News

Financial Remedy :Litigation conduct by H, failure to negotiate reasonably by W, leading to cross costs orders (OG v AG 2020 EWFC 52)

This was a 25 year marriage with two children. The assets totalled £16m, and the costs were in excess of £1m. W raised conduct against H, in particular non disclosure of assets, and forming a (secret) competitor company to devalue the parties company. After the pretrial review, W took an unreasonable stance, inter alia, by claiming H pay 93% of her costs.

The judge considered the revised para 4.4 of FPR PD 28A^[1] important. The parties are required to negotiate openly and reasonably, W’s stance of trying to take advantage of H’s conduct to justify an inflated claim in costs was not reasonable.

If, once the financial landscape was clear, a party to financial remedy proceedings did not openly negotiate reasonably, then he or she would likely suffer a penalty in costs. That applied whether the case was big or small, or whether it was being decided by reference to needs or sharing.

The judge considered when conduct could be raised:-

gross and obvious personal conduct one against the other, which had a financial impact, including economic misconduct

in add back cases where wanton and reckless dissipation had reduced the financial pot

litigation misconduct which should be severely penalised in costs, rather than affecting substantive disposition.

finally, inferring finances where a party failed to give full and frank disclosure. This was part of the computation rather than disposition process.

The husband's litigation misconduct encompassed sustained non-disclosure, and a significant and fraudulent email, which should be reflected in a costs penalty.

The judge decided that H should pay 50% of the wife's indemnity costs for a particular period in the sum of £328,020. But the judge reduced that figure by £50,000 to reflect the wife's unreasonable and untenable open negotiation stance (resulting in H paying 45% of W’s costs), which was a fair fraction for the husband to pay, having regard to the parties' respective conduct.

The court hoped that the present decision would serve as a clear warning to all future litigants: if you did not negotiate reasonably, you would be penalised in costs.

_____________________________________________________________________________________________________________________________________

^[1] 4.4

In considering the conduct of the parties for the purposes of rule 28.3(6) and (7) (including any open offers to settle), the court will have regard to the obligation of the parties to help the court to further the overriding objective (see rules 1.1 and 1.3) and will take into account the nature, importance and complexity of the issues in the case. This may be of particular significance in applications for variation orders and interim variation orders or other cases where there is a risk of the costs becoming disproportionate to the amounts in dispute.The court will take a broad view of conduct for the purposes of this rule and will generally conclude that to refuse openly to negotiate reasonably and responsibly will amount to conduct in respect of which the court will consider making an order for costs. This includes in a ‘needs’ case where the applicant litigates unreasonably resulting in the costs incurred by each party becoming disproportionate to the award made by the court. Where an order for costs is made at an interim stage the court will not usually allow any resulting liability to be reckoned as a debt in the computation of the assets

Financial Remedy : conduct in other proceedings depleting assets (1980 Hague Child Abduction Convention proceedings, and proceedings in USA both connected with the family) - litigation conduct better known as litigation misconduct!. (RR v CDS [2020] EWCA Civ 1215 )

During my time at the Bar, Court of Appeal judgements have become much longer and more detailed. Trying to catch the essence of a case in a short article is not always easy.

RR v CDS was an appeal by H to the Court of Appeal. The trial judge had made a lump sum award of £220,000, and in default a property to be sold to provide that sum for W. That was stayed pending appeal. (In fact on the day before the appeal hearing H transferred that property in Miami to his mother!)

H’s grouse in effect, was that the judge took conduct into account, without defining what it was, (but it is clear H was trying to thwart the court).

The Court of Appeal (Moylan J) made many observations both about conduct and helpfully contents of judgements.

Litigation conduct, in the financial remedy proceedings themselves and in other litigation, could be taken into account under s 25(2)(g).

Money spent on legal costs in other proceedings was no longer available for distribution to meet needs or the sharing principle.

