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Dishonesty – should an agreement stand?

Honesty, both before the courts, and within family law generally, is the bedrock on which justice is built. A good family lawyer will stress to their clients the requirement for absolute transparency in financial disclosure and that dishonesty within evidence put before the court can amount to contempt of court.

In financial proceedings after divorce or dissolution, if one person is found to have deliberately misled the court, then aside from the issue of contempt, an order or agreement approved by the court has the potential to be set aside on the basis of fraud or misrepresentation.

With that in mind, we were pleased to see that a case which has caused alarm amongst family lawyers by appearing to sanction a certain level of dishonesty, is to be considered by the Supreme Court next year.

The former couple in the case, Alison and Charles Sharland were married for 17 years, and have three children. Mr Sharland founded a company called AppSense which provides remote access software to businesses across the globe. He retains a substantial shareholding in the company.

The former spouses reached a settlement whereby the matrimonial assets would be split roughly equally: Mrs Sharland would receive approximately £10.35m in cash and properties, and her husband would have approximately £5.64m. In addition Mr Sharland would retain all of his shares in AppSense but if they were sold, he agreed to pay £4m into a trust for the parties’ disabled child, pay £1.7m to Mrs Sharland and transfer to her a further 30% of the remaining balance.

The trouble was that the settlement was based on the assumption that AppSense was worth between £31.5m and £47.25m, and Mr Sharland’s shares were said to be worth £7million. He had also told the court that there were no immediate plans to float the company. However, shortly after agreement was reached, it emerged that in fact the company was worth significantly more than disclosed (unconfirmed press reports said up to £600m) and that, contrary to Mr Sharland’s evidence during the hearing, an initial public offering was being prepared.

When she found out, Mrs Sharland sought to set aside the agreement that the two of them had made, as neither she nor the court had been aware of these facts when the agreement was reached and then approved. The judge found that Mr Sharland had knowingly concealed information from (and had lied to) the court. However, he refused to set the agreement aside because he said the court would not have made a substantially different order from the agreement that the parties had reached even if it had known the true facts.  In this case, the upshot was that the husband’s dishonesty made no difference to the end result, so there were no grounds to interfere.

Mrs Sharland appealed this decision to the Court of Appeal where two of the three judges sitting upheld the judge’s decision that the order should stand. Like the initial judge, they said that although Mr Sharland’s non-disclosure had been both deliberate and dishonest, in the event it proved not to be “material” to the outcome of the case because Mrs Sharland would have received a similar amount to that agreed upon even if the truth had been known. So she lost the appeal, and was ordered to pay her former husband’s costs – a bitter pill to take when he had been proved to have been dishonest!

Yet one of the judges in the Court of Appeal had disagreed with the other two, saying robustly that the husband’s fraud undermined the whole agreement, and the wife should not be held to it. He was concerned that the court process must be protected from fraud. Being in a minority, his views did not prevail, but he may yet be proven right.

This week we heard that the case will now be examined by the Supreme Court, as it raises a point of law of general public importance. The wife’s case centres around the argument that it is contrary to the basic principles of justice to uphold an agreement entered into on the basis of a fraudulent misrepresentation. The Supreme Court justices will consider several strands of argument, but central to them will be the question of whether fraud will unravel the whole agreement, or whether the judicial argument that the wife would have got the same result with or without the fraud should prevail.

What do you think? Should the court “punish” the husband for his dishonesty by giving a greater share of the wealth to the wife? Should they go back to square one and start the division process again? Should the agreement stand?

This is another massive money case in a world where family justice for the many is concerned with much more basic matters like how two households can be funded out of one. However, were it not for Mrs Sharman’s ability to fund the litigation, the case would not be going to the Supreme Court, and so we would be left with this slightly alarming precedent of deliberate dishonesty going unpunished – the Supreme Court here has an opportunity to state clearly what is, and is not, acceptable before the court. This is important as there is a strong chance that for ordinary people, any dishonesty from their former spouse does affect the final result of financial proceedings, and they are rarely able to fund endless appeals.

Let us hope the Supreme Court gives clear guidance on how to deal with dishonesty for those of us of more modest means.

In the meantime, if you would like to make an appointment to see Gail, Sue, Simon or Adam to discuss any aspect of family law, please give us a ring on 01223 443333.

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