Our starting point to consider recent developments in the area of conduct in Financial Remedy cases is the Mostyn J decision in OG -v- AG [2020] EWFC 52 in which he expressed strong views on financial misconduct and litigation misconduct.

The former affects the award whereas the latter affects costs. In OG -v- AG Mostyn J presented four ‘conduct’ scenarios:

• Gross and obvious personal misconduct meted out by one party against the other, normally, but not necessarily, during the marriage
• Add-back
• Litigation Misconduct
• Drawing inferences

Let’s look at these in more detail.

Gross and Obvious Personal Misconduct

Interestingly Mostyn J uses the language of section 25(2)(g) MCA 1973 before the 1984 amendment which changed ‘conduct’ from ‘gross and obvious’ to that which it would be inequitable for the court to disregard. The author agrees that the pre amendment wording is easier to understand.

Examples of such conduct in case law include:

Jones -v- Jones [1976] Fam 8 – H caused W gbh disabling her from working
H v H [(financial relief: attempted murder as conduct) [2005] EWHC 2911 (Fam)
K v L [2010] EWCA Civ 125 – H’s grave sexual misconduct within the family
Kokosinski -v- Kokosinski [1980] Fam 72 – Good conduct an also be taken into account
Martin -v- Martin [1976] Fam 335 – frittering away assets
Veluppillai -v- Veluppillai [2015] EWHC 3095 (Fam) – extreme litigation misconduct
FRB -v- DCA (No 2), [2020] EWHC 754 (Fam) – H’s disclosure seriously deficient, W had child by another partner during the marriage – action so egregious it would be inequitable to disregard
VV v VV [2022] EWFC 41 – both parties engaged in financial misconduct, 5 month marriage – W’s conduct ‘gross and obvious’ and caused loss of circa £76m to H.

Add-back

Once again there are several authorities such as Purba -v- Purba [2000] 1 FLR 444, CA, where funds were transferred between bank accounts with the intention of defeating the other party’s claim, BJ -v- MJ (Financial Remedy overseas trust) [2011] EWHC 2708 (Fam), Rapp -v- Sarre [2016] EWCA Civ 93. In this case the judge took the view that H’s reckless frittering away of family money should be reflected in the outcome as conduct and declined to ‘add-back’, Vaughan -v- Vaughan [2007] EWCA Civ 1085 in which the circuit judge added back £100,000 dissipated by H.

In Evans -v- Evans [2013] EWHC 506 (Fam), Moylan J (as he then was) described behaviour that may lead to the reattribution of assets “as a form of conduct and as such it would be inequitable to disregard it.”

In many modest money cases, the funds are simply not there to add back; once it’s gone, it’s gone and indeed not all add-back claims are successful.

Litigation Conduct

This is about how the litigation is run and we have all been involved in cases where, usually, H does or does not comply or engage with the procedural aspects of the case, deliberately putting the other party to expense in an attempt to wear them down into submission. This may even be a continuation of economic abuse that has been a feature of the marriage. Some parties will simply cause delay by changing their representation just before important deadlines have to be met or before a court hearing.

Conduct in Financial Remedy cases: Where are we now?

Peel J, who has taken over as National Lead judge of the financial remedy court, has provided very clear guidance on how to approach s25 conduct (as opposed to litigation misconduct) in his judgment in Tsvetkov -v- Khayrova [2023] EWFC 130. The interesting features of the case were:

• Assets of circa £48 million
• W sought 50/50 split
• H sought 60/40 in his favour (equating to £29m/£19m)
• Difference between the parties’ positions was £5m
• Parties’ combined costs were £3m representing 60% of the amount remaining in dispute)

Peel J posed the obvious question, how is that these parties have been unable to settle? Peel J also described the detail placed before him as ‘mind boggling (a cautionary note to practitioners to stick to what is relevant). There were some ‘extraordinary facts’ in the case leading to what Peel J described as “innumerable computational and conduct issues”.

