Introduction

In exercising its powers in financial remedy proceedings, the court is required to have regard to the ‘conduct of each of the parties if that conduct is such that it would in the opinion of the court be inequitable to disregard it’: s 25(2)(g) Matrimonial Causes Act 1973 (MCA 1973).

In order to be taken into account, however, conduct must of course be of sufficient gravity. It must pass a very high threshold. It must be ‘obvious and gross’.1 Where assets exceed the aggregate needs of the family, taking such conduct into account poses no real problem. However the court chooses to reflect the same, the guilty party will still be able to meet both their housing and income needs. But can an order be made to reflect that conduct if the financial effect of doing so impacts on a needs-based award particularly where those needs are inextricably intertwined with those of minor children?

This article seeks to explore these questions. In doing so, the authors will traverse a number of authorities at first instance and at appellate level (in chronological order). The authors will also consider the costs provisions in the Family Procedure Rules 2010 (FPR), in particular FPR PD 28A and FPR 28.3(7)(f), which require the court to consider ‘the financial effect on the parties of any costs order’.

The authorities

First instance decisions

M v M (Financial Provision: Party Incurring Excessive Costs) [1995] 3 FCR 321 (20 March 1995)

The wife filed an application for ancillary relief for herself and the two children. The husband, a litigant obsessed with the litigation, had made numerous applications to the court, which were usually either adjourned or dismissed with costs. The court held that the husband’s strategy was so gross and extreme that it amounted to conduct that would be inequitable to disregard. Per Thorpe J (as he then was):

‘Ordinarily speaking, it seems to me that the manner in which proceedings are misconducted is to be reflected in orders for costs rather than directly in the scale of the awarded sum. However, this seems to me to be a quite exceptional case where the husband’s strategy has been so gross and so extreme that it would be inequitable to disregard it. It seems to me that it is appropriate to look to the quantification of the wife’s share not of what remains today but of what would remain today had that policy of waste and destruction not been pursued.’

Thorpe J also made an order for costs against the husband, which would be immediately enforceable despite the husband being legally aided. He had conducted the proceedings in an obsessional fashion and had failed to negotiate reasonably. In rejecting the submission that it would be unjust to make such a costs order as it would reduce the husband’s award (£330,000) to nil, after payment of costs and other debts, Thorpe J observed:

‘It seems to me that the husband should have contemplated that realistic possibility after the transfer of these proceedings to this court and after the grant of his certificate …’

B v B (Financial Provision: Welfare of Children and Conduct) [2002] 1 FLR 555 (15 October 2001)

Shortly after decree absolute, the husband abducted the parties’ young child and was subsequently convicted of child abduction. He was sentenced to 18 months’ imprisonment. The only asset within the jurisdiction was the matrimonial home, with a net equity of £124,000. The other relevant asset was a building society account, which the husband had failed to disclose, and from which he had removed £37,000 (transferring the funds to his mother in Sicily). The district judge awarded the wife the whole of the equity in the family home. The husband appealed, arguing that the district judge ought to have given the husband some of the equity, either immediately or on a deferred basis.

Connell J dismissed the appeal. As summarised in the headnote:

‘the award to the wife of the entire net value of the matrimonial home was justified by the need to house the child of the marriage to a reasonable standard. A Mesher order was not appropriate, taking into account not only the contributions of the parties, particularly the wife’s ongoing contribution to the care of the child, but also the parties’ conduct … The husband’s conduct was particularly relevant when considering the court’s duty to give first consideration to the welfare of the child. Although it was appropriate for the court to look at the question of equality, and to depart from equality only if there was good reason for doing so, the court’s overriding duty was to reach a solution which, in all the circumstances, was fair. Applying the s 25 criteria to the facts, the conduct and contributions of the parties, together with the desirability of a clean break order, provided good reasons for departing from equality.’

J v J [2014] EWHC 3654 (Fam) (6 November 2014)

FPR 28.3(7)(f) provides that in deciding what order (if any) to make in relation to costs, the court must have regard to ‘the financial effect on the parties of any costs order’. This was considered in J v J, in which a symbolic order for costs only was made against the husband despite his litigation conduct (£50,000 instead of over £276,000 as sought by the wife). Per Mostyn J:

‘[55] Subparagraph (f) is highly important. This requires the court to ensure that its primary disposition, which will usually be strongly influenced by considerations of need, is not undone and subverted by a costs order. It was for this reason that the Calderbank principle was abolished … Some quarters are calling for the Calderbank principle to be reintroduced … For my part I will fight its reintroduction to the last ditch. In my opinion it would be retrograde and unconscionable to allow a carefully crafted disposition to be turned upside down by virtue of a without prejudice letter produced after judgment has been given.

