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    10:22 PM Leo Zhi Wei (LLB (London School of Economics), BCL (Oxon), Advocate & Solicitor; Supreme Court of Singapore)

    Dishonest spouses beware: Developments in the law on fraudulent non-disclosure in matrimonial proceedings

        

    Introduction

    The decision in BMI v BMJ [2017] SGHC 112 (“HC”), which was affirmed on appeal in BMI v BMJ [2017] SGCA 63 (“CA”), marks a watershed development in matrimonial law (both decisions will be collectively referred to as “BMI”). BMI establishes the principle that an ex-spouse who has been the victim of fraudulent non-disclosure during divorce proceedings will have the right to set aside the existing divorce settlement any time after it was made. It joins the chorus of two recent decisions handed down by the Supreme Court of United Kingdom, Sharland v Sharland [2015] UKSC 60 (“Sharland”), and Gohil v Gohil (No 2) [2016] AC 849 (“Gohil”), where the Courts allowed the application of two ex-wives to re-open their divorce settlements, which were made more than a decade ago, on the grounds of their ex-husbands’ dishonest non-disclosure. Sharland and Gohil were the subjects of widespread media attention in the English press, being hailed as “incredibly significant ruling[s]” and “a victory for common sense and a defeat for dishonesty”. (Divorce ruling: Alison Sharland and Varsha Gohil win appeal, BBC World News, 14 October 2015; Women get right to reopen divorce settlements after Supreme Court ruling, The Guardian, 14 October 2015)

    Background to the proceedings

    In BMI, the Husband and Wife were involved in a short marriage that lasted for a relatively brief duration of 5 years, before entering into divorce proceedings which were concluded in 1990. In the course of the marriage, the parties had two children together.

    Throughout the proceedings, the Wife alleged that the Husband had failed to make full and frank disclosure of his assets, by either hiding these assets or holding them through nominees. After divorce proceedings were concluded and orders were made for the children, the parties entered into settlement negotiations, which were facilitated by the trial judge, in relation to outstanding ancillary issues. They arrived at a settlement on or around 30 June 2000, the terms of which were eventually recorded in a Consent Order.

    In accordance with the terms of the settlement deed, the Husband paid the Wife approximately S$13 million as full and final settlement of the Wife’s claim to the division of matrimonial assets and all other outstanding litigation and ancillary issues between the Husband and Wife.

    About 16 years later, the Wife commenced proceedings to set aside the Consent Order on the basis of the Husband’s fraudulent non-disclosure. She claimed that she had discovered further evidence which revealed that the Husband’s asset pool was substantially wider than what he had disclosed during the divorce proceedings.

    The issues before the High Court and the Court of Appeal

    The following issues arose for consideration before the High Court and the Court of Appeal:

    (i) Whether the Wife’s claims of fraudulent non-disclosure had already been compromised by virtue of the terms of the Settlement Deed;

    (ii) Whether the Wife was entitled to relief under s 112(4) of the Women’s Charter (the “WC”) despite the passage of 16 years that had lapsed since the recording of the Consent Order; and

    (iii) Whether the Wife’s claim had fulfilled the high threshold required to establish a claim in fraudulent non-disclosure.

    The decision of the High Court and Court of Appeal  

    Before the High Court, the Wife’s application was dismissed on the grounds that there was insufficient evidence to ground a claim in fraud. The decision of the High Court was affirmed by the Court of Appeal, which expressed agreement with the guiding principles that were laid down by the High Court.

    The threshold for fraudulent non-disclosure and the dismissal of the Wife’s claim

    In relation to the threshold for fraudulent non-disclosure, the High Court and the Court of Appeal (collectively referred to as “the Court”) emphasized that the threshold for fraud is a high one, and will ordinarily only be found after the claims have been the subject of cross-examination at trial. In order to ground a claim in fraudulent disclosure, the burden will lie on the party alleging fraud to show, based on the available and admissible evidence, that the non-disclosure was both deliberate and dishonest. (HC at [29]; CA at [5])

    If the party alleging fraud manages to establish fraudulent non-disclosure, the burden then shifts to the perpetrator of the fraud to prove that the non-disclosure was not material. The High Court reiterated the holding in Livesey v Jenkins [1985] AC 424 (“Livesey”), which was also endorsed by the Court of Appeal in AOO v AON [2011] 4 SLR 1169 (“AOO”) that not every failure of full and frank disclosure would justify a court in setting aside a consent order. If the non-disclosure was not material and would not have led to the making of a substantially different order, the existing order would not be set aside. (HC at [45] – [46])

