England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE WOLVERHAMPTON COUNTY COURT
(HIS HONOUR JUDGE NICHOLAS MITCHELL)

		Royal Courts of Justice Strand London, WC2 Friday, 8th November 2002

Friday, 8th November 2002

1. LORD JUSTICE PETER GIBSON: I will ask Keene LJ to give the first judgment.
2. LORD JUSTICE KEENE: This is an application by Kathleen Ward for permission to appeal against the decision of His Honour Judge Mitchell at Wolverhampton County Court on 30th August 2001. By that decision the judge rejected her application dated 25th April 2000 under the County Court Rules 1981, Order 37, Rule 1, to set aside a consent order made on 5th October 1990 and to order a rehearing.
3. I can say straightaway that we are agreed that the application for permission to appeal should be allowed, and we have treated the matter, therefore, as the substantive appeal.
4. The order of 5th October 1990 had been made following an application for ancillary relief. The applicant had been married to the respondent, that marriage taking place in September 1966. It broke down in 1989 and divorce proceedings were brought by the applicant against her then husband. He was the managing director of a public limited company known as Manders Holdings Plc (to which I shall refer as "Manders"). He was aged 48 at that time. His wife was aged 49. The two children of the marriage were both over 18. The husband had begun his employment with Manders in 1986. He was, as the judge below put it, an able and successful businessman. He was paid by the company a basic salary plus annual bonuses dependent on results. He held shares in the company worth, it seems, some £55,000, but he also held a number of share options, which are of basic importance to this present application. Initially he was granted options for some 50,000 shares, but those were added to over the period leading up to the order in question and by that time he held options totalling some 285,000 shares in all. Those options could only be exercised in a period between three and ten years after they were granted. At the date of negotiations between the parties three years of the minimum period would have expired over the options for some 150,000 shares, so they could have been exercised at that time. Had they been so exercised, they would have provided a profit to the husband of a little under £60,000 after tax.
5. The judgment in the court below sets out the other assets at that time. The matrimonial home was jointly owned. It had a net value of some £278,000 after deducting the outstanding mortgage but before allowing for the cost of sale. Apart from a deposit account in the wife's name, there was a boat, a car, some jewellery and furniture and effects. There was also a joint building society account with some £19,000 in it.
6. According to the husband's P60 his net income after tax for the tax year 1988/1989 was £58,000. His earnings were somewhat higher for the tax year 1989/1990, but the negotiations between the parties seem to have been based on the 1988/1989 figure. It is clear that the wife wanted a clean break settlement. She also made it clear that she was prepared to move out of the matrimonial home and then to purchase her own property.
7. There was correspondence between solicitors for both parties with regard to the financial arrangements to be made. By a letter dated 28th February 1990 the wife's solicitor sought information about the husband's salary and pension provision and about his stocks and shares, the letter saying at one point:

"It would certainly seem to us, that with all the matrimonial assets being taken into account, your client's salary and bonus, our client's loss of pension rights and the fact that she is prepared to forego any claims for maintenance against your client providing that a lump sum settlement can be achieved, then she should expect to receive a figure in the region of £200,000 from your client by way of a lump sum settlement."

The same letter also presumed that the husband would be in receipt of a large pension upon retirement of which the solicitors sought details.

8. In response the husband's solicitors wrote on 8th March 1990. They referred to his tax assessment for 1989 showing gross earnings of just over £90,000 with a net figure of £58,329. They commented that the salary was variable on performance. The letter then continued:

"Our client does not have various stocks and shares, as your client is well aware. He does have 29,000 shares in his own company, where he is chief executive. These shares, whilst currently at the mid-market price of £1.93 would carry a sales value of around £1.90, i.e. £55,000. It should be understood, and we know is understood by your client, that for Mr Akers to sell all his shares would be damaging to the company as it would need to be announced on the Stock Exchange. In addition, there would be Capital Gains Tax to pay on a large proportion of them. It is further a condition of employment, as in most publicly quoted companies, for the Board to hold shares. Our client does not intend to sell his holding.

With regard to his pension, our client has advised us that his expression of wish to the pension fund trustees would have left any pension benefit to his boys, not your client. This question in any event is not capable of calculation and does not arise if your client's request for a clean break is genuine."

No mention was made in that letter, or the other associated correspondence, of any share options. Nor was the position in respect of his pension arrangements taken any further by either side's solicitors.

9. The letter of 8th March 1990, to which I have just referred, concluded:

"Your suggestion of a £200,000 settlement figure is totally unrealistic. To raise this sum would leave our client with borrowings, including the current mortgage, of some £222,000 carrying an interest charge of around £37,000 per annum or 65% of his net pay after task. A more appropriate figure would be £100,000, leaving our client with borrowings, including the current mortgage of £122,000.00, which would cost him £20,740.00 per annum, or 35.6% of our client's net pay."