[57] In my judgment, having regard to subparagraph (f), I cannot reflect the husband’s misconduct other than symbolically …’

R v B and Capita Trustees [2017] EWFC 33 (17 March 2017)

In addition to costs orders, conduct may result in a departure from equality to ensure that the innocent or non-miscreant party’s needs can still be met at a level that would have been possible but for the miscreant party’s conduct (as demonstrated in M v M (Financial Provision: Party Incurring Excessive Costs)), or lead the court to assess the miscreant party’s needs at a more modest level.

In R v B and Capita Trustees, the husband had hidden two loans amounting to £7m from the wife and her family, not declared a penny of income to HMRC, took money whenever he needed it from wherever he could find it regardless of the ownership structure of assets, pursued ruinous litigation, and repeatedly lied to the court. Financial catastrophe had been brought to bear on the family as a result of his conduct. Per Moor J:

‘[85] Mr Howard argued that conduct can only be relevant in a sharing case and that it cannot reduce a party’s needs. I am not persuaded by that argument. Conduct features in section 25(2) without a gloss. The conduct may be so serious that it prevents the court from satisfying both parties’ needs. If so, the court must be entitled to prioritise the party who has not been guilty of such conduct. A court can undoubtedly reduce the award from reasonable requirements generously assessed to something less. Indeed, that is exactly what happened in Clark v Clark [1999] 2 FLR 498. It may be that, unless there is no alternative, a court should not reduce a party to a “predicament of real need” (see Radmacher v Granatino [2010] 2 FLR 1900) but that is not suggested in this case.’

In rejecting the husband’s argument that his significant liabilities (which largely related to the ruinous litigation) should be included as part of his needs, Moor J said this:

‘[161] … I have come to the clear conclusion that I should not provide additional finance for Mr R to clear all these liabilities. He took them on and he must sort them out. There is no such thing as free litigation. Mr Howard submits to me that these debts form part of his needs and I cannot make an order that does not satisfy his needs. I have already indicated that I do not agree. To do so would be to give a licence to anybody to litigate entirely unreasonably …’

WG v HG [2018] EWFC 84 (30 July 2018)

Failure to negotiate reasonably may also require a party’s costs be met from their needs-based award.2 In WG v HG, the wife sought £915,000 for her litigation loan and unpaid legal fees, the rationale being that her costs were a debt that needed to be paid and that, in a needs case, her needs had to be met.

The court found the wife had presented an unreasonable case and that her costs were excessive. However, if no provision were made for her costs, a large part of her Duxbury fund would be depleted. Per Francis J:

‘[91] Against that, people cannot litigate on the basis that they are bound to be reimbursed for their costs. The wife has chosen to instruct one of the highest regarded and consequently one of the most expensive firms of solicitors in the country. Whilst I have no doubt that the representation has, at all times, been of the highest quality, no one enters litigation simply expecting a blank cheque. A judge, in a position as I am now in, is facing the invidious position of seeing his or her order undermined by the extent of litigation loan or costs liability. If, here, I make no provision for the wife’s costs or litigation loan, then half of the Duxbury fund will be wiped out and she will be left with insufficient money to manage, according to my assessment. Doing the best that I can to recognise that her costs are excessive, to recognise that she has presented an unreasonable case in financial remedy proceedings but to recognise that her Duxbury fund cannot be completely undermined and that the husband’s offer was too low, I am going to add to the lump sum, already referred to above, an additional £400,000 which is a little bit less than half of the total sum due.

[93] The wife will, therefore, have to find some £500,000 in order to fund that part of the costs which I am not ordering the husband to pay. I recognise that this will deplete her Duxbury fund. I have very carefully considered whether this is fair. It might be said that I have assessed her needs at a given figure. If I have done that, then how can I leave her with a lower sum which, by definition, does not meet her needs? This conundrum happens in so many cases. People who engage in litigation need to know that it has a cost. The wife may choose to sell the property at some point in the future converting part of the value of it into a Duxbury fund. She may decide to use the property to generate some income rather than simply installing her own staff into it. She will have to make the sort of decisions about budget managing that other people have to make day in day out, but I am satisfied that people who adopt unreasonable positions in litigation cannot simply do so confident that there will be an indemnity for the costs of the litigation behaviour, however unreasonable it may have been’.

