Fraud and divorce – a Scottish Sharland?

Scottish family law practitioners may have read with interest about the Supreme Court decisions in the English appeals of Sharland [2015] UKSC 60 and Gohil [2015] UKSC 61. But what would have happened had these cases been heard in Scotland?

The English decisions

Judgments in the applications by Mrs Sharland and Mrs Gohil, which were heard together in June, were issued on 14 October. Both wives asked the court to set aside their divorce settlements as their husbands had deliberately and dishonestly misled them and the court.

Mrs Sharland’s agreement with her husband was reached relying on his assertion that his company would not imminently be put up for public sale, which assurance he gave to both parties’ valuers and in oral evidence. On that basis, the respective valuations were between £60 and £88 million. In fact, around that time, the husband was actively planning for sale at between £750 million and £1 billion.

Mrs Gohil discovered, some two to three years after divorce, that her husband had not been frank about his assets – in fact, he was convicted of fraud and money laundering offences to the extent of £25 million. She had previously agreed to a settlement of £270,000.

At the time of her application, Mrs Sharland was not yet divorced, and the consent order framing the financial settlement was not yet sealed by the court. Mrs Gohil took her first steps three years after her consent order was sealed and the divorce granted.

The Supreme Court allowed the wives’ appeals, and remitted both cases to first instance judges for a substantive decision. The emphasis by the court is that full and frank disclosure is required in all divorce cases. Fraud “unravels all”. The presumption is that the fraud would have resulted in a different agreement or order being made – the onus is on the perpetrator to prove otherwise. The court noted that although there could be more clarity about the application procedure to set aside an order, the divorce court always retains jurisdiction, even after a marriage has been dissolved.

A Scottish response?

A happy outcome for Mrs Sharland and Mrs Gohil – but would they have been as happy had their divorces been in Scotland?

For Mrs Sharland, not yet divorced, her route under Scots law would be to apply under s 16 of the Family Law (Scotland) Act 1985 to vary the financial agreement, on the basis that it was not fair and reasonable at the time it was entered into. The non-disclosure of information would be a very relevant factor in assessing reasonableness. Such variation of a financial agreement is however usually only possible at the time of granting decree of divorce.

A s 16 application would therefore not work for Mrs Gohil, who was already divorced when she discovered the fraud. She would also not be able to seek redress under s 18 of the Act, relating to avoidance transactions, as such an application can only be brought within one year of the date of disposal of the claim for financial provision. This is a possible route for a spouse who discovers fraud a bit earlier than Mrs Gohil, in particular where the other spouse has transferred assets to someone else (e.g. a relative or new partner), and that transfer has or is likely to have the effect of defeating in whole or in part any financial claim.

In such a case, the court can set that transfer aside. Interestingly, the court’s order can include terms and conditions, along with any ancillary order it considers expedient to ensure the order is effective. It has been considered that this provision may be wide enough to get round the problem that orders for a capital sum or property transfer order can usually only be granted on decree of divorce (see Clive, Husband and Wife, para 24.130).

There is provision to grant financial orders post-divorce in s 14 (incidental orders) of the 1985 Act, in particular s 14(1)(h) and the catch-all 14(1)(k), but it is likely that these would be construed too narrowly to be of assistance to a spouse in Mrs Gohil’s position.

The final recourse where the parties are already divorced, the financial settlement was more than a year ago, and/or assets have simply not been disclosed rather than transferred to a third party, is to seek reduction of the decree of divorce, to allow the financial matters to be considered all over again.

It is however not straightforward to reduce a divorce decree. Assuming the case is defended, the applicant would need to show exceptional circumstances and that reduction is necessary in order to produce substantial justice. Given the money laundering constraints on the court in Gohil, it may be that no further financial order is made. Would reduction of decree then be refused, as not being necessary to produce justice?

It is arguable that the Scottish system would benefit from greater facility to grant further financial orders post-divorce, in exceptional cases involving fraud or non-disclosure, without requiring recall of the divorce decree itself.