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Husband wins appeal in AppSense divorce case

Husband succeeds despite ‘deliberate and dishonest’ non-disclosure

The Court of Appeal has dismissed an appeal by the wife of AppSense chairman Charles Sharland. Mrs Sharland wanted to re-open the multi-million pound settlement, claiming that her husband withheld critical information about the value of the company. She had claimed that the settlement – which awarded her a greater share of the couple's liquid assets in exchange for a lower share in the business – was unfair following rumours in the press of a higher-than-expected valuation of the company.

The parties had married in 1993 and separated in 2010. They had three children. At the final hearing in July 2012, there was agreement that the matrimonial assets should be shared equally. The real issue was whether, and if so how, the husband's shareholding in his company should be shared: the husband contended that it should not be; the wife sought 50% of the net proceeds upon disposal, whenever that took place. The value of the company was also significantly in dispute, with the husband asserting the company was worth £50m and the wife suggesting £75m. Mr Sharland had also been clear in his evidence that an initial public offering ("IPO") (i.e. a stock market floatation), while theoretically possible, was most unlikely before 3, 5 or 7 years; specifically, when referring to the possibility of, the husband's evidence in cross-examination was "there's nothing on the cards today".

In the event, the parties reached settlement during the course of the final hearing. The settlement terms were approved by the court, although the order was never sealed. The wife was to receive £10.355m of cash and properties and the husband retaining £5.64m. The husband also agreed to pay the wife, in the event of receipt of any cash proceeds following a disposal of his shares in X Co, 30% of the balance of the proceeds remaining after payment of costs of sale and CGT, £4m into a trust for one of the children and a payment of £1.7m to the wife. Various other terms were agreed as to transfer of properties and bank accounts, periodical payments for the children and the setting up of a Trust for one of the children.

The wife subsequently discovered, however, that detailed planning for an initial public offering ("IPO") ie a stock market floatation had been ongoing behind the scenes within the company. Media reports in July and August 2012 valued the company at between $750m and $1bn. She consequently applied back to court. Although by that point the draft order had been approved, it was not sealed and thus Sir Hugh Bennett was satisfied that he was not "functus". His Lordship therefore ordered the husband to file an affidavit.

The husband maintained that he had given full and frank disclosure and/or that his non-disclosure was not material. Furthermore, he dismissed the valuations of $750m-$1bn as "pure conjecture".

In giving judgment, Sir Hugh Bennett found that planning for an IPO in early 2013 was in full swing from January 2012 to August 2012 and that the husband had been dishonest and had attempted to keep the true facts from the wife and the court. His Lordship also found it to be inconceivable that the circumstances as now disclosed would not have been relevant to the wife's decision to compromise the litigation, and (more importantly) to the court's approval of the Heads of Agreement and draft order. If the facts had been known, the court would have had little option but to adjourn the proceedings pending the possible IPO. However, in light of subsequent events (particularly that no IPO had in fact taken place), it was clear that in fact the order the court would have made if proper disclosure had taken place would not have been substantially different from the Heads of Agreement. Accordingly, and notwithstanding that the husband had been guilty of non-disclosure, in all the circumstances the non-disclosure was not material. His Lordship therefore dismissed the Wife's application and ordered that the draft order be sealed forthwith.

In S v S [2014] EWCA Civ 95 Moore-Bick LJ gave the first judgment. He considered the speech of Lord Brandon in Livesey-Jenkins and drew out three relevant points of principle:

i) The court's power to make orders for financial provision are derived solely from the relevant statutory provisions.

ii) There is no distinction to be drawn for this purpose between orders made following a disputed hearing and orders made by consent of the parties.

iii) When the court embodies in a consent order terms agreed between parties, the legal effect of those terms is derived from the order itself rather than the parties' agreement.

Moore-Bick LJ continued that it followed from these principles that an agreement to compromise a claim for ancillary relief cannot be treated as a simple contract between the parties to which each is bound; misrepresentation by the husband of a kind that would ordinarily entitle the wife to rescind a contract does not necessarily entitle her to renounce the agreement and resume the proceedings. 

The critical factor, when considering whether an order should be set aside on the ground of non-disclosure, as Livesey v Jenkins shows, is the effect of the non-disclosure on the court's own decision embodied in its order. The question for the court is not whether the wife would have negotiated differently or settled on different terms but whether the court would have made a substantially different order if the facts had been disclosed:

"The wife was not entitled to resume the hearing simply to have the opportunity of negotiating a better settlement in light of the additional disclosure."

Moore-Bick LJ considered whether the husband's deliberate dishonesty distinguished the case from the decision in Livesey v Jenkins; he concluded that it did not. He held that:

"In this case the husband's non-disclosure was deliberate and dishonest, but because of the rather unusual circumstances there were good reasons for concluding that it had not resulted in an order significantly different from that which the court would otherwise have made at the conclusion of the proceedings."

Moore-Bick LJ considered that if the wife had wanted to challenge the husband's evidence that an IPO was not now imminent she should have sought to cross-examine the husband at the hearing before Bennett J in April 2013.

Briggs LJ delivered a dissenting judgment. He considered that the husband's fraudulent conduct was a 'cardinal aspect' of the appeal:

"The general principle that fraud unravels all is, as far as I am aware, no less applicable to judgments and orders of the court than to contracts."

He held that the fraud meant that the process by which the judgment was obtained involved a serious abuse of process. He considered that the public interest in the protection of the court's processes from fraud transcends other case management consideration, such as finality, economy and speed.

Briggs LJ considered that where a party has given up a prima facie right to a full hearing of her claim by being fraudulently induced into a settlement, "she should not lightly be deprived a full hearing, even if the court considers on a summary review that she would unlikely do better at a full hearing than the settlement already achieved."

Macur LJ delivered a short judgment in agreement with Moore-Bick LJ dismissing the wife's appeal.

Beth Wilkins and James Brown of JMW LLP, who acted for Mr Sharland, said:

"The agreement Mr and Mrs Sharland reached over 18 months ago gives Mrs Sharland more than 50 per cent of their liquid assets and a less than 50 per cent interest in Mr Sharland's shares – generous given the facts of the case.

"Mr Sharland has always been prepared to stand by the agreement and he is very pleased to see good sense prevail. This matter has caused enormous family disruption and Mr Sharland hopes that this decision can allow the family to move forwards."

Ros Bever, of Irwin Mitchell representing Mrs Sharland, said:

"Mrs Sharland had accepted a settlement that is based on inaccurate information disclosed by her husband so the agreement she believed she had reached for half of the couple's assets does not give her an equal share; a crucial requirement for Mrs Sharland throughout the negotiations.

"This case is not just about Mrs Sharland achieving justice, it is about ensuring that the courts send out a powerful message that dishonesty will not be tolerated, proving that fairness will prevail in divorce settlements.

"The case is the latest in a line of high profile cases, including Petrodel v Prest, and Young v Young, where spouses have seemingly defied the principles of fairness in divorce settlements, often using their businesses to 'disguise' their wealth.

"We believe that this case now needs to be examined at the highest level in order to protect future claimants from fraudulent and dishonest behaviour. The husband would not get away with this behaviour in the commercial courts so why should it be acceptable in the family court?"

The judgment in the Court of Appeal and summary by Amy Perkins of 1 Hare Court, from which this news item is partly derived are here. The original judgment by Sir Hugh Bennett is here.

Patrick Chamberlayne QC and Peter Mitchell both of 29 Bedford Row (instructed by Irwin Mitchell) represented Mrs Sharland. Nicholas Francis QC and Nicholas Allen also of 29 Bedford Row (instructed by JMW LLP) represented Mr Sharland.

10/2/14