10. Negotiations continued, with the husband's solicitors emphasising that he was dependent on borrowing the money. There was some suggestion from the wife's solicitors that, if necessary, the matrimonial home might have to be sold, but this suggestion does not seem to have been pursued at any length.
11. Eventually the suggestion was made on behalf of the wife's solicitors that the figure of around £150,000 might be acceptable, and in due course, after negotiations had continued further, terms were arrived at on this issue of ancillary relief. Those terms were finally agreed between the parties in May 2000 and a draft minute of order was prepared at that time together with the rule 76A statement, as it then was. That statement, it has to be said, was somewhat cursory. It set out the figure of 20,000 ordinary shares in the company with a value of £55,000, which the husband had. It gave a figure of net income for the husband of £55,000 per annum. That has been accepted as being a typographical error for £58,000 referred to earlier in the correspondence. No mention was made of the value of the matrimonial home, although it was clear from the statement that there was a matrimonial home where the husband, it is said, was to remain. Nothing appears in that statement about any options in the company.
12. There was a deed of separation on 22nd May, which provided for the agreed terms and for the consent order in those terms to be sought. Some delay then ensued.
13. On 5th October 1990 the District Registrar passed an agreed form of consent order which recited, as was by then the case, that the husband had paid to the petitioner the cash sum of £120,000 and the balance of the building society account of £19,000, that he had also transferred a motor car to her and there would be an agreed division of the household chattels, finishings and furnishings. On this basis both sides' claims were to be dismissed. The wife, consequently, was surrendering entitlement to any periodic payments.
14. However, according to an affidavit sworn by the wife in the present proceedings:

"In or about October 1994 a former employee of Manders p.l.c. disclosed to me information which led me to believe that my divorce settlement had been agreed upon the basis of entirely misleading information".

She consulted a new solicitor in November 1994. It appears that in due course she became dissatisfied with that solicitor's activities and a different firm was retained in March 1998. Finally, she went to a further solicitor in November 1999. On his advice she sought in that month copies of the accounts and annual reports for Manders dating back to the time of the divorce, and those were obtained some three months later in February 2000. She stated that it was then in February 2000 that for the first time she became aware of the existence of the share options. She said she also became aware that her husband had been in receipt of earnings somewhat greater than had been stated in the rule 76A statement. In April 2000 she obtained legal aid and made the application with which Judge Mitchell was concerned.

15. After hearing evidence the judge found that there was a non-disclosure as to the share options and as to the husband's earnings for the later tax year (1989/1990), where the husband had apparently passed his P60 to his solicitors but it had not been disclosed. But the judge concluded, having heard the husband give evidence, that the non-disclosure had not been fraudulent. That finding has not been challenged in the proceedings before us.
16. The two remaining issues identified by the judge, which are those essentially with which this court is concerned today, were whether the non-disclosure was material and, if so, whether the wife's application to set aside the order was defeated by delay. On the first of those issues the judge noted the limitations on the sale of shares by a director of a limited company, had he exercised his options. He concluded that it would have been difficult for the husband to have sold shares at the relevant time, and the judge observed that what in fact happened was that the husband did borrow substantially in order to pay the wife rather than obtaining the money by realising any of the shares or options, and that in due course the husband reduced his borrowing by selling the matrimonial home rather than by selling the shares. The judge noted that only after a time, in December 1997, did the husband realise any of the share options. The judge said this at page 15 of his judgment:

"Effectively the parties were at that time focusing on the wife's desire for a clean break and on the husband's borrowing capacity. Accordingly I find that there was a technical non-disclosure in the rule 76(A) statement of both the share options and of the increased income for the year immediately prior to the statement, but the lack of reference to the options in the negotiations was not material to the ultimate settlement."

