In this case the Court was persuaded that there should be a rare and substantial departure from equality because of the Husband’s conduct (including litigation conduct).  

Tom Amlot and Daisy Minns Shearer of Alexiou Fisher Philipps LLP acted for the wife in this unusual case, which was heard at the Family Division of the High Court by Mr Justice Moor in March 2017.The case was reported as an example of a rare case in which conduct – including litigation conduct – was taken into account to reduce the quantum of an award.

Conduct – a summary

Conduct is one of the Section 25 factors (Section 25(2)(g) of the Matrimonial Causes Act 1973 and Schedule 5 to Part 5 of the Civil Partnership Act 2004) that the court can take in to account when considering what financial award is appropriate following a divorce.  However, the bar is high.  The conduct has to be such that it would be “inequitable to disregard it” and, according to case law (Wachtel v Wachtel), “gross and obvious”.  This approach was most recently endorsed by the House of Lords in the current leading case of Miller v Miller; McFarlane v McFarlane. Accordingly, conduct arguments should be reserved for truly exceptional cases. By way of example, cases where conduct has been successfully run have included sexual assault and irresponsible and dishonest behaviour (including in relation to tax affairs).

Summary of the case

A summary of the case of R v B and others is set out in the opening paragraphs of Mr Justice Moor’s judgment, as follows:

“I have been hearing an application for financial remedies dated 18th June 2014 by the husband (Mr R) against his former wife, Ms B. It is one of the most remarkable cases I have heard.

…The issues have been numerous and complicated. There has been significant satellite litigation, including a ten-day trial of a preliminary issue before Mostyn J which achieved absolutely nothing apart from the waste of over £2 million in costs. At the beginning of this litigation, there was a dispute as to the beneficial ownership of just about every property connected to these parties. I am quite satisfied that this was entirely because of the irresponsible way in which Mr R has conducted the family finances.

Despite a high standard of living for over twenty years, Mr R has not paid so much as a penny in tax. He has pretended to all and sundry that he has had absolutely no income during that time. Not only was that a complete fiction, it has come at a very heavy price to Ms B and her family. He has raided her family finances with no consideration to the fiscal consequences of doing so. His claim that everything was entirely above board because he noted the loans in a Sage spreadsheet was, quite frankly, palpable nonsense. I am going to have to make some very serious findings of fact. Very unusually, I have come to the clear conclusion that this is a case where section 25(2)(g) is engaged, namely there has been conduct that it would be inequitable for me to disregard.”

Mr R’s conduct

As Moor J heralds in the above opening paragraphs of his judgment, the court found that it would be inequitable to ignore the husband’s conduct in this case. Among other things, he had engaged in “clear deception…categorised as fraud”. The court was particularly interested in the husband’s obsession with not paying tax. He had never paid any income tax and had never owned anything in his name – instead putting everything (including bank accounts and properties) in the names of family members and companies that he created.

The husband had also: hidden loans of over £7million from the wife and her family and spent (at least) £6.5million of company money on a property in France that was not owned by the company and was valued at c.£2.5million at the time of the final hearing (due in part to disputes in France about tax and employment). He had also cost the wife’s family many millions of pounds in unpaid tax and the consequent penalties. The list goes on.

It should be noted that the husband also accused the wife of misconduct. His case was that she had wantonly dissipated or squandered over £8million to a former (fraudster) boyfriend, removed assets at an undervalue from a Jersey trust and suppressed documents, which he said amounted to litigation misconduct. However, the court did not categorise any of the wife’s actions as conduct.

Litigation misconduct

Of particular interest was how the court dealt with litigation misconduct in this case. While the general rule is that litigation misconduct should be reflected in cost orders, in this case (which seems to be the first since Thorpe J’s decision in M v M (Financial Provision: Party Incurring Excessive Costs) [1995] 3 FCR 321) the court recognised and reflected the husband’s litigation misconduct in the quantum of the financial award.  He took the view that “there is no such thing as free litigation” and considered that, as the husband had taken on these costs, he must “sort them out”.

The litigation in this case really was extreme. There were numerous satellite issue and litigation in England and Jersey. One of the issues had been litigated for 10 days in the Chancery Division of the High Court, in front of Mostyn J, and had cost over £2million.  Moor J described the litigation as “financial suicide”.  He found that “just about all of the litigation has been entirely unnecessary” and absolved the wife of virtually all responsibility for this, in the final sentence of his judgment. We expect that for litigation misconduct to be reflected in a financial award, the bar will remain very high following this case. >

Impact on need

Moor J also dealt with the issue of how conduct may impact upon a needs argument. He did not accept the case put forward on the husband’s behalf that conduct can only be taken into account in a sharing case, and cannot reduce a party’s need. He found that “The conduct may be so serious that it prevents the court from satisfying both parties’ needs. If so, the court must be entitled to prioritise the party who has not been guilty of such conduct. A court can undoubtedly reduce the award from reasonable requirements generously assessed to something less…It may be that, unless there is no alternative, a court should not reduce a party to a “predicament of real need” (see Radmacher v Granatino [2010] UKSC 42 [2010] 2 FLR 1900), but that is not suggested in this case”. This is a reminder that “needs are elastic in concept” and can be suppressed, including where conduct is found.

Other implications of the case

As well as taking note of the implications of conduct and litigation misconduct, parties should note the warnings that Moor J gave at the beginning of his judgment in relation to the ownership of properties and payment of tax:

“First, if you own property, you should ensure that the ownership structure is transparent and legitimate. Second, if you earn money or have a financial benefit, you must declare it to HMRC and pay the tax.”

The full judgment of the case can be found here.

The authors of this article are Tom Amlot and Daisy Minns Shearer.