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They Are Lies Jim, But Not As We Know It …

Much has been in the recent press of the cases heard together in the Supreme Court which concern misleading disclosure given by husbands in the hearing deciding how the family assets were split. 

In the most notable case of Sharland, a husband who was a software engineer and had his own company confirmed in his written evidence and evidence before the Court his company was not to be subject to an Initial Public Offering (IPO), floatation.  Here, the value of his shareholding in the company had been valued by forensic accountants on this basis.  The approach of the Court also has to have a mind that in his retaining the shares as part of his share of the assets that they are a risk laden and also a illiquid asset in his hands.   In this case whilst the wife also had some of the shares the significant variation in eventual value skewed the result such that she did not get 50% of the entire pot as she thought. 

The fact was, it found not to tell the truth and therefore the basis of the valuation carried out was wrong.  The approach of the wife’s advisors and indeed the Court was predicated on a false basis. 

In my view it was when the matter was considered in the Court of Appeal that the most fantastical decision was made, namely that “Yes he had lied, but the wife had after all received a lot of money”.  Never mind the fact we have long since left behind us those years when acting for the well-heeled party you would invoke the ‘millionaires’ defense’ and with all the distain you could muster, announce your client did not want to give full disclosure as he could afford to pay anything the Court might ‘reasonably’ award. 

There is a fundamental principle involved in this area of judge made law (judges apparently don’t make the law and if you believe that I will tell you another) and it is that consent, as well as a judges decision or approval of agreement, should be an informed decision.  The duty of full and frank disclosure is an ongoing one. 

Further, there is a fundamental principle of contract, applicable to obtaining a parties consent to an agreed order that such consent must be in the absence of duress, fraud, mistake or misrepresentation. 

Here, the Court felt what had been perpetrated was a fraud.  If a victim of fraud came before the Court they would expect to be compensated and not short changed.  Although here the earlier decision was set aside and the matter remitted down to the lower court for a re-trial, one would hope it would not be starting from scratch!   

This matter should be wholly distinguished from earlier case authorites where, again there has been a joint valuation by forensic accounts on the husband’s shareholding, but on a subsequent sale those shares have been found to attain an embarrassingly greater value.  Judges in those cases have quite rightly said there has not been a fraud, or indeed any mistake.  Valuation is an art not a science.  The market fluctuates which can mean down the line (and it’s not too close to the line, to suggest the Court or anyone was misled a sale was actually going to be in the offing) if a shareholder secures more for themselves then good luck to them.  There is a notable case where the wife lost out as the value of his stock collapsed and he sought to have the Consent Order previously reached set aside.  On that occasion as with the other matter, the Court referred to fluctuations, market value and assumption of risk.  Again, no mistake had been made, this time by the husband, so it was not for the Court to underwrite risk in the same way a wife who had been awarded a significant lump sum and lost it all in various investments was not allowed to return to the Court for more. 

The other lesser case of Gohil heard at the same time was on a much smaller scale, and was in regard to a more modest family fortune carved up. Or so it was thought at the time…….