17. The issue of delay, therefore, did not strictly arise, but the judge said that he would have rejected the wife's application on this ground also. He emphasised that the annual accounts of Manders had at all times been in the public domain, and yet almost six years had passed between her being put on enquiry, as she recognised in 1994, and the application being made. Order 37, rule 5 imposed a 14-day time limit on applications to set aside, running from the date of trial, and the judge took the view that the substantial extension of time required in this case was not justified.
18. On behalf of the appellant Mr Moor, QC, emphasises that both parties in such proceedings are under a duty to make full and frank disclosure to the court. That follows from the matters listed in section 25 of the Matrimonial Causes Act 1973 to which the court is under a duty to have regard; and it applies, as Livesey v Jenkins [1985] AC 424, made clear, to exchanges of information between the parties which lead to a consent order.
19. For my part, I accept that, and it is also well established that the power to set aside an order is not confined to cases where the order has been obtained by fraud or mistake. The power exists also where there has been material non-disclosure: see Robinson v Robinson [1982] 1 WLR 786. On behalf of the respondent Miss Matthews does not contend otherwise. But, as Mr Moor recognises, the non-disclosure has to be material. He accepts the way in which the matter was put by their Lordships' House in Livesey v Jenkins, namely that it is not every failure of frank and full disclosure which justifies a court in setting aside the consent order affecting a clean break. It is only if the failure has led to an order substantially different from the order which would have been made on full and frank disclosure that a case for setting aside can possibly be made good.
20. However, Mr Moor contends that this is such a case. He emphasises that while the parties may be initially free to arrive at terms between themselves, it is the court which has to approve the settlement, and he argues that such was the extent of non-disclosure in the present case that the court would have had to reject the proposed settlement between the parties. He submits that in the present case it was not merely the share options which were not disclosed, but the details of the husband's pension arrangements were not disclosed either. He recognises that the pension was referred to in the course of correspondence, so that its existence was clearly known to the wife and to her solicitors, but he stresses the fact that the husband had an obligation himself to give full and frank disclosure about his pension and that he did not do so. The pension rights, as they were in 1990, in terms of a capital value were very substantial, particularly in the context of the capital assets otherwise apparently available.
21. Mr Moor has also submitted that the husband remains reluctant today to give full and frank disclosure, and he has taken us through a number of features of the recent conduct of the husband to seek to make good that submission.
22. So far as the share options are concerned, attention is drawn to the way in which the judge put the matter in terms of the husband not exercising any of the share options until after he had retired in 1997. We have been referred to details from the company accounts which indicate that the husband did exercise options to the extent of 100,000 shares in the course of 1992, even though before the judge the husband denied doing so prior to his retirement. I have to say, it seems to me that the way that the judge put that matter in terms of "realising" the share options, when read in context, may have been intended to indicate the fact that the husband did not sell any of the shares at that time, rather than that he had not exercised the options in question.
23. Mr Moor has also taken us through the position so far as the husband's income is concerned. The figures that were disclosed have already been set out earlier in this judgment. Some reference is made to the fact that the company accounts indicate a total of £114,500 being paid in respect of the highest paid director, who would have been the husband, in the year 1989. Of course, it is recognised that that relates to the calendar year 1989 rather than to the tax year, and Mr Moor acknowledges also that that figure includes the employer's National Insurance contributions. In 1990 the accounts indicate that there was quite a substantial increase in what one might describe as the cost of the husband to the company, the gross figure there rising to £131,195.
24. Taking all of this into account, it is contended that the disclosure here was material because, if the full extent of the husband's assets in particular had been disclosed at the time of the negotiations, the order eventually made could only have been one substantially different from that which was in fact made in this case.
25. Finally, so far as delay is concerned, Mr Moor contends that time should not run until the wife discovers the failures on the part of her husband to disclose the relevant information. It was only in February 2000 that she obtained the company accounts, and then, it is submitted, she acted with considerable promptness. Even had she sought the company accounts at an earlier stage to seek to discover the full extent of non-disclosure, she would not have discovered all the information which is now available because the pension details would not have been made available; only the share options would thus have been disclosed. Mr Moor emphasises the fact that in a number of the decided cases, including Robinson, a substantial period of time had elapsed between the order which it was sought to set aside and the date of the court setting aside the order.
26. On behalf of the respondent, Miss Matthews stresses the fact that the wife here was seeking a clean break settlement, as was conceded below. She notes that the existence of the pension was disclosed but simply not pursued by the solicitors then acting on the wife's behalf, and she contends that the wife was well aware that the husband had shares and a pension. Particular emphasis is placed by Miss Matthews on the extent of the delay in this case. She submits that the wife failed to act with due diligence to make the proper enquiries, having seen solicitors back in 1994.
