The importance of dealing with litigation in a reasonable manner

This case involved an appeal following a financial remedy order. At the date of the original hearing, the husband was aged 44 and the wife 45. The couple had started living together in 1995, married in 2005 and separated in 2016. They had two children aged 13 and 9 who were both said to have particular needs and were in privately funded education. During the relationship, the husband and wife had built up a successful business and enjoyed a very good standard of living.

The separation was extremely acrimonious. There had been proceedings under the Hague Convention following the husband having abducted the children from Miami to England. The husband’s mother also brought separate proceedings claiming a beneficial interest in the family business and residential properties. Her claims were subsequently joined to the financial remedy proceedings. 

In August 2018, the wife obtained an injunction against the husband prohibiting him from interfering with their business. In December 2018, the husband was found to be in contempt of court for breaching a previous order and in April 2019, a freezing order was made in relation to the Miami property after the husband had tried to transfer it to his mother.

During the original proceedings both husband and wife sought to persuade the court that each other’s conduct was a factor that should be taken into account. The wife alleged that the husband was guilty of deliberate and wanton overspending, destructive behaviour which had negatively impacted the value of assets, refusal to allow the rental of their property portfolio, refusal to obtain paid work since separation, increasing the expenses associated meeting the children’s needs due to the impact of his behaviour on them and litigation misconduct. The husband alleged that the wife had mismanaged the company, caused damage to his credit rating, had participated in dishonest and fraudulent activity and put properties at risk of repossession.

The court, following the final hearing, rejected the husband’s mother’s claims and determined that the business and properties were owned by the husband and wife. 

The assets, therefore, consisted of the business which was worth £1,85 million gross, three properties in London worth £578,000 net, the Miami property worth $3 million gross ($1.253 million net), another property in Miami worth £143,000 net and a loan owed to the parties/ their business of £300,000 plus interest of which £178,000 had been repaid to the husband.

By the time of the original final hearing, the parties also had significant debts. The wife owed £891,000 of which £647,000 were her legal costs. The husband had debts of £758,000. This included a £221,000 costs order due to the wife (some of which was owed jointly with his mother) and £170,000 outstanding legal fees to his first solicitors. 

The Judge had excluded alleged debts of £865,000 owing to friends and relatives as the husband had been able to provide no evidence of this at all. The judge did not discount the possibility of there being some debt but could not accept that it was at the level suggested by the husband or that it was a hard debt (something which the friends/ relatives would have intended to be legally enforceable).

The Judge also accepted that the husband and wife owed the husband’s mother £610,000 and that whilst the mother would likely seek to recover the money from the wife, she would be unlikely to seek to recover it from the husband and it was therefore a “soft debt”.

The wife sought a transfer of the family business to herself as whilst she accepted she could work elsewhere, it was by working in the business that she would be best able to continue to meet the children’s needs. The husband’s evidence to the court was that if the business was not transferred to him, he would set up another business and had been getting job offers daily.

On the matter of conduct, the judge was highly critical of the husband’s behaviour and felt that it highlighted the need for the financial links between the parties to be severed and the obviousness of the need for the wife to be in control of the business in order that she could continue to meet the children’s needs. He had no confidence that the husband would provide for the wife and children and felt that their needs must be considered to be included with the wife’s. The judge considered that it was important that the wife be left free of debt and that whilst there were insufficient assets to put the husband in the same position, this was the result of the court’s obligation to put the needs of the children first and because it was his fault that the costs were so high. Although the husband currently had no earned income, the judge was critical that the husband had taken no steps to obtain one, instead spending his time travelling the world.  The Judge considered that there was no reason to think that he would not be able to set up a new business successfully given the husbands own evidence.

The outcome of the proceedings was that the wife was to retain the business, 2 of the London properties worth £440,000 and the smaller Miami property. The husband was also to pay a lump sum of £250,000 (later reduced to £225,000) secured against the larger Miami property. This would leave the wife with  approximately £1.73 million after payment of her debts but subject to notional tax and sale costs that would have applied if the business were sold (net £1.2 - £1.3 million).

