Failure to Provide Full Disclosure Confirmed as a Ground for Setting Aside Property Consent Orders

Keywords: Consent orders; full and frank disclosure; informed consent; miscarriage of justice; section 79A; property orders; disclosure.

The case of Pearce & Pearce [2016] FamCAFC 14 (11 February 2016) was an appeal brought by the husband against the orders of Justice Dawe (“trial judge”) of the Family Court of Australia made 12 December 2014.  The appeal was dismissed by the Court and costs were awarded against the husband.

Background

In July 2005 the husband and wife both signed consent orders to settle property proceedings between them in the Family Court of Australia (“Family Court”).  The consent orders provided that the wife receive payment of $185,000 and one property and the husband receive two properties and his share in an unprofitable business.

The consent orders also contained a notation that the husband was negotiating to obtain a 50% share in a company (“E”) and the value of the acquisition if successful would be $200,000.  In the parties’ joint application for consent orders, it stated E made a profit of $50,408 in 2004 and there was no expectation of a significant increase in income over the next few years.  Around the time of signing the consent orders, the husband was finalising his purchase of a 50% share in E, with the estimated value in fact being $500,000.  This was not disclosed to the wife.  Further, it transpired that E had earnings of $757,144 and a net profit of $623,000 for the financial year up to 31 January 2005.  This was not disclosed to the wife.

The parties did not have any professional valuations completed on their properties and they both agreed upon estimates.  Around the time of signing the consent orders, the husband estimated the value of a property “D” at $550,000.  However, he also made separate representations when seeking finance that property D was worth $700,000.  This was not disclosed to the wife.

The trial judge concluded that the husband failed to disclose significant information concerning the negotiations and acquisition of company E and he failed to disclose that he had made representations that property D was worth $700,000.  As a result, the trial judge found there was a miscarriage of justice under section 79A of the Family Law Act 1975.  Section 79A allows a court to set aside previous orders where there has been a miscarriage of justice.  The trial judge found that had the wife been aware of the information about property D and company E she would have made further inquiries as to their true value.  As a result, a miscarriage of justice occurred and the trial judge made an award in the wife’s favour.

The Appeal

Judges Murphy, Aldridge, and Forrest from the Family Court heard the appeal. The husband appealed on 21 grounds.  The primary grounds of appeal were that:

• the retrospective valuation of the properties was erroneous and any difference in value did not result in a miscarriage of justice;
• evidence of the retrospective valuation of company E was carried out by a person lacking expertise;
• the value of company E did not amount to a miscarriage of justice and any other decision was an error of discretion, fact and principle; and
• there was no miscarriage of justice.

Retrospective Valuation of Properties

The husband claimed that the difference between the values used in 2005 and the retrospective valuation of the properties did not amount to a miscarriage of justice.  In the trial proceedings, the trial judge decided that had the wife been aware of the husband’s representations that D property was worth $700,000 and not the claimed $500,000 she would have made further inquiries and this was a miscarriage of justice under section 79A of the Act.

The Court upheld the trial judge’s decision on grounds that the wife’s consent was not fully informed, stating consent orders demand full and frank disclosure.

Company E Shareholdings

The husband claimed the retrospective valuation of company E was unreliable as the accountant who valued the company lacked skill.  The Court found that the trial judge’s decision was not about the value of the company in 2005 but the lack of disclosure of the negotiations and proposals for the husband’s acquisition of 50% of the company.  This amounted to a miscarriage of justice as the wife is aware of the true circumstances could have made inquiries into the actual value of the company.  The Court dismissed this part of the husband’s appeal.

 Miscarriage of Justice

The husband claimed there was no miscarriage of justice as he did not have knowledge of the value of the D property nor was he sure about the future income from E company.

In considering miscarriage of justice under section 79A of the Act, the Court stated that a miscarriage of justice comes about because a party’s consent is not free or informed.  This can occur where another party fails to disclose relevant information.

The Court considered that based on the evidence, the husband knew of the possibility that the value of the D property was higher than the value used by the wife.  In considering the E company, the Court found that the husband knew that it was likely his income from the company would increase significantly around the time he signed the consent orders and he did not disclose this to the wife.  As a result, the Court found there was a miscarriage of justice.  The Court dismissed the husband’s appeal and awarded costs against the husband.

Conclusion

In this case the husband knew information about a joint property and a business he was negotiating to acquire which would have been relevant if disclosed to the wife about the value of the property and business.  Had the wife known about the information she would have made further inquiries revealing a higher value.

A key requirement of the Act in relation to property settlement is that parties provide full and frank disclosure.  Full and frank disclosure includes information that would suggest an asset, business, or income is a different value from prior representations.  Where full and frank disclosure does not occur it may amount to a miscarriage of justice.  Where miscarriage of justice does occur a Court may vary a previous property settlement under section 79A of the Family Law Act 1975 to take into account relevant information that was not disclosed.