Background
Caroline Mackay, (the Applicant wife) and Giles Patrick Cyril Mackay, (the Respondent husband) were married and there have been divorce and financial proceedings, resulting in a final Consent Order for financial provision for the wife in November 2014.
Mr Mackay is described as a “millionaire property tycoon” and the principal asset of the parties was Mr Mackay’s majority shareholding in a company. The Consent Order was entered into on the basis of there being a value of about £XM for the company as a whole and £YM for the husband’s shares in it.
Since the final Consent Order in November 2014, the wife had said that she had learned that in a period prior to the Order being made and whilst the proceedings were on-going, the husband had been, or may have been, in some communication or negotiation with a possible purchaser for his shares, or all the shares, in the company at a figure considerably greater than the figures that the Consent Order was built upon.
As a result of this, Mrs Mackay is of the opinion that she is entitled to a significantly higher award and considers that the existing Order should be set aside. Accordingly, she made an application for an Order setting aside the November 2014 Consent Order on the basis of material non-disclosure. Mr Mackay had been valued as having assets worth more than £20m however, Mrs Mackay claims his shares in the firm Hometrack were valued “at a figure very considerably greater” than covered by the settlement.
Procedure
The matter was listed for a two stage Court process, being an initial listing for several days in mid-October 2015 for consideration of whether or not the existing Order should be set aside, and a second hearing in February 2016 that in the event that the existing Order was set aside. The matter went before Mr Justice Holman for a pre-trial directions hearing on 18 September 2015. At that directions hearing, Mr Justice Holman said that there could not realistically be an effective hearing of the set aside application in as early as mid-October 2015, in circumstances where the Judgments to be handed down from the Supreme Court in relation to Sharland and Gohil, were awaited, and which involved consideration of the appropriate principles and approach on set aside applications of that very kind. Mr Holman said that it was “completely inappropriate that this Court should embark on any substantive consideration of set aside until the decision and Judgments of the Supreme Court in those cases are published and known, so, on any view, the set aside hearing could not take place on the dates affixed in mid-October.”
In addition, at this hearing, Mr Justice Holman in fact recused himself and explained his reasons within a short ex tempore judgment. Both the Judge and the husband were keen on sailing and it appeared that the Judge may have known, or had friendships, with certain sailing friends of the husband. Although there was no application by either party that the Judge should recuse himself as a result of the one friend they did have in common, the Judge decided that it did not seem appropriate for him to hear the case in circumstances where he may “feel personally embarrassed”, drawing on paragraph 25 of the leading authority on the circumstances in which a Judge should recuse himself Locabail (UK) Limited v Bayfield Properties Limited and others [1999] EWCA Civ 3004.
The trial will take place later this year and the parties and the legal representatives will be looking towards the Judgment of Sharland and Gohil of the Supreme Court anxiously.
Sharland and Gohil
Mrs Sharland and Mrs Gohil were both seeking to overturn their first divorce settlements in circumstances where their husbands deliberately and dishonestly provided incorrect information through the disclosure process, ultimately affecting their final divorce settlement. The duty of full and frank disclosure is owed to the court, and both appeals were allowed unanimously. Unless there is compliance with this duty, the Court cannot undertake its statutory duty under the Matrimonial Causes Act 1973.
The matters were heard on 8, 9 and 10 June 2015 in the Supreme Court and the Judgements were given on 14 October 2015. Although the cases were heard together, separate judgments were given dealing with each wife’s leave to appeal to the Court on the grounds that their husband’s fraudulent non-disclosure had allowed the husbands to benefit financially in the final settlement.
Sharland
Background
Alison Sharland brought a claim for financial provision against her husband, Charles Sharland, following their divorce. Mr Sharland’s accountants valued his shares in a company of which he owned a two-third share, at £7 million. However, Mrs Sharland’s team valued them at £32 million. During the course of the hearing, the parties were able to reach agreement and the terms of the draft order were agreed and approved by the Judge. Mrs Sharland made a compromise on the basis that the value of the shares was no more than £32 million, and that the company would not be floated on the stock market for several years. However, contrary to Mr Sharland’s evidence, it become apparent that he had been holding discussions with various investment bankers as part of active preparations for an initial public offering of the company. Reports around that time suggested the price could be around $750 million to $1 billion.
