanding obiter of Briggs LJ at para.30) than that agreed between the parties, even if they had been provided with all the information in respect of the IPO beforehand.

However, the Supreme Court in Sharland, in restating the requirement for full and frank disclosure, has shown that the courts continue to take a dim view of any efforts to evade such duties, and will find against the party failing to disclose as a matter of principle and policy as much as fairness and equality.

Alexander Thompson (LL.M Sussex) is a barrister

 

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