Should someone ‘get away’ with fraudulent non-disclosure? by John Bolch, with my reply to him.

Divorce|February 11th 2014

The Court of Appeal’s decision in S v S, handed down yesterday, has certainly caused a few raised eyebrows. In it, a wife failed in her attempt to re-open a financial settlement, despite the fact that the judge found that the husband had been guilty of fraudulent non-disclosure.

Some consider that the decision amounts to an ‘invitation’ to parties to deceive the court and withhold full disclosure of their financial assets. Others, on the other hand, take the view that the decision is a victory for common sense.

I do not propose to go through the judgment – a summary of it has already been published here, in this post. Instead, I want to concentrate on the question: is it right that someone should ‘get away’ with fraudulent non-disclosure?

Clearly, Lord Justice Briggs did not think so. Giving a dissenting judgment, he referred to the general principle that ‘fraud unravels all’. In other words “once it is established that a judgment or order has been procured by a process involving material fraud, then the interests of justice require that the judgment be set aside”. He stated that:

“There is a public interest in the protection of the court’s processes from fraud which transcends other case management considerations, such as finality, economy and speed.”

And he considered “that the court should be very slow to depart from that healthy principle”.

The majority of the Court of Appeal (Lord Justice Moore-Bick and Lady Justice Macur) however, took what can perhaps be described as the pragmatic view. They considered that whilst the husband was certainly guilty of non-disclosure, there was no point in re-opening the settlement, as the court would not have made a substantially different order if the husband had made full disclosure.

To counter the argument that the husband had ‘got away with it’, Lady Justice Macur pointed out that not only will the court take a very dim view of such behaviour, but it could result in costs penalties, proceedings for contempt and even criminal prosecution.

Of course, everything hinges upon whether it is in fact the case that the result would not have been materially different if the husband had made full disclosure. Provided that this is so then I am with Lord Justice Moore-Bick and Lady Justice Macur.

If the result would not have been materially different then the husband has gained nothing. He has also not gotten away with his dishonest conduct towards the court, as Lady Justice Macur makes clear. I understand Lord Justice Briggs’ view, but what is the point of setting aside the judgment, only to (eventually) replace it with a similar one, merely for a point of principle?

So, to answer the original question: no, it is not right for someone to ‘get away’ with fraudulent non-disclosure, and the husband here did not get away with it. Setting aside the order and starting over again would not have ‘punished’ him at all, if the end result would have been a similar settlement to that originally agreed.

I don’t think others will see the judgment as an invitation to withhold full disclosure from the court. On the contrary, it demonstrates both that the court will re-open the case if the non-disclosure makes a material difference, and that even if it does not there are still consequences.

Well, that is my view on the case. As I indicated at the beginning of this post, I know that others take a different view, but that is what makes a case like this so interesting.

In any event, it seems that the wife is to appeal to the Supreme Court and it may, of course, be that the Supreme Court is one of those to take a different view.

Marilyn’s Reply

Dear John

I agree with Lord Justice Briggs. He points out that Livesey -v-Jenkins which their Lordships cite as the leading authority, was not in fact a case about fraud at all, but material non disclosure which is different. In such cases it is right to consider whether the non disclosure would have made a difference to the order. He states that fraud is entirely different and in contract law, would be sufficient to automatically vitiate the contract. He sees no room for distinction between a contract and a court order. He also makes it clear in his opinion that there is the public interest in a fraudster not to be seen to be profiting from fraud.

Thus in cases where fraud can be conclusively proved, as in this case, when a consent order has been obtained before a hearing based upon fraud, the order should be automatically set aside and a full hearing should be automatically ordered.

He criticises (albeit he also sympathises) with the Judge, whom he felt was wrong to conduct a ‘mini hearing’ as to whether the order he made have been materially different and to conclude that the order he would have made would not have been different without having had a full hearing. He does not agree that the Wife’s Counsel was wrong not to cross examine the Husband in this process – rather that the type of hearing he conducted was wrong. After all, as the Judge points out, even the valuation of the company in question had not been carried out on the basis of an imminent IPO.

Allowing a fraudster to get away with it sends out absolutely the wrong signal in an area where husbands and wives are often parsimonious with the truth especially if there is a lot at stake.

A fraudster should never profit, and irrespective of whether sanctions follow elsewhere, the order should have been immediately set aside, new directions given, including in relation to the valuation of the company taking into account the circumstances which had come to light, and a full hearing taken place with a wasted costs order against the Husband.

There are of course important points about economy of scale, proportionality, costs etc. but fraud is a special category which is inexcusable at any level. For example, a less wealthy fraudster should not get away with it, if a wealthy fraudster cant just because more money is involved. I therefore fully support a default position of an automatic set aside with a full hearing to follow and a wasted costs order on an indemnity basis.

The Supreme Court could now take the opportunity to confirm the law in relation to cases involving fraud, material non disclosure and misrepresentation etc. and what should be done in such cases whether the fraud occurs prior to a hearing so as to induce a settlement or afterwards.

Regards

Marilyn

Author: John Bolch

John Bolch often wonders how he ever became a family lawyer. He no longer practises, but has instead earned a reputation as one of the UK's best-known family law bloggers.

Comments(3)

  1. Tristan says:

    Parents with care routinely make fraudulent non-disclosures
    (amongst other things) in order to frustrate an NRP’s attempts to see his child. So why not others? Dishonesty should be allowed for all litigants in family courts, not just single mothers.

  2. Soon to be ex-wife says:

    Dear Marilyn and David,
    From layperson’s point of view I fuly agree with you Marilyn that the order should be set aside and a full hearing conducted in light of the recent additional information found.

    David I acknowledge the point that the hearing may well have the same outcome as the original order, but isn’t that the whole point of having a hearing – to determine just that? (I may have missed a trick here, asThe risk that the original order may not vary is not a reason not to do a hearing – it is just a risk, not a reality until tested via a full hearing.

    Also David, I take your point that the husband would not have been punished by a repeat hearing, but I really do think that ordering him to have to pay the legal costs of the repeat hearing would probably be punishment enough and send a very clear message that dishonesty regarding financial disclosure will not be tolerated.

    In my profession if somebody acts dishonestly an investigation in light of the new facts revealed takes place – even if the outcome to the client would be identical.

  3. Soon to be ex-wife says:

    PS Marilyn and other authors, thank you for a very informative and interesting Blog.

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