Between them, the parties had provided twenty one sworn statements and there were eleven court hearings! Whilst it is not necessary to go into the detail, to give a flavour of the parties as witnesses, it was submitted by W’s Counsel for W that H had been untruthful in proceedings with a former business associate but truthful in proceedings in the Commercial Court with the associate’s father.

Peel J decided to ‘judge him as I find him’ and found H to be generally truthful. W repeatedly lied to H and the Court. Her Form E had numerous omissions, she repeatedly lied about the whereabouts of valuable jewellery (leading to a variety of freezing orders and a search order) and although she acknowledged her lies and apologised to the court, Peel J preferred H’s evidence.

Dealing with conduct, Peel J begins with the current statutory definition at s.25(2)(g) and then goes on to consider Mostyn J’s four scenarios (see above) in OG -v- AG. The most important part of the judgment on this point is in paragraph 43:

A party asserting conduct must, in my judgment, prove:
i) the facts relied upon;
ii) if established, that those facts meet the conduct threshold, which has consistently been set at a high or exceptional level; and
iii) that there is an identifiable (even if not always easily measurable) negative financial impact upon the parties which has been generated by the alleged wrongdoing. A causative link between act/omission and financial loss is required. Sometimes the loss can be precisely quantified, sometimes it may require a broader evaluation. But I doubt very much that the quantification of loss can or should range beyond the financial consequences caused by the pleaded grounds.

This is stage one.

Once stage one has been established, Peel J requires that the court goes on to consider how the misconduct and its financial consequences, should impact on the outcome of the financial remedy proceedings, undertaking the familiar s25 exercise which requires balancing all the relevant factors.

This is stage two.

Peel J was critical of current practice when completing Form E where, perhaps encouraged by their legal representation, parties either reserve their position on conduct or recount a litany of prejudicial comments which do not remotely approach the requisite threshold (and in many cases are not remotely relevant to the financial issues in the case in the view of the author) Peel J said that “these practices are to be strongly deprecated and should be abandoned”.

He then helpfully provides us with the procedure to be adopted in a conduct case set out at paragraph 456 of his judgment:

In my view, the following procedure should normally be followed when there are, or may be, conduct issues:

i) Conduct is a specific s25 factor and must always be pleaded as such. It is wholly inappropriate to advance matters at final hearing as being part of the general circumstances of the case which do not meet the high threshold for conduct. That approach is forensically dishonest; it impermissibly uses the back door when the front door is not available: para 29 of RM v TM [2020] EWFC 41.

ii) A party who seeks to rely upon the other’s iniquitous behaviour must say so at the earliest opportunity, and in so doing should; (a) state with particularised specificity the allegations, (b) state how the allegations meet the threshold criteria for a conduct claim, and (c) identify the financial impact caused by the alleged conduct. The author of the alleged misconduct is entitled to know with precision what case he/she must meet.

iii) Usually, if relied upon, the conduct allegations should be clearly set out at Box 4.4 of a party’s Form E which exists for that very purpose.

iv) The court is duty bound by FPR 2010 1.1 to have regard to the overriding objective:

(1) These rules are a new procedural code with the overriding objective of enabling the court to deal with cases justly, having regard to any welfare issues involved.(2) Dealing with a case justly includes, so far as is practicable –
(a) ensuring that it is dealt with expeditiously and fairly;
(b) dealing with the case in ways which are proportionate to the nature, importance and complexity of the issues;
(c) ensuring that the parties are on an equal footing;
(d) saving expense; and
(e) allotting to it an appropriate share of the court’s resources, while taking into account the need to allot resources to other cases.

v) In furtherance of the overriding objective, it is required to identify the issues and empowered to determine which issues should be investigated. At FPR 2010 1.4:
(1) The court must further the overriding objective by actively managing cases.
(2) Active case management includes—
(b) identifying at an early stage—
(i) the issues
(c) deciding promptly—
(i) which issues need full investigation and hearing and which do not; and
(ii) the procedure to be followed in the case;
(d) deciding the order in which issues are to be resolved;

vi) The court should determine at the First Appointment how to case manage the alleged misconduct. In my judgment, in furtherance of the overriding objective and FPR 2010 1.4, the court is entitled at that stage to make an order preventing the party who pleads conduct from relying upon it, if the court is satisfied that the exceptionality threshold required to bring it within s25(2)(g) would not be met. The court should also take into account whether it is proportionate to permit the allegation to proceed, for a pleaded conduct claim usually has the effect of increasing costs and diminishing the prospects of settlement. Finally, the court should take into account whether the allegation, even if proved, would be material to the outcome.

