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Dishonesty doesn’t pay

Jackie McRae, Family Law Partner

The UK Supreme Court yesterday issued two judgements, Sharland v Sharland and Gohil v Gohil, which make crystal clear that a person who fails to provide full information about their assets when negotiating a financial settlement with their former spouse is guilty of fraud.  If a partner is less than honest, any agreement reached can be revisited when that dishonesty comes to light. This principle applies to all married couples and also civil partners.  

The Sharlands

In the Sharland case the couple was married for seventeen years and had three children, the eldest of whom was severely disabled by autism.  Mr Sharland was an entrepreneur with a successful software company.  

The legal dispute following their split centred around the value of Mr Sharland’s company, AppSense.  Mr Sharland gave evidence in court stating that there were no plans to sell the company shares to the public and that it was unlikely he would realise the value of his shareholding possibly for several years.  Having apparently not contested that position, Mrs Sharland reached an agreement with her husband on financial settlement before the court case was concluded.  

The parties asked the judge to sanction the terms of their agreement via a Consent Order.  Shortly before this was finalised press reports emerged indicating that Appsense was being prepared for flotation.  Mrs Sharland returned to court to re-open the case.  

The judge reviewing the matter found that Mr Sharland’s evidence to the court had been “plainly dishonest” but decided to proceed with the Consent Order with the terms previously agreed by the parties, as it was an order which he might have made had he been in possession of all the facts in any event.  The company’s flotation had not taken place by the time the case had been re-heard, and The Court of Appeal refused Mrs Sharland’s appeal. 

The Gohils

In the case of the Gohils the couple had been married for twelve years and had three children.  When they separated Mr Gohil, a solicitor, claimed that what assets he had were held on behalf of his clients.  Despite Mrs Gohil stating her concern that her husband had failed to disclose all of his assets, she agreed to a financial settlement ‘in order to achieve finality’. A court order setting out the terms of the parties’ agreed settlement was made in 2004.  

In 2007 Mrs Gohil applied to have the order set aside on the basis that her husband had indeed failed to disclose his assets correctly.  Initially her application was successful; the court found “aspects of the husband’s evidence…to put it mildly, unconvincing and inconsistent.”  However the Court of Appeal allowed her husband’s counter appeal on the basis that there was no admissible evidence that he had deliberately hidden the truth.  

The Appeals

Both Mrs Sharland and Mrs Gohil then appealed to the Supreme Court, which has allowed their divorce settlements to be re-opened. New settlement figures could now be reached by both.

The Supreme Court emphasises that it is better for everyone involved if divorcing spouses can agree on a separation collaboratively, rather than battling things out in court.  However the court has the final say and can potentially overrule any agreement made between the parties.  The court has a responsibility to conduct an independent assessment of the situation irrespective of what the parties have agreed, in order to ensure that ‘proper provision is made for dependent families’. 

Along with the court’s responsibility to ensure that a settlement is a fair one, the parties are required to make a full disclosure of all relevant information to one another and the court. This requirement is due before the court endorses any agreement via a Consent Order, and during the process of negotiating any agreement between the parties directly.  

These cases are English cases governed by English statute. Scots matrimonial law is different. 

Scots Law

Although a Scottish court can make a final order on the terms proposed by the parties in divorce proceedings too, there is no exact equivalent to the English statutory Consent Order.  Divorcing spouses generally have the freedom to enter into any settlement agreement they wish to, and register it for enforcement.  The law requires only that the agreement be ‘fair and reasonable at the time it is entered into’.  

What may be fair and reasonable from the divorcing couple’s point of view may not necessarily be what the court would decide if it were applying Scots matrimonial law.  A Scottish court is unlikely to look behind the terms of a divorce agreement unless one party tries to overturn a registered agreement.  And if they do, a Scottish court may well uphold the previous agreement anyway.  

However the underlying principle in these cases - that a party who has lied in order to reduce their financial liability to their former spouse should not benefit from that deception - is just as pertinent in Scotland.  Indeed Scottish agreements generally include a specific assurance by both parties that they have provided full and accurate information. If that were later found to be untrue, it would be likely to provide a basis to overturn the agreed settlement, as in these cases.  

For more information on separation or divorce in Scotland, contact Jackie on 0131 226 4081 or email jmcrae@pagan.co.uk.

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