    Applying the test for fraudulent non-disclosure to the facts of the case, the Court dismissed the Wife’s application on the basis that she had failed to adduce sufficient and cogent evidence to establish the high threshold for fraud. The evidence relied on by the Wife, which comprised mostly newspaper reports, past judgments, and inferences drawn from these sources, did not show a probable or conclusive finding of dishonesty on the part of the Husband. These sources established, at best, “mere suspicions” of the Husband’s dishonesty. (HC at [44]; CA at [10])

    Further, even if the Wife could successfully establish fraudulent non-disclosure, the requirement of materiality would not be fulfilled, as the Court would not have made an order that was substantially different from the existing order even if the non-disclosure was taken into account. (HC at [52]; CA at [11])

    Even though the Wife’s claim was dismissed due to the paucity of evidence, the Court went on to lay down important principles in relation to the remaining issues.

    Compromise agreement on fraud had no legal effect

    After considering the submissions on compromise, the Court was of the view that the Wife had not compromised her claims on fraudulent non-disclosure under the Settlement Deed as the law did not contemplate her ability to do so. The Court’s power to set aside the Consent Order was reserved notwithstanding that issues of non-disclosure had already been the subject of an extensive trial, detailed negotiations between the parties, and were compromised in a Settlement Deed that purported to represent a full and final settlement of existing and future litigation. (HC at [12]; CA at [7])

    An important rationale underlying the Court’s decision on compromise was its recognition of the distinctive character of a matrimonial consent order. It expressed agreement with the decision of Lady Hale in Sharland that a matrimonial consent order differs from an ordinary civil consent order by virtue of the fact that its authority is drawn from the Court, and not from the agreement between the parties. (Sharland at [27]; HC at [18])

    By reason of this difference, any act of fraudulent non-disclosure will not only vitiate the reality of the parties’ consent, as the innocent party’s consent would have been informed by a false premise, but also “undermines the court’s ability to exercise its powers as the final arbiter as to the appropriateness of the arrangements agreed upon.” (HC at [19])

    The significance of delay

    The Court also had to consider whether the delay by the Wife in bringing the claim would disentitle her from seeking relief under s 112(4) of the WC (“s 112(4)”), which reads as follows:

    The court may, at any time it thinks fit, extend, vary, revoke or discharge any order made under this section, and may vary any term or condition upon or subject to which any such order has been made.

    [emphasis in bold and italics added]

    Adopting a literal interpretation of s 112(4), the Court expressed that it had the discretion to set aside the consent order despite the Wife’s delay as it possessed the power to do so “at any time it thinks fit”. S 112(4) was considered together with the decision in Teh Siew Hua v Tan Kim Chiong [2010] 4 SLR 123 (“Teh Siew Hua”), where the High Court held that the Wife’s application to set aside the consent order would not have been barred by delay and affirmation, as the equitable defences of laches and acquiescence would not apply in respect of a statutory remedy such as s 112(4). Further, the Court in BMI also found that the Husband failed to show that he had suffered prejudice due to the delay.

    Commentary

    A salutary warning

    The decisions of the High Court and the Court of Appeal have provided much-needed clarity on the consequences of fraudulent non-disclosure in the context of setting aside a consent order. It sends a stern reminder to divorcing spouses of the importance of the duty to give full and frank disclosure to the Court, and warns that any party who willfully misleads the Court does so at the risk that the entire settlement may be re-opened at any time after the consent order is made.

    In the judgments of both the High Court and Court of Appeal, the Court also relied on the English decisions of Sharland and Gohil, which involved highly similar issues. Sharland involved an application by the Wife to set aside the consent order on the grounds that the Husband had failed to disclose that there were plans for an initial public offering of a software company he had a substantial shareholding in. These plans, if disclosed, would have resulted in a significantly higher valuation for the company than the value that was used during settlement negotiations between the parties. In Gohil, the husband had only disclosed a modest asset pool that was not reflective of the actual pool of assets he had access to. The UK Supreme Court allowed the applications by the wives in Sharland and Gohil to set aside the respective consent orders on the grounds of their husbands’ fraudulent non-disclosure.  The decision in BMI therefore brings the position in Singapore in line with the English position.

    The key differences between matrimonial orders and civil orders

    A critical point that was consistently emphasized in the decisions of BMI, Sharland and Gohil was the importance of distinguishing matrimonial orders from civil orders, and the principles underlying these two distinct types of orders. What are the key characteristics of a matrimonial consent order, and how does it differ from a civil order? Following the decision in BMI, Sharland and Gohil, this section discusses some of these differences in the context of fraud.