The third London property was to be retained by the husband along with the Miami property net of £250,000 (later reduced to £225,000) payable to the wife and the balance of the loan owing to the parties. It was also part of the order that the wife would forego enforcement of the outstanding costs orders. The judge considered that the husband would have net assets of £634,000 on the basis that his mother did not "call for her money" plus the balance of the loan owing to him.

The judge concluded that the net effect was that neither would end up with much, if any, capital but the wife would have the business. “H has brought this upon himself. In so far as there is a departure from equality it is necessary so as to meet the needs of the children and to meet W's debts which he has created in significant part.”

The husband sought and was granted permission to appeal. Pending the appeal, the court stayed the payment of the lump sum. For some reason, just prior to his appeal hearing, it transpired that the husband had transferred his interest in the specific property to his mother. 

The husband’s interest in the property was said to be transferred subject to the mortgage and other liabilities for $2.5 million (i.e. $500,000 less than the value afforded to it in the proceedings). He had given a  further discount of $150,000 representing agents fees which would have been paid and this left a balance of $824,400 which he paid in partial satisfaction of loans from relatives and friends. (The same alleged debts which he had not been able to evidence or persuade the court even existed). Such conduct was a clear attempt by the husband to frustrate the order which had been made and was also in possible breach of the earlier freezing order. 

The appeal was brought on one official ground which is that the husband felt that the judge making the original decision had taken his wife’s needs into account but not his own. The actual arguments put forward by the husband’s legal team on appeal went a little further than this and is summarised as:

1. The judge had made it clear that he was not taking conduct into account but then did so.
2. If conduct was taken into account, the judge should have made findings as to what the conduct is and assess the financial effect but not lose sight of the parties needs along with the other s25 factors.
3. That the impact of conduct could not result in an outcome which left a party unable to meet their needs.
4. The judge’s consideration of the husband’s needs had been insufficient as it left the husband with very little assets and no current income.

The husband’s appeal failed. The appeal court considered that the initial trial judge had taken the husband’s conduct into account and had been entitled to do so. 

The assets available to the parties had been depleted as a result of the proceedings and more particularly as a result of the husband’s behaviour and costs orders are not always sufficient to address the extent of the loss. (it only compensates a party for the costs they have incurred and not the lost matrimonial assets). If there had been a further £600,000 or more in the matrimonial resources for distribution, then the disparity in the division would have been less if added to the husbands award. The actual costs dissipated were likely substantially in excess of this.

The court did not accept that conduct cannot lead to a party receiving less than their needs and whilst this must be justified having regard to all the s.25 factors but it could be justified in this case.

The court also considered that the trial judge was entitled to find that the burden of maintaining the children would be met by the wife and that the husband’s mother would be unlikely to seek recovery of the loan from him.

The court also considered that the judge was entitled to conclude that the resources allocated to the wife were no more than sufficient to meet her needs both in the short term and the long term. He was equally entitled to conclude that the amount allocated to the husband, also taking into account the husband's prospects, and the other material factors such as his conduct, was a just proportion of the assets and was sufficient to meet his needs at a level which was fair to him in the circumstances of this case.

This case serves as a useful reminder of the importance of complying with court orders and dealing with litigation in a reasonable manner and also the court’s power to take litigation conduct into account when assessing the overall fairness of the case and not simply when considering whether a costs order should be made. Whether a party dissipates assets elsewhere or causes themselves or the other party excessive legal costs as a result of their actions, they can not expect not to be held accountable for that loss to the matrimonial pot.

At Birkett Long, our specialist family team have extensive experience of cases such as these. For more information and an initial free chat to discuss how we can help you, contact Karen Johnson on 01206 217305 or karen.johnson@birkettlong.co.uk.