Depletion of assets in legal costs cannot be remedied by an order for costs in financial remedy proceedings and so could not necessarily remedy the effect of there being less wealth to be distributed between the parties.

There were cases in which the court had determined that one party's litigation conduct had been such that it should be taken into account when the court was determining its award.

The costs rules applicable to financial remedy cases has changed significantly. One of the objectives of the current rules was to enable the court to take the effect of costs into account when determining the fairness of the proposed award and not to risk a carefully crafted needs award being jeopardised by the subsequent disclosure of a Calderbank (without prejudice) offer.

What was important was that, whether by taking the effect of the conduct into account when determining the distribution of the parties' financial resources (both income and capital) and/or by making an order for costs, the outcome which was achieved was a fair outcome which properly reflected all the relevant circumstances and gave first consideration to the welfare of any minor children.

The trial judge took into account that the matrimonial assets had been very significantly depleted as a result of the husband's conduct which had caused an 'unnecessary haemorrhage of money' through litigation costs.
It was not accepted that conduct could not lead to a party receiving less than their needs. That depended on the circumstances of the case. That had to be justified having regard to all the s 25 factors, but it plainly could be justified.

There are two classes of litigation misconduct. Misconduct within the financial remedy proceedings and misconduct in relation to other litigation. Rule 2.83 only deals with costs in the financial remedy proceedings and does not provide a vehicle by which the court can take into account the dissipation of assets through the costs of other proceedings. The effect of such costs might have been to reduce the matrimonial assets available for distribution or might be relied on by a party, if the costs are unpaid, as a debt which should be included within their needs.

The court referred to Martin:-

‘I would also refer to what was said by Cairns LJ in Martin v Martin [1976] Fam 335, at p. 342H: "A spouse cannot be allowed to fritter away the assets by extravagant living or reckless speculation and then to claim as great a share of what was left as he would have been entitled to if he had behaved reasonably."

This applies to litigation conduct which falls within the scope of s.25(2)(g) and can apply to conduct both within the financial remedy proceedings and in respect of other litigation’

(NB There are later cases on the first paragraph above.)

The court observed four factors specific to this case:-

(i) I do not accept that conduct cannot lead to a party receiving less than their needs. This depends on the circumstances of the case and, can be justified having regard to all the s.25 factors

(ii) The disparity between the parties would have been very substantially less if there had been a further £600,000 (spent on costs) or more in available resources

(iii) the burden of maintaining the children was likely to be met by the wife

(iv) the judge had been entitled to conclude that the resources allocated to the wife were no more than sufficient to meet her needs, both in the short term, and the long term. He had equally been entitled to conclude that the amount allocated to the husband, also taking into account the husband's prospects, and the other material factors such as his conduct, was a just proportion of the assets and was sufficient to meet his needs at a level which was fair to him in the circumstances of the case.

With regard to the content of a judgement Moylan LJ referred to what he had said in Moher.

Moher v Moher [2020] Fam 160

(i) Every financial remedy judgment should clearly set out the judge's conclusions in respect of each of the relevant section 25 factors as part of the substantive structure of the judgment and/or by way of a summary. This is not for the purposes of demonstrating that the judge has had regard to those factors, although it will do this, but so that the parties and anyone else reading the judgment can easily understand the judge's conclusions as to these factors which, in every case, underpin the ultimate award;
(ii) This includes by providing, even in a non-disclosure case, a schedule “of the parties' visible net assets”, to adopt the words from Behzadi v Behzadi [2009] 2 FLR 649, even though in such a case this will comprise only part of the parties' resources; and
(iii) Every financial remedy judgment should clearly set out how the award has been calculated.

^[1] 4.4

Gary Fawcett
Barrister
Date of call: 1975
garyfawcett@no18chambers.com

News

Financial Remedy :Litigation conduct by H, failure to negotiate reasonably by W, leading to cross costs orders (OG v AG 2020 EWFC 52)

Gary Fawcett