Of course, in some instances alleged conduct may rear its head after provision of Forms E. One obvious instance is where a party wantonly dissipates monies in the lead up to trial. Should a party seek to advance a conduct claim, this must be brought before the court as soon as possible so that it can be case managed appropriately.

viii) Wherever conduct is relied upon, and the court permits it to be advanced at trial, it should be pleaded. It will be for the court to decide how best to manage the issue. Usually, an exchange of short, focussed narrative statements will suffice (page limits are an indispensable tool in the judicial armoury and should be deployed) but such statements must set out in particularised detail (a) the facts asserted, (b) how such facts meet the conduct threshold, and (c) what consequential financial loss or detriment has occurred.

Finally, Peel J made it very clear that “for the avoidance of doubt, this suggested procedural route will not be necessary or appropriate where a party relies only on litigation misconduct. The court will ordinarily be able to deal swiftly with costs at the hearing in time honoured fashion.”

The key take aways for running a conduct case

1. Conduct needs to be pleaded. If it has not been raised in form E, it should be raised early.

2. If parties are permitted to file and serve conduct statements, any and all conduct should be raised in them.

3. Raising conduct in closing submissions without notice to the other party or the court is not appropriate.

4. There needs to be evidence – he who asserts must prove – mere assertions are not enough.

5. H had ample time to prepare for the case and advance these late claims – as Peel J reiterated from the judgment of Lewison LJ in Fage UK Ltd –v- Chobani UK Ltd [2014] EWCA Civ 5 at [114]:

“The trial is not a dress rehearsal – it is the first and last night of the show.”

Postscript

Is it any different when there are allegations of domestic abuse in a case?

Peel J dealt with that issue in N -v- J [2024] EWFC 184. Here Peel J was very clear that ‘the increasing awareness of the incidence of domestic abuse, and its harmful and pernicious effects, does not lower the conduct hurdle to be surmounted in financial remedy proceedings. He repeats what he said about pleading and proving conduct in Tsvetkov -v- Khayrova and his conclusions in N -v- J are as follows at paragraph 39 of the judgment:

i) The high bar to conduct claims established in the jurisprudence (cases referred to in this judgment are examples) is undisturbed by the recent focus on domestic abuse in society and the family justice system.

ii) I accept that the statute does not specifically refer to a financial consequence, and it is therefore wise not to rule out completely the theoretical possibility of conduct being taken into account absent such a financial impact. Nevertheless, as the review of authorities above suggests, such cases will be vanishingly rare.

iii) The preponderance of authority clearly militates firmly in favour of financial consequences being a necessary ingredient of a conduct claim. This applies as much to domestic abuse allegations as to other types of personal misconduct.

iv) The alleged conduct (even if it reaches the threshold and has a financial consequence) must be material to the outcome. In the vast majority of cases, a fair outcome is ascertained by reference to the other s25 criteria (including needs and impact on earning capacity) without requiring the court to examine conduct.

v) To inquire into conduct must be proportionate to the case as a whole.

vi) It may well be that any economic abuse, such as engaging in activity in the litigation that deliberately or is likely to put the other party to expense may well amount to litigation conduct, subsequently to be visited by a costs order at the conclusion of proceedings but is not of the type to reach the high threshold required of s.25 conduct, to affect the award.

Elissa Da Costa-Waldman MCIArb, the author, is a highly experienced barrister specialising in Financial Remedies, TOLATA, and Child Arrangements and a qualified Mediator.