AB v CD

In financial remedy proceedings, the duty of full and frank disclosure continues while parties negotiate a consent order. A party must disclose information relevant to outcome, including prospective financial developments which remain subject to negotiation. The duty cannot be waived by agreement between the spouses.

Material non-disclosure may justify setting aside a consent order even without fraud. Where the non-disclosure is innocent or negligent, the applicant must show that proper disclosure would probably have produced a substantially different order. A protective clause in the settlement does not cure the absence of informed consent where the clause itself was agreed without material information.

The former husband applied to set aside a consent order made in financial remedy proceedings following a short marriage. The order provided for a lump sum, transfer of property and the transfer to the former wife of his shares in a technology company. He alleged that she had failed to disclose a substantial financial relationship between the company and an institutional investor before the agreement was reached.

The former wife denied deliberate deception and maintained that the funds were working capital or conditional investment. The central issues were whether her disclosure had been full and frank, whether any deficiency was material, and whether the consent order should be set aside.

1. Duty of disclosure. The duty of each spouse to make full and frank disclosure is owed to the court. It continues during negotiations which lead to a consent order. One spouse cannot exonerate the other from complying with that duty. Information relevant to outcome must be disclosed, and it is not for a litigant to decide unilaterally whether it is material. The duty extends to matters relevant to the parties’ foreseeable financial prospects, even where negotiations remain uncrystallised. ([1985] AC 424; [2015] UKSC 60; [2015] UKSC 61.)
2. Materiality and culpability. Innocent non-disclosure of a material fact may vitiate consent and justify setting aside the order. Where the non-disclosure is not deliberate, the applicant must show that proper disclosure would probably have led to a substantially different order. Where intentional non-disclosure is established, the burden shifts to the non-disclosing party to show that the order would have been made in any event.
3. Application. The former wife knew that the investor had provided approximately £3.5 million and that further financial support was possible. That information could materially affect the valuation of the company and the fairness of transferring the husband’s shares. The husband’s experience and access to some shareholder information did not relieve her of the duty to disclose; he was not required to piece together the position from fragments.
4. The court found that the disclosure was incomplete and that the omission was material, but did not find deliberate fraud. The so-called anti-embarrassment clause did not provide a shield against the application. The husband had agreed to the settlement without the information needed to decide whether to transfer his shares or renegotiate.
5. The consent order dated 10 April 2012 was set aside. The court declined to substitute a fresh order immediately and directed that the matter be relisted for further directions, allowing the parties an opportunity to settle.

not stated in the judgment.