Sharland and Gohil

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Sometimes you have to wait until the very end of a judgment to find out whether you have won or lost. No so Mr Sharland. In the second sentence of her leading judgment, Baroness Hale observed that there would need to be “some special magic” if his argument was to succeed. Whatever the skills of his lawyers, they do not appear to have extended to magic tricks and he duly lost.

Baroness Hale’s remark gives a flavour of the Supreme Court’s dim view of the husbands’ antics in the linked appeals of Sharland and Gohil. Both were guilty of dishonest presentation of their finances. And in both cases, consent orders reached on the back of those misrepresentations were eventually set aside.

But if it was as simple as saying ‘fraud unravels all’ why did it require a visit to the Supreme Court to establish as much?

Facts of Sharland

During a final hearing, Mr Sharland gave “seriously misleading evidence” as to the value of his business, AppSense, including a denial of any immediate intention to sell it. A consent order was agreed but, before it was sealed, Mrs Sharland discovered that preparations for an initial public offering of shares were well underway. She immediately applied to resume the final hearing.

Although the trial judge, Sir Hugh Bennett, found that Mr Sharland had been dishonest, he refused to reopen the trial. He held that, had the plan to sell AppSense been properly disclosed, he would have adjourned to see what became of it. As it had not actually been sold, the agreement reached between the parties was not “substantially different from the order which he would have made had there been full disclosure from the outset”.

Facts of Gohil

Despite suspicions about her husband’s disclosure, Mrs Gohil agreed a consent order at FDR. Her subsequent application to set it aside coincided with the prosecution of Mr Gohil for large-scale money laundering. Mrs Gohil relied on material used in the criminal proceedings but also produced evidence from her former father-in-law revealing serious discrepancies in Mr Gohil’s disclosure.

After a tortuous process (10 interlocutory hearings over 3 years and an 8-day substantive hearing), Moylan J was persuaded to set aside the order and reopen such of Mrs Gohil’s claims as had earlier been dismissed. That decision was overturned on appeal on the basis that the evidence relied upon by Moylan J was inadmissible. 

Significance of Non-Disclosure

In Livesey v Jenkins (formerly Livesey)[1], Lord Brandon of Oakbrook set aside an order made in ignorance of the wife’s imminent remarriage but noted that only where “the absence of full and frank disclosure has led to the court making … an order which is substantially different from the order which it would have made if such disclosure had taken place that a case for setting aside can possibly be made good”.

Baroness Hale found that the fact that Sir Hugh Bennet would have adjourned a final determination to see what happened in relation to AppSense, was enough to satisfy the test of ‘substantial difference’.

The timing was significant in Sharland because it was argued that the longer it took to sell the business, the less matrimonial an asset it would become and the lower a percentage share Mrs Sharland should have. But, as pointed out by Briggs LJ (in the minority in the Court of Appeal), the Livesey test is concerned with materiality at the time of the misrepresentation rather than some later stage. That it subsequently proves to be less important is irrelevant. Furthermore, Mr Sharland was in a position to manipulate the timing of a sale and his denial of any plan to sell was entirely self-serving in the context of the application to set aside.

Burden of Proving Significance

The valuation of AppSense was plainly material. Once Mr Sharland’s fraud had come to light, Mrs Sharland was entitled to have the consent order set aside. She had been deprived of her right to a full hearing of her claim and that was enough.

Where, as here, the non-disclosure was fraudulent, it is easy to infer that it is material. As Baroness Hale put it “why would the husband lay a false trail if what was sought to be suppressed was immaterial?”

Lord Neuberger explained the effect on the burden of proof by holding that, where the misrepresentation had been deliberate, there was a rebuttable presumption that it was material. Where inadvertent, “the onus is on the other party to show that proper disclosure would, on the balance of probabilities, have led to a different order”.

Admissibility of Evidence

In Gohil the husband’s argued that evidence relied upon in an application to set aside should be subject to the Ladd v Marshall[2] test relevant for appeals. Ladd v Marshall provides that fresh evidence will only be admitted if influential, apparently credible and not obtainable with reasonable diligence for use at the trial.

Lord Wilson rejected this argument and pointed out that Mrs Gohil was not seeking to rely on ‘fresh’ material; there had been no trial and no first opportunity to adduce evidence. He also noted that, had she sought to set the order aside by way of an appeal out of time, any factual dispute would inevitably have been remitted to the lower court for determination.

Conclusion

The Supreme Court did not say what would have happened if the Gohil order had been made after a contested hearing or explain why the evidence of Mr Gohil’s father was not available at the FDR. Will a negligent failure to uncover innocent non-disclosure at trial be enough to justify an application to set aside? What about a litigant who keeps quiet about the other’s misrepresentation in case a decision, or the consequences of an agreement, prove  less favourable than hoped?

That quibble aside, these decisions have provided clarity as to what is to be proved on an application to set aside and by whom. The rejection of Mr Gohil’s arguments on admissibility and of Mr Sharland’s convenient disavowal of the skulduggery that had been discovered should give comfort to litigants worried about the honesty or extent of their former spouse’s disclosure.

[1] 1985 AC 424

[2] 1954 1 WLR 1489