    Fundamentally, the Court’s differential treatment of civil and matrimonial consent orders is premised on the contrasting aims of both types of order. A civil consent order seeks to give legal effect to the intention of the parties as expressed in the terms of the settlement agreement, so as to uphold the principle of freedom of contract, which undergirds contractual agreements more generally. On the other hand, in the context of a matrimonial consent order, the Court does not merely act as a rubber stamp, but as a final arbiter of the terms of the consent order, in order to ensure a just and equitable division between the parties under s 112(1) of the WC. (HC at [19])

    According to s 112(2)(e) of the WC, the Court has the duty to have regard to all the circumstances of the case in doing so, and any existing settlement agreement between the parties will merely be one of several factors under consideration. In Surindar Singh s/o Jaswant Singh v Sita Jaswant Kaur [2014] 3 SLR 1284 (“Surindar”), the Court further clarified the weight to be accorded to any existing settlement agreement will depend on the precise circumstances of the case  – where parties have freely and voluntarily, with the benefit of proper legal advice, arrived at a formal settlement agreement, the Court will generally attach significant weight to the agreement unless there are substantial grounds to show that it would be unjust to do so. (Surindar at [54] – [57]) The duty of divorcing parties to give full and frank disclosure during settlement negotiations leading up to a consent order is therefore paramount; any breach of this duty will hamper the Court in its ability to assess whether the terms of the consent order have fulfilled the statutory aim of just and equitable division.

    The distinction between matrimonial and civil consent orders is sound in principle and justifiable on the basis of public policy. More broadly, the Court’s role in divorce proceedings stems not only from the need to ensure justice and fairness, but also to safeguard the public interest – in the absence of judicial supervision, vulnerable spouses may be pressured or unduly influenced into acceding to a bad bargain. This may in turn yield undesirable consequences where, for instance, insufficient financial provision is available for dependent family members. (Sharland at [18])

    Fraud provides a particularly apt example of the law's differential treatment of civil and matrimonial consent orders. As a starting point, similar remedial options are available to parties who have been victims of fraudulent misrepresentation in contract and of fraudulent non-disclosure in the matrimonial context. The conventional position is that a party who has been the victim of fraudulent misrepresentation will be entitled to rescind the contract. In respect of a claim for fraud, the Court is likely to uphold the victim’s right to rescind even if restitutio in integrum is unlikely to be achieved, (i.e. parties may not be completely restored to their original position before the contract). (The Law of Contract of Singapore (Academy Publishing, 2012) at [11.143] - [11.145]; Spence v Crawford [1939] 3 All ER 271 at 288 – 289) Similarly, in the matrimonial context, a victim of fraudulent non-disclosure will be able to set aside the consent order in its entirety as long as the non-disclosure was material.

    The available remedial options in both the contractual and matrimonial contexts diverge where the consent order contains a recital that a victim has agreed to compromise his claims in respect of the fraudulent act in order to achieve finality. If a contracting party agrees to compromise his claims for fraudulent misrepresentation in a subsequent settlement agreement or a civil consent order, the Court will uphold the compromise agreement and he will no longer be able to revive the original claim for fraud. However, any agreement by a divorcing spouse to compromise his claims for fraudulent non-disclosure will not be legally enforceable. A compromise agreement in this context will not be able to absolve a perpetrator of the fraud from acting in breach his duty to give full and drank disclosure to the Court.

    Another significant difference arises from the varying consequences that ensue from a delay in bringing the claim or an act of affirmation by the victim. According to s 29 (1) (a) – (b) of the Limitation Act, a contracting party who has been a victim of fraud will have 6 years to bring his claim from the time at which he discovers the fraudulent act. However, before the 6-year period has passed, his claim will not be prejudiced by any delay through mere lapse of time, unless there is evidence of his intention to affirm the fraudulent act. (The Law of Contract of Singapore at [11.152]; Clough v London and North Western Railway Co (1871) LR 7 Exch 26 at 34 - 35) Once the victim has affirmed the fraudulent act, he will no longer be entitled to rescind the contract.

    The consequences of delay and affirmation are different, however, for a divorcing spouse who has been a victim of fraudulent non-disclosure. Based on the holding in BMI and the earlier decision of Teh Siew Hua, neither delay nor affirmation will be a bar to the victim’s claim that is brought under the statutory remedy in s 112(4) of the WC. Even if the victim has engaged in any act of affirming the contract, he will not lose his right to set aside the consent order.

