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

Much has been in the news of disputes  heard  in the Supreme Court concerning misleading disclosure by husbands to minimise assets for sharing with their wives. 

In the most notable case of Sharland, a husband who was a software engineer had his own company and confirmed in his written evidence and evidence before the Court his company was not  subject to an Initial Public Offering (IPO). (Not likely to be floated.) 

The value of his shareholding 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 settlement 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 increased  value skewed the result such that she did not get 50% of the entire pot as she thought. 

It was found to be the case the husband did not 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 incredible decision was made, namely that “Yes he had lied, but the wife had after all received a lot of money”.  We have long since left behind those years when acting for the well-heeled party you would invoke the ‘millionaires’ defence’ and with all your plumage puffed out and as calmness personified , 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 of course do not make the law but if you believe that I will tell you another) and it is that a party’s consent to an agreed settlement or a judges decision or otherwise approval of an agreement,  is predicated on their being able to make an informed decision.  The duty of full and frank disclosure to the Court and other party is an ongoing one. 

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

Here, the Court went further. 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 authorities 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 had rightly said there had not been a fraud, or indeed any mistake. 

Valuation is an art not a science.  The market fluctuates which can mean down the line (better make that far enough down the line so the Court or other party was not misled a sale was in the offing) if a shareholder secures more for themselves then good luck to them.  The case of Myerson flips it over and is where a husband 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. 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 will not be allowed to return to the Court for more.