The wife would be left with a Duxbury fund not of the £2m that was intended, but of £1.5m, which would generate a little less than £75,000 a year net, for life.

MB v EB (No 2) [2019] EWHC 3676 (Fam) (19 December 2019)

The husband had conducted his case in an irresponsible and unreasonable manner. Cohen J rejected the submission by the husband’s counsel that it should make an award that would cover the whole of the husband’s costs, and that (at [28]) ‘in a needs-based case, it is inevitably the payer who ends up having to pay the costs, because otherwise the needs cannot be met’.

The wife’s contribution to the husband’s costs was capped at £150,000. Per Cohen J:

‘[36] Whatever the husband’s difficulties are, and I accept that he does have difficulties, they are not to be funded by the wife. The wife has paid £236,000 towards the husband’s costs. Inclusive of costs of £150,000, the award that the husband receives in total will be £485,000 … It will, of course, leave the husband in debt to his solicitors with a substantial sum owing to them. That is a matter between him and them. But, in my judgment, it is not for the wife to bankroll this litigation which I find to have been unreasonably conducted by the husband.’

Kliers v Kliers [2020] EWHC 1026 (Fam) (7 April 2020)

In Kliers, Nicholas Cusworth QC (sitting as a deputy High Court judge) declined to reflect the husband’s misconduct in the award, in light of the limited assets and, in particular, the welfare of the minor child (who lived with the father). The court noted that the ultimate conflict was between the parties’ housing needs, and on the husband’s side, the child’s welfare.

M v M (Financial Remedies) [2020] EWFC 41 (20 May 2020)

Following a long marriage and three children, the parties embarked on what was described as ‘ruinous and recriminatory’ financial remedy proceedings, emerging with only about £5,000 each of liquid assets, having incurred nearly £600,000 in costs. Neither party was entirely free from blame in the conduct of the litigation. However, in the Court’s view, the husband was more blameworthy.

Robert Peel QC (sitting as a deputy High Court judge) said:

‘[93] … To my mind, of particular significance in this case is 28.3(7)(f) which requires me to consider “the financial effect upon the parties of any costs order”.’

A modest costs order was made against the husband of £15,000, to be set off against an earlier costs order against the wife.

Traharne v Limb [2022] EWFC 27 (31 March 2022)

The husband, having paid almost all the expert fees, had incurred costs of £257,255. The wife, without that expenditure, had incurred costs of £403,150. Sir Jonathan Cohen found: (1) the wife’s costs to be disproportionate between the parties but also when compared with the value of the assets; and (2) the wife’s approach in the case had been misconceived.

The court 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, even in a needs case, as provided for in FPR PD 28A, para 4.4. The wife had set her sights far too high and the husband’s offer was far closer to the mark. The husband having already paid £211,000 under legal services payment orders, Sir Jonathan Cohen awarded the wife a further sum of £80,000 on account of her costs, leaving her with a liability to her solicitors of £70,000–£80,000. In the words of the court (at [99]), ‘that the wife was left with a costs bill to pay was entirely the result of her prodigal expenditure on costs and her approach to the litigation’.3

WC v HC [2022] EWFC 40 (11 May 2022)

W exited the marriage with £7.45m, a needs-based award. The husband applied for his costs. Peel J summarised the applicable legal principles (see [4], [5], [7] and [8]) and held that:

‘[13] There is a risk in needs-based awards, such as the one I have made, of requiring the payer to act as the ultimate insurer of the payee’s costs with little or no incentive on the payee to negotiate reasonably. An applicant for a financial remedies award can, and frequently does, seek a sum which, inter alia, clears all indebtedness including costs. Thus, however high the level of costs incurred by the payee, he/she will frequently seek what amounts to an indemnity for any costs outstanding so as to be able to exit the marriage debt free. Similarly, if and insofar as the payee has already spent large sums on legal fees which have been provided by the payer (either voluntarily or by way of a court imposed legal services funding order), he/she will argue that to be required to reimburse the payer will lead him/her into debt. It is, in my view, important for parties to be aware that even in needs-based claims no litigant is automatically insulated from costs penalties, notwithstanding the possible impact on the intended needs award.

[14] … I shall order W to pay £150,000 by way of costs … Strictly speaking, my costs decision reduces W’s overall award below the total needs-based calculation which I have alighted upon although …

c. The authorities make it clear that the fact of an award being based on needs does not prevent the court from making a costs award which reduces the claimant below the level of assessed needs. If that were not the case, no court could ever make a costs award in a needs case (and needs cases account for the vast bulk of litigation in this field). That cannot be right. Otherwise, the payer runs the risk of, directly or indirectly, being responsible for all costs on each side even if the payee has litigated unreasonably.’

