A cautionary tale for litigants with a cursory relationship with the truth

Tsetkov and Khayrova [2023] EWFC 130 & 131

A cautionary tale for those litigants with a cursory relationship with the truth, and for those litigants wanting to exploit such behaviour to their advantage.

On 4 August 2023, Peel J handed down two judgments in respect of proceedings before him for financial remedies following a marriage of some 11 years. Finding the assets at the point of trial to be some £48million and ordering an equal division, some might wonder why His Lordship felt the need to deliver a primary judgment of some 119 paragraphs over 24 pages. The answer lies in the fact that “The litigation misconduct of W [(wife)] is of the utmost gravity” which required his short, second judgment, in which, he made an Order that W should pay 50% of H’s (husband) costs on an indemnity basis, summarily assessed at a shade under £750,000. The judgment provides a helpful reminder of the absolute necessity to extol the virtues of full and frank disclosure on your lay client, but also provides to the financial remedy practitioner a helpful reminder of a case where conduct, pursuant to Section 25(2)(g) of the matrimonial Causes Act 1973, may arise, and how it should be run and pleaded.

W’s misconduct

In a typically eloquent and detailed judgment, Peel J found against W as follows:

1. She lied to H and to the Court about a variety of expensive chattels, including handbags and jewellery to the extent he found W to have “uttered barefaced lies” and that she was “guilty of sustained duplicity”;
2. She tried to sell assets at a substantial undervalue;
3. Her Form E was “woefully deficient”;
4. She took steps to put assets beyond H’s reach;
5. She breached her implied duty of confidentiality not to disclose information arising in the proceedings to third parties; and
6. She gave an express undertaking to the Court regarding the dissemination of information to third parties that she knew at the time of providing it she had already breached.

W emerged from the proceedings as a profoundly dishonest witness to such an extent that when the parties’ cases did not agree on a particular issue (of which, there were many examples) the judge preferred the evidence of H. This is, therefore, a paradigm example of a case where a party’s less than candid approach to disclosure came back to haunt them and tarnish their reputation within, and at the conclusion of, the proceedings.

The extent of W’s behaviour in the proceedings was such that it resounded in an award in costs in H’s favour. Notably, the Judge did not agree with H that W’s conduct was such to justify a departure from equality in his favour and that the correct way to deal with a recalcitrant litigant is by punishment in the form of costs.

Pursuing “conduct”

Any practitioner will know all too often that clients will believe that their estranged spouse has behaved in such a reprehensible way to justify more favourable treatment in their favour when it comes to distributing the assets upon divorce. However, Peel J reminds us that, per Miller v Miller [2006] UKHL 24 “conduct will only be taken into account in very rare circumstances”. So, what are those circumstances?  Peel J reminds us of the helpful guidance given by Mostyn J in OG v AG [2002] EWFC 52 where we are told that there are four situations where an argument in “conduct” may arise:

1. Personal conduct that is so gross and obvious from party towards another. In these types of cases, the conduct needs to be to such an extent that there is a financial consequence to its impact. Mostyn J reminds us of authority where a husband in one case stabbed W with the result it impacted her earning capacity. Similarly, “economic misconduct” may arise under this hearing if it is oppressive, selfish or malicious provided it is inequitable to disregard it.
2. Secondly, we have the “add-back” case law, such as Vaughan v Vaughan EWCA Civ 1085. Practitioners will remember that to succeed on a claim for addback that there needs to have been a “wanton and reckless” dissipation of assets such that they no longer exist. The guilty party will be treated as still having those dissipated assets to justify an enhanced award in the innocent party’s favour. This does not amount to the Court waving a magic wand and conjuring money up that no longer exists.
3. Litigation conduct is becoming an increasingly hot topic, as these two decisions from Peel J demonstrate. This is where one party behaves in such a manner so as to merit a punitive award against them in costs. As in this case, Peel J reminds us that litigation conduct does not impact the overall award and distribution of assets.
4. Finally, we should all remember that an absence of full and frank disclosure enables the Court to draw inferences as to the availability of assets and resources. Indeed, in this case the learned Judge found that W’s disclosure regarding swathes of the litigation was so poor to enable him to arrive at the conclusion that certain disputed assets were still available for W and, as such, were attributed to her side of the balance sheet. This is distinctly different from the Vaughan

Pleading conduct

If you believe your client has a case that falls under one of the categories as set out above, it is important that you present that case head on, and plead it properly. His Lordship reminds us that Section 4.4 of a Form E expressly invites the party completing it to set out if they believe conduct is a relevant factor. In this judgment, Peel J is highly critical of litigants that (i) reserve their position or (ii) recount complaints and grumbles about treatment within a marriage, stating that not only will such a position “not meet the high threshold for conduct” but that “These practices are to be strongly deprecated and should be abandoned”. The Judge makes it plain that these practices either leave issues hanging in the air or raise the temperature unnecessarily whilst not actually pursuing a pleaded case.

If you have a conduct case, plead it. Make it clear when completing your Form E that you believe that certain features of your case fall into one of the four categories above. Of course, litigation conduct will only become clear as the proceedings progress and it may only be after Form E or Replies to Questionnaire that you can actually point to an example of addback, etc.

When you come to plead conduct, say what the allegation is, how the threshold is met and how it impacts upon the proceedings in terms of outcome. Peel J remarks that doing so will not only enable the (alleged) misbehaving party to know what case is being put to them, but it will enable the Court to appropriately manage the case in furtherance of the overriding objective at Rule 1 of the FPR. If a conduct case is asserted before the FDA then the Court can actively consider whether or not to make an Order to permit the complainant to pursue their case or to bar them from doing so if the Court believes that the exceptionality threshold would not be met. If a conduct claim is allowed to proceed, the Court will normally give directions for short and focused statements, with Peel J taking the chance here to remind Judges that page limits are an “indispensable tool in the judicial armoury”.

As damning as the judgment no doubt is for W, H did not emerge from the process entirely unscathed. His Lordship found that H’s decision to advance a case during closing submissions on conduct beyond those categories that had been expressly pleaded to be “untenable”. With such a case not having been pleaded and there being no evidence provided, Peel J reminds H and us all of the maxim to be taken from Fage UK Ltd v Chobani Uk Ltd [2014 EWCA Civ 5 – “the trial is not a dress rehearsal. It is the first and last night of the show“. In other words, do not try to shoehorn into your case an issue at trial that you have not previously given advance warning of an intention to pursue.

Conclusion

There can be no doubt that W should have complied with her disclosure duties to a far superior level than she did. Indeed, the comments from Peel J make it very clear how he regarded those failures and what the impact of that was for W. But this case also is a helpful reminder to those litigants wanting to pursue a case on conduct in terms of (a) how to go about doing so and (b) what the impact of that conduct is. Do you seek a reattribution of the assets, or is the behaviour such that it would warrant an award in costs? Anyone considering addback, given the high threshold that we know is attributed to it, would do well to take on board the guidance at paragraphs 40-48 of this well drafted and profoundly helpful judgment from Peel J.