Rehearing after order set aside for non-disclosure

Family analysis: Amy Royce-Greensill analyses a case involving non-disclosure, where the High Court considered the approach it should take when rehearing a financial claim following the final order being set aside.

Original news

Goddard-Watts v Goddard-Watts [2016] EWHC 3000 (Fam)

The case was remitted to the High Court after the final order was set aside due to the husband’s non-disclosure regarding his interests in two trusts. At the rehearing, the court held it was fair to isolate the undisclosed resources and to deal only with those. The parties’ other resources were divided in a way that was fair and that remained fair. Excluding 35% of the trusts’ assets, which the court held were not marital assets, the wife would be entitled to the value of half the remaining assets (32.5%). This equated to a lump sum of £6.22m, which the court increased to £6.44m to reflect the fact that, first, if the truth had been known at the original proceedings, the wife would have received the sum earlier and secondly, she should not have been paid part of her original lump sum in instalments.

What was the background to the case?

The parties had divorced and a final order was made in 2010, under which the wife received the former matrimonial home and a lump sum of £4m (£1m of which was payable over eight years). In 2015, the final order was set aside due to the husband’s non-disclosure. The court setting aside the order found the husband had given a false presentation in respect of his interests in two trusts (see KG v LG (Appeal out of time; Material non-disclosure) [2015] EWFC 64, [2015] All ER (D) 338 (Jul)). The trusts were established in 2008 and held shares in a company set up by the husband’s brother. A significant proportion (35%) of the shares initially settled in the trusts was a direct contribution from the husband’s parents. The remainder represented the husband’s interest in his brother’s company. By the time of the rehearing, the trusts had received in total £21.45m (net).

Why is this decision important for family lawyers?

The subject of when and how a financial order can be set aside for non-disclosure has been in the spotlight recently, following the cases of Sharland v Sharland [2015] UKSC 60, [2015] 2 FLR 1367 and Gohil v Gohil [2015] UKSC 61, [2015] 2 FLR 1289 and the new set aside procedure introduced by Family Procedure Rules 2010, SI 2010/2955 (FPR 2010), 9.9A on 3 October 2016. This case required the court to consider the approach it should take after the final order had been set aside, when rehearing the financial claim – should it ‘start from scratch’ or should it employ an approach in which it isolated the resources that were not disclosed and deal only with those?

What were the main arguments?

Both parties agreed that the sharing principle was determinative but disagreed as to the date at which the assets should be shared and the impact of the division of the assets that took place in 2010.

The wife argued she should receive an equal share of the parties’ current resources, including the assets in the trusts. She submitted that the sharing that took place in 2010 was of no continuing relevance as it was procured by the husband’s non-disclosure and she was entitled to have her award determined at the current position.

The husband’s case was that the wife should receive a share of the value of the trusts’ assets as at 2010, this being her ‘loss’ caused by his non-disclosure, plus an amount to reflect that the wife did not receive her share in 2010. He submitted that the other assets were shared in 2010 in a manner that was and remained fair.

What did the High Court decide and why?

The court did not agree that the only way to achieve a fair outcome was to give the wife an award based on the current values of the assets. It had to determine what was fair now and had to do so by reference to all the circumstances of the case. These included the current resources available to the parties but also the division effected in 2010 and the fact this was procured by non-disclosure.

The court used what it called the Kingdon approach (Kingdon v Kingdon [2010] EWCA Civ 1251, [2011] 1 FLR 1409). It was fair in this case to isolate the undisclosed resources and to deal only with those (subject to one small caveat). The court explained that, despite the false disclosure in relation to the trusts, the parties’ other resources were divided in a way that was fair and remained fair. The one caveat was that, if the truth had been known about the husband’s interest in the trusts, the court doubted whether part of the wife’s lump sum (£1m) would have been payable over eight years.

If the true position had been disclosed in 2010, the court would have treated 65% of the trusts’ assets as being marital resources available to the parties (the other 35% was the shares contributed by the husband’s parents and non-matrimonial property). The wife would have been awarded half the balance of the trusts’ assets (32.5%) by way of lump sums payable by the husband as and when those assets were realised.

The court analysed the various transactions in which the trusts had been involved since they were established up until the date of the rehearing and concluded they had received £21.45m net. Of this, £7.5m was excluded as non-marital resources, leaving £13.95m; £1.5m had been distributed prior to the 2010 order and was therefore taken into account at the time. Half of the balance equated to £6.22m and the court could see no reason why the wife should not receive this lump sum; it represented her share of marital resources, was the product of an investment acquired during the course of the marriage and no part of it reflected post-separation endeavour. The court was satisfied that, if the husband requested this sum from the trusts, it would be distributed to him. The trusts would still have adequate resources and the court considered that the award gave appropriate weight to the interests of the other beneficiaries.

The court increased this sum to reflect two other factors. The first was that the wife would have received this element of her award earlier. The second was the fact the remaining instalments of the original lump sum (approximately £280,000) should be accelerated. It was not possible to reflect these two factors by the application of any particular formula. The court increased the wife’s award by £200,000, making a total of £6.42m and ordered that the outstanding £280,000 should be paid earlier.

Does the judgment clarify the law in this area?

The judgment emphasises that in these types of cases the court has the discretion to determine the correct approach in the circumstances of the case. The court noted it was clear from Lady Hale’s judgment in Sharland that ‘there is enormous flexibility to enable the procedure to fit the case’ (para [43]). In some cases, this would require the court to ‘start from scratch’ (para [43]) but in others it would not, as in Kingdon.

The wife had made submissions about the dangers of applying the Kingdon approach and had warned it could be taken up by fraudsters as a way of limiting their liability and that this would lead to a ‘corresponding diminution in the rights available to the victim of the fraud’ and to the ‘emasculation’ of the decision in Sharland. The court did not accept these broader submissions, reasoning that it would not be helpful for the courts’ enormous flexibility to become subject to sub-principles or overlain with other overarching considerations.

The judgment also touched upon other areas of law common to big money financial remedy claims, such as non-matrimonial property, post-separation accrual, whether the trust was a resource and valuation evidence, and it briefly examined the relevant principles and case-law.

What lessons can those advising take away from this case?

  • be aware of the court’s flexibility when advising clients – it is difficult to express certainty as to exactly the approach the court will take; if the court finds the parties’ disclosed resources were divided in a way that was fair and that remains fair, it may use the Kingdon approach rather than starting with a blank canvas.
  • Sharland is key and should be referred to directly; Moylan J specifically said that he had been referred to a large number of authorities, but that the principles applicable to the case required a more limited exploration, particularly because those principles were the subject of the Supreme Court’s decision in Sharland
  • this was a big money case and both parties agreed the sharing principle applied; the court did not consider how its approach to the rehearing might have differed (if at all) if the original order had been determined by the needs of the parties

Amy Royce-Greensill is a professional support lawyer at Jordan Publishing.

Twitter: @AmyRoyceG

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