While many parties to a financial remedy application may be tempted to detail for the court a long list of their ex-partner’s transgressions, it is well established that a party’s conduct will only be relevant in the rarest of cases.

Sarah Harvey, a senior associate in the Divorce and Family team based in Leeds, considers ‘conduct’ in light of the recent case of Tsvetkov v Khayrova [2023] EWFC 130.

Section 25(2) of the Matrimonial Causes Act 1973 (MCA 1973) sets out the factors a court should have regard to when deciding upon a party’s claim for financial remedies. Among the eight factors listed, section 25(2)(g) MCA 1973 specifically provides for the court to consider “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”. (This is mirrored in paragraph 21(2)(g), schedule 5, part 5 of the Civil Procedure Act 2004.)

Where conduct is relevant, it is important to ensure it has been argued in the proceedings properly with due regard for the procedural requirements. The decision of Mr Justice Peel in the recently reported case of Tsvetkov v Khayrova provides useful guidance for practitioners on how a conduct argument should be argued before the court.

Findings

In this case, Mr Justice Peel made findings against the wife in respect of multiple instances of bad conduct, including placing assets beyond the husband’s reach, breaching the implied duty of confidentiality by sharing financial information with the husband’s former business associate, and repeatedly lying to the husband and the court about the whereabouts of valuable jewellery.

In his judgment, Mr Justice Peel considered and determined each allegation separately. As a result of this approach, he chose not to reflect the wife’s conduct by departing from equality and instead distributed the assets equally between the parties (approximately £24m). However, he concluded that, as a result of her conduct, the wife had greater responsibility for the £3m of costs incurred for the litigation and ordered her to pay 50% of the husband’s costs on an indemnity basis.

Procedure

Mr Justice Peel said a two-stage process must be applied in relation to allegations of misconduct. In ‘stage 1’, a party asserting conduct must prove: (i) the facts relied upon, (ii) if those facts are established, that they meet the conduct threshold, which has consistently been set at a high or exceptional level, and (iii) 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.

If stage one is established, the court moves on to ‘stage two’, which is a consideration by the court of how the misconduct and its financial consequences should impact upon the outcome of the financial remedy proceedings.

Mr Justice Peel recorded that the “increasing tendency” for parties to either (i) reserve their position on conduct or (ii) recount a litany of prejudicial comments which do not remotely approach the requisite threshold is “strongly deprecated and should be abandoned” given that “[t]he former leaves an issue hanging in the air. The latter muddies the waters and raises the temperature unjustifiably.”

Mr Justice Peel set out the procedure that should normally be followed when there are or may be conduct issues. That procedure requires a party alleging bad conduct to plead their allegations as a specific section 25 factor rather than simply advancing them at a final hearing as being part of the general circumstances of the case that do not meet the high threshold for conduct. Parties should assert the alleged conduct at the earliest opportunity within the proceedings (usually at box 4.4 of the Form E), ensuring that they (a) state with particularised specificity the allegations, (b) state how the allegations meet the threshold criteria for a conduct claim, and (c) identify the financial impact caused by the alleged conduct. This is to ensure that the author of the alleged misconduct understands with precision the case he or she must meet.

Case management

Mr Justice Peel went on to consider that the court must actively case manage allegations of conduct within proceedings. The court’s duty under Family Procedure Rule 2010 1.1 is to have regard to the overriding objective, which requires the court to identify and determine the issues to be investigated. In light of this, Mr Justice Peel considers the court is entitled at any First Directions Appointment to make orders preventing the party who pleads conduct from relying upon it if such allegations do not meet the exceptionality threshold.

Mr Justice Peel states that the court should also consider the proportionality of permitting allegations of conduct to proceed, given that they usually have the effect of increasing costs and diminishing the prospects of settlement. Finally, the court should consider whether the allegation, even if proved, would be material to the outcome.

Ultimately, wherever conduct is relied upon and permitted by the court, it should be pleaded. The court will decide how best to manage the issue. Usually, an exchange of short, focused narrative statements setting out in particularised detail the ‘stage 1’ test will suffice, which will then enable the court to move to the ‘stage 2’ considerations.

Comment

Adrian Clossick, Head of Divorce and Family in Leeds, says: “This case highlights the importance of practitioners exploring with their clients any allegations of bad conduct from the outset of their matter. Given the court’s far-reaching case management powers, which may include making orders preventing a party from relying upon any such allegations, having a detailed understanding of both the high threshold that conduct allegations must meet in order to be considered and of the procedure that must be followed will be key.”