VV v VV [2022] EWFC 46 (17 May 2022)

The wife had been guilty of misconduct in causing the husband financial loss amounting to c $76m. She was ordered to pay £100,000 in costs, which would invade her needs-based award. Per Peel J:

‘[12] I am satisfied that it is appropriate for W to make a contribution towards H’s costs. It does not seem to me to be unfair to invade her needs-based award to an extent. She should not be entirely protected from costs consequences … How she trims her needs to take account of this costs order will be a matter for her.’

HD v WB [2023] EWFC 2 (13 January 2023)

Peel J had cause to revisit this issue in HD v WB, reiterating that:

‘[119] In TT v CDS [2021] 1 FLR 996, the Court of Appeal held it was not unfair for the party who is guilty of misconduct to receive ultimately a sum less than his/her needs would otherwise demand. Examples of first instance decisions where the judge made a costs order notwithstanding that such order would cause the payee to dip into (and thereby reduce) the needs-based award include Sir Jonathan Cohen in Traharne v Limb [2022] EWFC 27, Francis J in WG v HG [2018] EWFC 84 and my own decisions in WC v HC [2022] EWFC 40 and VV v VV (No 2) [2023] 1 FLR 194.’

The husband was ordered to pay £120,000 in costs, to be netted off against his lump sum provision. Peel J held at [122] that, ‘it was reasonable and proportionate to invade, to that extent, the needs-based award made by me in his favour. He cannot be insulated from the consequences of litigation …’.

HO v TL [2023] EWFC 216 (1 December 2023)

The wife was awarded £7.75m based on her needs, a net figure after payment of her debts. She was nevertheless ordered to pay £100,000 in costs, such sum to be deducted from her award. Again, per Peel J:

‘[12] Litigation is expensive and personally demanding for lay clients. I see no reason why the court should not visit a costs order if one party makes unreasonable open offers. The authorities make plain that a costs order may be made even if it reduces the needs as found by the court. These comments apply particularly to big money cases, although I take the view that in smaller value cases the court should also be willing, in the right case, to make an award for costs, even if only in a modest amount, to register condemnation of the party whose open proposals are far removed from the eventual outcome. The message must get across that although the starting point is no order as to costs, the courts are increasingly willing to depart from that so as to do justice to the party who has been put to unnecessary costs by the other party’s overstated proposals.’

Appellate decisions

Clark v Clark [1999] 2 FLR 498 (6 May 1999)

A court can undoubtedly reduce the award from reasonable requirements generously assessed to something less. In Clark v Clark, a case involving an extraordinary marital history, the Court of Appeal held that (emphasis added):

‘[509] Even allowing for the wife’s phobias, I do not consider that on the quite extraordinary facts of this case to have left the wife with nothing would have exceeded the wide ambit of judicial discretion. For in addition to all the wife’s misconduct there is the fact that at the outset of the relationship the wife not only brought in nothing but required bailing out of debt to the extent of £30,000. The only conclusion to which I can come is that the judge fell into manifest error in treating the wife as generously as he did. His principal errors were in failing to reflect the full rigour of his findings in quantifying the wife’s award and in assuming that the husband would, in his heart of hearts, welcome the order.’

TT v CDS [2020] EWCA Civ 1215 (18 September 2020)

Cohen J awarded the wife the business minus net debts, leaving her with £1.73m.4 The husband would have net assets of £634,000. The judge concluded that the significant departure from equality was necessary to meet the children’s needs and to meet the wife’s debts, which the husband had created in significant part.5 The Court of Appeal dismissed the husband’s appeal. Per Moylan LJ:

‘[79] I would also refer to what was said by Cairns LJ in Martin v Martin [1976] Fam 335, [1976] 3 WLR 580, at 342H and 586 respectively:

“A spouse cannot be allowed to fritter away the assets by extravagant living or reckless speculation and then to claim as great a share of what was left as he would have been entitled to if he had behaved reasonably.”

This applies to litigation conduct which falls within the scope of s 25(2)(g) of the 1973 Act and can apply to conduct both within the financial remedy proceedings and in respect of other litigation.

