Be warned, the courts will make costs orders due to litigation misconduct or failure to reasonably negotiate
19th January 2021
Unlike most civil litigation in which the losing party generally pays the costs incurred by the winning party, in divorce financial remedy matters, the starting point is that each party bears their own costs.
There are a number of exceptions to this rule but two key exceptions are:
- When there has been litigation misconduct
- When a party has failed to reasonably negotiate
A reported case from 2020 highlights the increasing willingness of courts to make costs orders if a party’s conduct falls short of the required standard. This particular case ought to have been relatively straightforward and, had there not been litigation misconduct, the court determined that there should have been a simple 50/50 split of assets
However, this was not how the case played out. A key aspect of the case was a company owned in the parties joint names but which the parties had agreed was to be transferred into the wife’s sole ownership. During the proceedings, the wife alleged that the husband had set up another company in direct competition with their company but that he had set it up in a way to disguise the fact he was the owner, something he denied. In addition, she believed that there had been significant non-disclosure by the husband and that the husband had tampered with evidence.
The court agreed with the wife. It determined that the husband was the true beneficial owner of the competing company, that he had not complied with his disclosure obligations and had deliberately altered an email to suit his case. The court made it clear in its judgment that such behaviour cannot go unpunished.
The judge maintained that this was a case whereby the parties should share all the assets equally. He decided that the company would purchase the husband’s shares giving the wife sole ownership and the husband cash equivalent to 50% of its value. However, the court ordered two significant deductions from the purchase price:
- £591,535 as a competition discount given the husband had set up a company in competition
- £278,020 as a costs sanction given his conduct in the proceedings
As a further twist to this case, the cost sanction against the husband was tempered against the wife’s own conduct. In reaching this figure, the court reduced the cost award by £10,000 due to the wife’s own failure to provide full disclosure (albeit not to the same extent as the husband). More significantly however, it had reduced the cost award by £50,000 due to the wife’s unreasonable open negotiation stance. The court determined that the husband’s behaviour did not absolve the wife from negotiating reasonably and that her proposals were so unreasonable that it warranted a cost order against her.
This case sends a clear message to those using the family courts to settle disputes. A failure to follow the rules or to make timely sensible proposals could lead to a cost sanction being imposed. It is therefore well worth taking specialist advice to minimise the risk of falling foul of a cost penalty.
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Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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