27. I propose to take the two issues which I have identified in the same order in which they have been covered in the submissions of counsel. It does seem to me to be of importance that the correspondence indicates that the lump sum settlement figure, while taking account of the parties' assets, was eventually arrived at by at least taking into account the fact that the husband would borrow the necessary money and would the pay interest on it. Clearly in those circumstances, as the judge below indicated, a relevant factor would be the need to ensure that the husband was not paying an amount in interest which would be wholly disproportionate to the income which he was receiving. In other words, the percentage of income seems to have been treated as relevant to the final settlement figure. So far as one can see, the settlement was not reached on the assumption that the husband would sell his shares so as to contribute a lump sum to be paid, even though in gross terms they were worth £50,000. No doubt that was because both parties recognised the difficulties which he would have in selling the shares, for the reasons spelt out by the judge. The same reasoning would, of course, apply to any sale of the shares obtained by exercising the options. The alternative would have been to have gone for a periodical payments order, but that was not done.
28. I entirely accept that the court has to approve an agreed settlement, but it is not without relevance that there was here an agreement and a consent order proffered to the court. The court also knew that both sides were professionally represented, and yet the statement before the court made no reference to the value of the matrimonial home. The court in that situation was not obliged to carry out an investigation in depth.
29. Having said all of that, it seems to me that it is possible that, had the court known the full extent of the share options and of the pension arrangements at the time when the draft order was placed before it, it might have arrived at an order which was substantially different from the one which it in due course made. One cannot, in my judgment, say that the order would necessarily have been substantially different, but it seems that, given all the information now available as a result of the disclosure which has been made, the order might have been substantially different.
30. That, of course, is not the end of the process. When an application is made to set aside an order of the court, the court, as is well recognised, has to exercise a discretion. A number of factors have to be taken into account. One of those factors, before I come to delay, must be the fact that there was at least some disclosure in relation to the pension and, indeed, some awareness on the part of the wife's solicitors about the existence of a P60 for the following year to that which they had taken into account already. The solicitors were well aware, as was the wife, that the husband had a pension, and yet they were fobbed off with the response which they were given by the husband's solicitors and did not seek to pursue the details of it. One can only comment that the wife was ill-served by her solicitors at that time. Certainly there was no attempt to conceal the fact that the husband had a pension from the company.
31. But of yet more significance, it seems to me, is the question of delay. In referring to delay I am not referring simply to the passage of time between the date of the order originally made in this case in 1990 and the date of the application to set aside that order in April 2000, a period of almost 10 years. Of greater significance, in my judgment, is the period of time which elapsed between the wife being put on notice that there had not been full disclosure and the application to the court.
32. In 1994 the wife was given information indicating that the settlement, as she says, had been agreed on misleading information. She took professional advice and consulted solicitors in November of that year. She and they knew that her husband had been the managing director of Manders. The professional advisers must have been well aware that the company accounts were publicly available and were likely to be relevant for someone in his position.
33. I can only conclude that there has not been reasonable diligence displayed by the wife in this case in making the application to set aside the original order. The delay in making that application has been very considerable, given that the company documents were, as I say, publicly available. That is relevant to the exercise of the court's discretion, as this court emphasised in Harris v Manahan [1996] 4 All ER 454 at 473. Five and a half years elapsed between the wife being put on enquiry and this application being made.
34. Given the finding that the non-disclosure was not fraudulent, which is in contrast to one of the authorities cited to us, T v T [1996] 2 FLR 640, the extent of the delay in this present case must be treated as being of significance. I quite accept, as Mr Moor submits, that the wife would not have discovered all the information that has now been disclosed and, in particular, that she would not have discovered the pension details from the company accounts. But, of course, as I have indicated, the fact that a pension existed was already known to the wife's solicitors back at the time when this order was arrived at. Her solicitors at that time simply failed to pursue the matter.
35. When all those matters are taken into account, and I bear in mind also the policy of the law to support a clean break when such an order has been made, I can only conclude that in this particular case the court's discretion should not be exercised in favour of the wife and this appeal should be dismissed.
36. LORD JUSTICE PETER GIBSON: I have very considerable sympathy with the wife. She does not seem to me to have been well served by her legal advisers in 1990 or subsequently. As my Lord has demonstrated, they failed to follow up obvious lines which could have been pursued to ascertain more about the assets of the husband, such as the full extent of his pension rights. However, it may be that in 1990 her manifest desire to have a clean break impelled her to give instructions her solicitors when negotiating with the husband's solicitors which may excuse her solicitors for what happened then. But when one comes to 1994 it is quite incomprehensible that so much time was allowed to elapse once the wife had been put on notice by Mr Cartwright that she may not have had a fair deal in her divorce settlement. One would have thought it would have been obvious to pursue enquiries of Mr Cartwright, who was an employee, or had been an employee, of the husband's company, to try to ascertain from him more of what he was suggesting had been concealed from the wife. In any event, the company being a public company, information as to the entitlements of the directors would have been readily available from the company's accounts. Any competent solicitor, one would have thought, would have been able to obtain that information with ease. Yet a period of some nearly six years was allowed to elapse before the relevant information was obtained which showed that the husband had had share options. In my judgment such a delay is fatal to an application to set aside a consent order embodying a clean break.
37. For these, as well as the reasons given by Keene LJ, I would concur in dismissing the appeal.
Order: Appeal dismissed. Public funding assessment order in respect of the Appellant's costs.