[80] In Vaughan v Vaughan [2008] 1 FLR 1108, at para [14], Wilson LJ after setting out the above quotation from Martin v Martin added:

“The only obvious caveats are that a notional reattribution has to be conducted very cautiously, by reference only to clear evidence of dissipation (in which there is a wanton element) and that the fiction does not extend to treatment of the sums reattributed to a spouse as cash which he can deploy in meeting his needs, for example in the purchase of accommodation.”

However, in saying this, he did not mean that the financial effect of litigation conduct cannot impact on a needs-based award. I agree with Moor J in R v B when he said that, if required to achieve a fair outcome, the court “must be entitled to prioritise the [needs of the] party who has not been guilty of such conduct”. It is clear from the outcomes in M v M and B v B, as referred to above, that the financial consequences of the litigation misconduct, perhaps combined with other factors, might be such that it is fair that the innocent party is awarded all the matrimonial assets. In this respect, I also agree with Moor J’s observation that an order can be made which does not meet needs because to exclude that option “would be to give a licence … to litigate entirely unreasonably”.’

Azarmi-Movafagh v Bassiri-Dezfouli [2021] EWCA Civ 1184 (30 July 2021)

It appears that judges ultimately have a wide discretion as to the extent to which an enhanced lump sum should be awarded to meet a party’s needs to satisfy outstanding costs. The Court of Appeal summarised the approach to costs in need cases and held, per Moylan LJ (emphasis added):

‘53. All these cases turn on their own individual facts and in my judgment the most significant principle to be drawn from them, either individually or collectively, is that the judge at first instance has a wide discretion as to the extent to which it is appropriate to order an enhanced lump sum to a party in receipt of a needs award designed wholly or in part to satisfy their outstanding costs bills.

59. Significantly, in none of these cases would the recipients’ security of accommodation have been jeopardised as a result of the order made by the court… of more assistance in considering the approach taken to this issue in the few reported cases is the fact that in WG v HG and MB v EB, notwithstanding the fact that the recipient had acted unreasonably and run up wholly unjustified costs, the court nevertheless awarded an additional sum in order to ameliorate the impact of costs on their needs award and in neither case were the housing needs of the receiving party put at risk.

Changes to FPR PD 28?

On 27 May 2019 FPR PD 28A, para 4.4, was expanded, such that it now reads (with the additional words underlined):

‘In considering the conduct of the parties for the purposes of rule 28.3(6) and (7) (including any open offers to settle), the court will have regard to the obligation of the parties to help the court to further the overriding objective (see rules 1.1 and 1.3) and will take into account the nature, importance and complexity of the issues in the case. This may be of particular significance in applications for variation orders and interim variation orders or other cases where there is a risk of the costs becoming disproportionate to the amounts in dispute. The court will take a broad view of conduct for the purposes of this rule 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. This includes in a “needs” case where the applicant litigates unreasonably resulting in the costs incurred by each party becoming disproportionate to the award made by the court. Where an order for costs is made at an interim stage the court will not usually allow any resulting liability to be reckoned as a debt in the computation of the assets.’

The rule changes clearly envisage that the court is not precluded from making an adverse costs order even in a ‘needs’ case. If there was any doubt about this, the Court of Appeal dispelled it in TT v CDS (also known as Rothschild v de Souza) when stating at [80]:

‘It is clear … that the financial consequences of the litigation misconduct, perhaps combined with other factors, might be such that it is fair that the innocent party is awarded all the matrimonial assets…an order can be made which does not meet needs because to exclude that option “would be to give a licence … to litigate entirely unreasonably”.’

How does this square with FPR 28.3(7)(f), which requires the court to have regard to the financial effect on the parties of making a costs order? In the cases considered above, this factor features expressly in only two decisions.6 It is certainly arguable that the amendments to FPR PD 28A, para 4.4 have reduced the weight that courts now give to this sub-rule.

Having said that, whilst there are several decisions in which costs orders have been made reducing the receiving party’s award below their assessed needs, those cases have still mainly involved relatively high asset values (e.g. WC v HC and VV v VV), in which needs would have to be, and could be, trimmed. This is the point made by Moylan LJ in Azarmi-Movafagh v Bassiri-Dezfouli at [59] referred to above. Indeed, in TT v CDS (Rothschild v de Souza) the court, whilst accepting that conduct could result in a party receiving less than their needs, qualified this on the basis that it would depend on the circumstances of the case and must be justified having regard to all the s 25 factors. Of course, first consideration must be given to the welfare of the children. We therefore await, as the Court of Appeal observed in Azarmi-Movafagh v Bassiri-Dezfouli, whether a case might arise where the recipient’s security of accommodation is jeopardised as a result of a costs order.