The purpose of this article is to emphasize the recent guidance given by Mr Justice Peel in the case of Tsvetkov v Khayrova [2023] EWFC 130 relating to conduct in terms of section 25(2)(g) of the Matrimonial Causes Act 1973 (“the Act”) which in effect, means that the court has a mandatory duty to have regard to …” (section 25(2)(g)) the conduct of the parties, if that conduct is such that it would in the opinion of the court be inequitable to disregard it”.
In summary, Peel J emphasized that:
- There are four situations where conduct is relevant [41 – 43];
- The party asserting conduct must prove/establish it [43];
- If conduct is established, the court will go on to consider how the misconduct should impact on the outcome of the financial remedy proceedings, undertaking the familiar section 25 balancing exercise of all the relevant factors [44];
- The correct procedure to be adopted when conduct (except for litigation misconduct) is raised [46]; and
- Procedurally, litigation misconduct will be dealt with (separately) at any costs hearing [47].
The facts of the case were briefly that the assets were found to be £48m of which the Wife (“W”) was seeking 50% which was resisted on behalf of the Husband (“H”) who was seeking a 60/40 split in his favour.
The assets comprised of [21]: (i) property assets in the UK, Dubai and Cyprus; (ii) Bank accounts and investments and (iii) contents/chattels (jewellery, cars, art and so forth). The many computational issues fell in the following categories [22]: (i) the value of valuable contents and jewellery, who they belonged to and where they were situated; (ii) Add-backs; and (iii) whether certain pleaded liabilities were genuine, recoverable debts.
Dealing with the issue of pleaded conduct [40-46], Peel J after considering the cases cited to him, in particular, Goddard-Watts v Goddard-Watts [2023] EWCA Civ 115 and TT v CDS [2020] EWCA Civ 1215, found that these cases did not greatly add to the analysis of Mostyn J in OG v AG (Financial Remedies: Conduct) [2020] EWFC 52, [2021] 1FLR 1005 where Mostyn J identified four situations where conduct is relevant which are:
1.“[34] First there is a gross and obvious personal misconduct meted out by one party against the other, normally, but not necessarily, during the marriage. The House of Lords in Miller v Miller; McFarlane v McFarlane [2006] UKHL, 24…. confirmed that such conduct will only be taken into account in very rare circumstances. The authorities clearly indicate that such conduct would only be reflected where there is a financial consequence to its impact. In one case the husband had stabbed the wife and the wound had impaired her earning capacity. The impact of such conduct was properly reflected in the discretionary disposition made in the wife’s favour. Mrs Miller alleged that Mr Miller had unjustifiably ended the marriage discarding her in favour of another woman. Therefore, she argued that Mr Miller should not be permitted to argue that their marriage was short. This argument was rejected by the House of Lords which held that the conduct in question, although greatly distressing to Mrs Miller, should not find independent reflection in the court’s decision. [35] The conduct under this head, can extend, obviously, to economic misconduct …….If one party economically oppresses that other for selfish or malicious reasons then, provided the high standard of ‘inequitable to disregard’ is met, it may be reflected in the substantive award”.
2. “[36] Secondly, there is the ‘add-back’ jurisprudence. This arises where one party wantonly and recklessly dissipated assets which would otherwise have formed part of the divisible matrimonial property. Again, it will only be in a clear and obvious, and therefore rare, case that this principle is applied. In M v M (financial provision: party incurring excessive costs) [1995] 3 FCR 321 Thorpe J found that the husband had dissipated his capital by his obsessive approach to the litigation which had included starting completely unnecessary proceedings in the Chancery Division. That dissipation was reflected in the substantive award. Properly analysed that decision can be seen as a harbinger of the add-back doctrine rather than a sanction reflecting moral condemnation”.
3. “[38] Thirdly, there is litigation misconduct. Where proved, this should be severely penalised in costs. However, it is very difficult to conceive of any circumstances where litigation misconduct should affect the substantive disposition”.