    As exemplified in Gohil, the key differences between matrimonial and civil orders also bear upon the requirements that have to be fulfilled when a party wishes to adduce new evidence in respect of a claim in fraud either on appeal or after judgment has been passed. In a civil claim, the burden lies on the party seeking to admit further evidence to show that the evidence satisfies the criteria propounded in Ladd v Marshall, namely, that the evidence must not have been obtainable by reasonable diligence at trial, must be credible and was likely to have an important impact on the decision. By contrast, in Gohil, the Court held that the principles in Ladd v Marshall would not be applicable in the context of a matrimonial claim. Unlike a judgment in a civil claim, the basis of an application to set aside a consent order arises from the fraudster’s breach of his duty to give full and frank disclosure to the Court. (Gohil at [23] – [32]) The burden does not lie on the victim, but on the perpetrator of the fraud, to adduce all the relevant evidence of his matrimonial assets during the divorce proceedings. As the Court continues to have jurisdiction over a divorce even after proceedings have concluded, the victim retains the right to put forth evidence at any time after an order or judgment has been concluded. This is distinct from a civil claim, where the Court ceases to have jurisdiction after a final order or judgment has been handed down.

    While this aspect of the decision in Gohil was not discussed in BMI, it is highly likely that the Singapore courts will also adopt a similar approach, in view of the principles that were laid down in BMI.

    Question awaiting future judicial guidance

    As much as the decision in BMI has provided important clarification on the law on fraudulent non-disclosure in matrimonial law, it also raises the following questions on the applicability of the test for fraudulent non-disclosure and the availability of equitable defences:

    1. Under what circumstances will an order be regarded as being “substantially different” from the existing order that was made in the absence of non-disclosure?

    In AOO, the Court warned that, “Parties who apply to set aside orders on the ground of failure to disclose some relatively minor matter or matters, the disclosure of which would not have made any substantial difference to the order which the court would have made or approved, are likely to find their applications summarily dismissed...” (AOO at [17]) [Emphasis in italics added.]

    This underscores the judicial insistence that parties should refrain from bringing claims that are unlikely to result in a material difference to the existing order. While this approach may be justified in principle, the line between non-disclosure of a “relatively minor matter” and one that may result in a “substantial difference” may not always be clear in practice– for instance, it is unclear if the financial background of the parties will be relevant to the Court’s assessment of whether an order will be substantially different in the absence of non-disclosure, or whether the non-financial consequences that accompany the making of a different order would form part of the Court’s consideration.

    It is hoped that future decisions on the subject will provide more definitive guidance on the criteria by which the Court will rely on in assessing whether the non-disclosure would be material.

    2. To what extent are equitable defences applicable to an application under s 112(4) of the WC?

    As stated in an earlier part of this article, the Court in BMI affirmed the ruling in Teh Siew Hua that the equitable defences of laches and acquiescence will not defeat an application under the s 112(4) of WC. Be that as it may, a closer reading of Teh Siew Hua reveals that a defendant may still have recourse to these defences if he has suffered unjust prejudice as a result of the plaintiff’s actions. (Teh Siew Hua at [47]) This suggests that acts of delay or affirmation are not fully inapplicable and may nevertheless remain relevant considerations, thereby leaving considerable uncertainty on the significance of such acts where the defendant has suffered prejudice.

    Further, another issue that was not discussed was whether other forms of equitable relief such as waiver, unconscionability, and the doctrine of unclean hands will be relevant to an application under s 112(4) of the WC. Clarification on the significance of these equitable defences will also be needed. 

    3. How differently will claims grounded on other forms non-disclosure, such as innocent and negligent non-disclosure, be treated?

    Apart from ruling on the requirements for a claim in fraudulent non-disclosure, neither the High Court nor the Court of Appeal in BMI discussed the requirements of other forms of non-disclosure, such as innocent or negligent non-disclosure. Based on the English position that was established in Livesey, a claim for innocent non-disclosure would differ from a claim in fraudulent non-disclosure in that the victim would have to bear the burden of proving both the non-disclosure and the requirement of materiality. It remains unclear if the Singapore Courts will adopt a position similar to Livesey.

    Conclusion

    BMI is a decision that symbolizes a heightened awareness of the need for legal protection for the financially weak and emotionally vulnerable spouse in divorce proceedings, and will continue to influence and shape the development of the law on non-disclosure and s 112(4) of the WC. The Court’s willingness to undertake the unenviable task of weighing up the competing considerations of achieving finality to proceedings, according respect for the intention of the parties, upholding justice and ensuring fairness between the parties is indeed a commendable one. Following BMI, matrimonial lawyers must take care to reiterate the importance of the duty of full and frank disclosure when rendering advice to divorcing spouses, without which, finality to the proceedings may never be achieved.

    * This blog entry may be cited as Leo Zhi Wei, “Dishonest spouses beware: Developments in the law on fraudulent non-disclosure in matrimonial proceedings”  (2 April 2018) (http://www.singaporelawblog.sg/blog/article/209)

    ** A PDF version of this entry may be downloaded here

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