Conduct in Financial Remedy Cases - Procedural considerations

In an earlier article, Family Law Partner Mark Heppinstall set out examples of conduct which have been considered by the court under section 25(2)(g) of the Matrimonial Causes Act 1973. In this article he addresses the procedural considerations that parties should observe if they intend to plead conduct in financial remedy proceedings.

The case of Tsvetkov v Khayrova [2023] sets out the relevant steps. In this case, Mr Justice Peel made multiple findings against the wife of bad conduct, including attempts to place assets beyond her husband’s reach, breaching the duty of confidentiality during proceedings by sharing financial information with former business associates, dishonesty about the whereabouts of valuable jewellery and a general failure to comply with her disclosure obligations or engage in the proceedings in good faith.  Although in this case the judge did not make any adjustment to how the matrimonial assets should be divided, the judge did make an order requiring the wife to pay 50% of the husband’s costs as a result of her litigation conduct.

The case is notable not just for its outcome but because the judge set out the approach that should be taken when conduct is being pleaded, identifying the two-stage approach which should be followed.

Stage one

Firstly, in “stage one”, a party asserting conduct must prove:

1. The facts relied upon,
2. if those facts are established, that they meet the conduct threshold, which has consistently been set at a high or exceptional level; and
3. 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.

Stage two

If stage one test is established, the court must then assess how the financial consequences of the misconduct should impact upon the outcome of the financial remedy proceedings.

The following good practice can be distilled:

1. Parties wishing to rely on conduct should plead it as early as possible in the case (usually in the Form E) and ensure clear case management directions are sought at the First Appointment;  
2. Allegations of conduct should be properly set out, clearly pleaded and specific;
3. It is incumbent on the party alleging conduct to explain why the case meets the threshold for conduct claims and what the financial impact of the other party’s conduct was.
4. In assessing the impact of the conduct, the court will need to assess the proportionality of allowing conduct allegations to proceed, considering the potential increase in costs to the parties within the litigation and potential impact on settlement.

Case Management considerations

• Active Management: The court should actively manage conduct allegations, ensuring they meet the exceptionality threshold;
• First Directions Appointment: At this stage, the court may make orders to prevent reliance on conduct allegations that do not meet the threshold. 

Narrative Statements

• Focused Statements: Parties should exchange short, focused narrative statements addressing the stage 1 test, enabling the court to then move on to assess stage 2 considerations.
• Generally, directions to address exchange of narrative statements should be dealt with early on in the case and, unless there is good reason for delay, at First Appointment.  

Costs Orders

• Adverse Costs: Misconduct during litigation can lead to adverse costs orders, with the responsible party potentially bearing a greater share of the litigation costs.
• If a party pursues a conduct case without merit, they could also be at risk of adverse costs orders.