Judgment of the Supreme Court
The Supreme Court found that the Court has the power to set aside its own Order if there has been fraud, mistake or material non-disclosure. However, the Court has flexibility in its remedies and it does not automatically set aside the whole Order. The Court has the power to make a selective set aside, for example, by setting aside certain provisions. In Gohil, only the dismissal provisions were set aside.
The Court found that it was crucial to distinguish whether the non-disclosure was fraudulent, or innocent/negligent.
This was the first occasion since Livesey v Jenkins in 1985, that material non-disclosure had been considered at the highest appellate level. In fact, the Supreme Court found that Livesey v Jenkins continues to apply where non-disclosure is innocent or negligent. The Court may set aside an Order were a party is able to establish the following:
(a) That there has been non-disclosure; and
(b) Which, if known, would have resulted in the court making a substantially different order.
The Supreme Court has made it clear that not all forms of non-disclosure will result in the setting aside of a Consent Order. It will depend upon whether the non-disclosure is material to the Order made by the Court. If there is fraud, materiality is assumed (the material time is the date the Court made the Order), and the innocent party would be entitled to have the Order set aside unless the offender of the fraud can establish that at the time the Court made the Consent Order, (a) the fraud would not have influenced a reasonable person to agree to it, and (b) had it known then what it knows now, the Court would not have made a significantly different Order, whether or not the parties had agreed to it.
Gohil
Background
Varsha Gohil had reservations as to the validity of the disclosure provided by her husband, Bhadresh Gohil, during financial remedy proceedings. She highlighted the disparity between his alleged and his affluent lifestyle. However, owing to the fact that she had difficulty proving her case, she agreed a final settlement on the basis that the Order detailed her concerns by way of a Recital, recording that although she believed that Mr Gohil had not provided full and frank disclosure, she was prepared to compromise her claims despite this, in order to achieve finality.
Judgment of the Supreme Court
The Supreme Court held that there was material non-disclosure by the husband (that required a change in approach per Livesey), and despite parts of the evidence being inadmissible, the Judge had sufficient admissible evidence to support a finding of significant material non-disclosure.
It was however found that the recital in the original Order recording that Mrs Gohil believed that the husband had not given full and frank disclosure was of no legal effect, as the duty of full and frank disclosure is owed to the Court and one spouse cannot exonerate the other from complying with their duty.
How might these Supreme Court Judgments affect the decision in Mackay v Mackay?
In Mackay, since the final Consent Order in November 2014, the wife appears to have learned that whilst the financial proceedings were on-going, the husband had been, or may have been, in negotiations with a purchaser for shares in the company at a figure considerably greater than the figures that the Consent Order relied on.
Helpfully to Mrs Mackay, the two Judgments of the Supreme Court set a clear precedent for the way the Courts should deal with fraudulent non-disclosers, and the Court clearly identifies the issues involved with non-disclosure of material financial information. Fraudulent non-disclosure cannot be tolerated and the dishonest behaviour of the two husbands has been condemned.
The duty to provide full and frank financial disclosure to the Court is the foundation of financial remedy proceedings. Dishonesty in any legal proceedings, family or otherwise, should not be condoned. However, to date, nothing has been done in the family Courts to punish a deliberate breach of the duty of full and frank disclosure in order to try to secure or preserve a greater share of the ‘matrimonial pot’.
In the matter of Sarah Kimura Al-Baker v Abdul Amir Al-Baker [2015] EWHC 3229 (Fam), Mostyn J has imposed an immediate nine month custodial sentence for non-disclosure by a husband who systematically failed to comply with disclosure orders of the English court. Committal for breach of an order is the Family Court’s last line of defence against non-compliance. Mostyn J found that not only had the husband refused to comply with disclosure, he had been defiant in his refusal to do so. The Al-Baker case highlights the increasing hard line that the courts are taking towards non-disclosure.
If it becomes apparent that the husband was in fact in discussions with a potential purchaser prior to the Order being made, and that he fraudulently and dishonestly mislead the wife and the Court, then there are likely to be serious ramifications. The Supreme Court has clearly stated that dishonest behaviour of this nature will no longer be tolerated by the family courts, and it is possible that the Order of November 2014 may be set aside (or parts of it), to allow a re-opening of the financial settlement.