4. “[39] Fourthly, there is the evidential technique of drawing inferences as to the existence of assets from a party’s conduct in failing to give full and frank disclosure. The taking of account of such conduct is part of the process of computation rather than distribution. I endeavoured to summarise the relevant principles in NG v SG (Appeal: Non-Disclosure) [2011] EWHC 3270 (Fam) which was generally upheld in the Court of Appeal in Moher v Moher [2019] EWCA Civ 1482. In the latter case Moylan LJ confirmed that while the court should strive to quantify the scale of undisclosed assets it is not obliged to pluck a figure from the air where even a ballpark figure is in fact evidentially impossible to establish. Plainly it will only be in a very rare case that the court would be unable even to hazard a ballpark figure for the scale of undisclosed assets. Normally the court would be able to make the necessary assessment of the approximate scale of the non-visible assets, which is, of course, an indispensable datum when computing the matrimonial property and applying it to the equal sharing principle”.
Peel J determined [43] that a party asserting conduct must prove (stage one):
(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 it is doubted that the quantification of loss can or should range beyond the financial consequences caused by the pleaded grounds.
Peel J [44] set out stage two, which is that if stage one is established, the court will then go on to consider how the misconduct and its financial consequences should impact upon the outcome of the financial remedies proceedings, undertaking the familiar (mandatory) section 25 exercise which requires balancing all the relevant factors.
Peel J [45] noted obiter that he had noted an increasing tendency for parties to fill in Box 4.4 (the conduct box) of their Form E by either (i) reserving their position on conduct or (ii) recounting a litany of prejudicial comments which do not remotely approach the requisite threshold. He indicated that these practices should be strongly deprecated and should be abandoned and pointed out that the former approach leaves an issue hanging in the air. The latter approach muddies the waters and raises the temperature unjustifiably.
Peel J [46] then set out the procedure to be normally followed when there are, or may be, conduct issues which is:
(i) Conduct is a specific section 25 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 threshold for conduct which the learned judge opined, “That approach is forensically dishonest: it impermissibly uses the back door when the front door is not available: M v M [2020] EWFC 41”.
(ii) A party who seeks to rely on 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 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 the party’s Form E which exists for that very purpose.
(iv) The court is duty bound by FPR 2010, rules 1.1 and 1.4 to have regard to the overriding objective which, inter alia, enable the court to deal with cases justly and to actively manage cases.
(v) The Court should at the First Appointment determine how to case manage alleged misconduct. The court is entitled at that stage to make an order preventing the party who pleads conduct from relying on it, if the court is satisfied that the exceptionality threshold required to bring it within section 25(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.
(vi) In some instances, alleged conduct may rear its head after the 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.
(vii) Whenever conduct is relied upon, and the court permits it to be advanced at trial, it should be pleaded. 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, for the avoidance of doubt [47] Peel J determined that the 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 swifty with costs at the (costs) hearing in time honoured fashion.
Having considered the various conduct issues as they related to the matrimonial assets in respect of which Peel J made various findings and after resolving the remaining computation issues, the court in effect awarded the parties a 50% share each of the matrimonial assets.
As a postscript to this judgement, Peel J also considered the issue of anonymity and whether the judgement should be published and if so, whether the process of anonymisation should take place [110]. Having considered the judgements of Mostyn J and the case law [111-119] and declining to make any comment on whether the approach of Mostyn J was correct or not [114], Peel J indicated that he should follow the approach of the Court of Appeal in Clibbery v Allan [2002] EWCA Civ 45 and Lykiardopulo v Lykiardopulo [2010] EWCA 1315 and in his opinion, this was an issue for a higher court than his.
Accordingly, citing from the Clibbery and Lykiardopulo [117] Peel J indicated that there are certain categories of case where publication is more likely to take place such as: (i) where there has been litigation misconduct; (ii) where anonymisation would effectively be impossible because of the prominence of one or both of the parties, (iii) where the material in the financial remedy proceedings is already in the public domain and (iv) where one or both parties court publicity.
Peel J held [118-119] that in his judgement all of the above categories applied to a greater or lesser extent and accordingly held that the judgement should name the parties.
Pulling the strands together as indicated above:
- serious consideration should be given as to whether the issue of conduct in terms of section 25(2)(g) of the Act should be raised; and
- if so, it will need to be raised at the earliest opportunity; and
- will have to be properly pleaded; and
- the correct procedure will have to be followed.
