The cost of your conduct

Posted: 02/07/2021

When divorce/dissolution and parallel financial proceedings are underway and one party is keen to progress matters to a conclusion, it can be extremely frustrating to deal with a spouse/civil partner who is failing to engage in the process constructively, and instead seems to be setting up hurdles at every turn. This not only causes delay but inevitably increases the costs of resolving the issues. This ‘bad behaviour’ may leave the other party wondering if their ex is even interested in reaching a settlement. 

What will the courts do in this situation? Surely there must be a penalty for this sort of behaviour?

The judicial system is not in the business of making moral judgements on how people conduct themselves in their personal lives. Family lawyers often have to explain to their clients that the law does not necessarily define ‘bad behaviour’ in the same way that they would as a lay person.

In general terms, the Family Court does not take into account of, or make any judgement calls about, either party’s behaviour either during or after the marriage. However, the law does recognise and penalise poor ‘conduct’ in certain, specific circumstances.  

Broadly, there are four types of conduct that the family courts recognise, and perhaps unsurprisingly, only one of these relates to ‘personal’ misconduct, which is only considered very rarely, and will not be discussed here.

The other three types of conduct are neatly set out in the judgment in the case of OG v AG [2020] EWFC 52 and are as follows:

1. The ‘add-back’ argument. This type of conduct arises where one party has ‘wantonly and recklessly’ dissipated assets which would have otherwise formed part of the asset pool to be divided between the parties. The assets which have been dissipated can be ‘added back’ to the asset pool before the court divides the resources between the parties. This add back doctrine is rarely applied and tricky to prove.
2. Failure to give full and frank disclosure. This type of conduct arises where a party fails to disclose all their financial resources. The court can take this into account by ‘imputing’ a value to those undisclosed assets and ensuring that the final division of assets reflects this.
3. Litigation misconduct. The final type of conduct relates to how a party engages with the court proceedings themselves and the court will likely penalize such misconduct by making costs awards. It is this type of conduct which is the focus of this article.

Litigation misconduct – a closer look

Over the last two to three years, the Family Court has become particularly alive to this type of conduct and has been cracking down on parties who litigate in a way which causes unnecessary delays, taking up an excessive amount of court time and where legal costs have been disproportionately inflated as a result. The Family Court’s vigorous focus on curbing litigation misconduct  is evident from the expansion of Practice Direction 28A in May 2019 and the subsequent change to the costs rules in July 2020.

Practice Directions are designed to assist judges and lawyers to understand and implement the Family Procedure Rules when dealing with a matter in the Family Court. Family Procedure Rule 28 (and the corresponding Practice Direction) deals specifically with costs in family cases.

The general rule is a court will not make an order for one party to pay the other party’s legal costs unless the court feels it is appropriate to do so because of the conduct of one of the parties. 

Practice Direction 28A provides further guidance on what can amount to conduct. The key point set out in this Practice Direction is that the court will take a broad view of conduct … 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. It is therefore crucial that as soon as the financial landscape becomes clear, both parties come to the negotiating table with willingness to settle.

In the recent case of  LM v DM [2021] EWFC 28, the wife was successful in her application for interim maintenance. However, the court criticised her heavily for making no serious attempt to negotiate openly before the hearing. It was felt that she had taken the decision to litigate regardless of the potential outcome. For this reason, she only recovered around 30% of her legal costs (despite the fact that in an interim application the successful party can generally expect to recover much more than this).

Importantly, Practice Direction 28A highlights that there can be costs consequences even in a ‘needs’ case. These are cases in which the total assets available are less than or just enough to allow the parties to meet their reasonable ‘needs’, with no surplus for sharing. Costs consequences in ‘needs’ cases can worsen a party’s already precarious financial position and can even leave them in debt once matters are finalised. Despite this, the court has shown a willingness to take a hard line, as can be seen in the case of WG v HG [2018] EWFC 84.

Litigation misconduct can cover a wide variety of behaviour during court proceedings, for example:

• failure to negotiate openly once the relevant facts have been established
• delayed or inadequate compliance with court directions which causes extra costs to be incurred
• dishonest disclosure.
• pursuing certain arguments (for example, other types of conduct allegations, or arguments over non-matrimonial property) in an unreasonable or disproportionate manner.

Where allegations of conduct are being raised, it is important that these are identified at an early stage so they can be analysed and the court can manage the case appropriately.

Summary

The litigation stance that each party takes during financial proceedings on divorce/dissolution can be more important than parties often realise. The court has wide case management powers to ensure that the parties pursue their litigation reasonably, proportionately and with a continuous focus on narrowing the issues and attempting to settle.  Failure to do so can result in severe costs penalties. That is why it is vitally important to approach the process with a sensible and open mindset, keeping in mind the relevant issues and litigation risks involved.

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