What is the court’s approach to excessive legal expenditure on divorce?

29 September 2020

Legal fees in court cases regarding family finances have come increasingly under the spotlight in recent years. This has in no doubt been driven, at least in part, by the headlines of previous couples who were guilty of spending a vast and disproportionate proportion of their total wealth on legal fees.

To understand the court’s approach to making an order where one pays the other’s legal fees (known as awarding costs) in financial cases, it is important to understand what the starting position is. As a general rule, the court will not make an order requiring one party to pay the costs of another party, unless it considers it appropriate to do so because of the way they have behaved in relation to the negotiations and proceedings (either before or during the proceedings).

This raises the question of what constitutes ‘bad conduct’, and how bad does that conduct need to be in order for a costs order to be made? The recent case of OG v AG [2020] helps to shed some light on this point.

In this case the wife had incurred legal costs amounting to an eye-watering £617,126. During the proceedings, the husband admitted to the court that he hadn’t been fully open and frank regarding his financial disclosure (a duty placed on all parties’ within financial remedy proceedings), and that he had tried to conceal transactions and loans from his wife and her legal advisors. The judge in the case, Mr Justice Mostyn, described the husband’s conduct as “not only dishonest, but futile and frankly inexplicable”.

In providing his judgement, Mr Justice Mostyn commented upon the fact that the husband’s nondisclosure had meant that the parties had run up excessive legal costs in the case, with the overall costs exceeding £1 million. Of that sum, Mr Justice Mostyn outlined that “a large amount must be referable to the husband’s conduct”. Accordingly, Mr Justice Mostyn awarded that the wife receive more than half of the marital assets (total assets in the case were worth £16.37 million), thereby implementing a departure from the starting point of equality. As a result, the wife received an additional award of £869,741, with Mr Justice Mostyn noting that this was the price that the husband had to pay for “conducting the litigation so abysmally”. The husband was initially also ordered to pay the wife an additional £278,020 for her costs, which represented 45% of her overall legal spend.

It is clear then that a failure to provide full and frank disclosure of your financial circumstances qualifies as ‘bad conduct’, and the case of OG v AG [2020] serves as a potent reminder of the powers that the court has at its disposal to punish such behaviour.

However, it should be stressed that it is not just ‘dishonesty’ which is deserving of a costs order in financial remedy proceedings. Mr Justice Mostyn also emphasised the duty placed upon parties to negotiate reasonably once the financial landscape within the proceedings was clear (i.e. it has been established what marital assets there are and what their collective value is).

In the case of OG v AG [2020] Mr Justice Mostyn commented that the wife was “not above criticism herself” and that her stance with regards to negotiating had also been unreasonable. Consequently, the court deducted £50,000 from the legal costs that the husband had to pay the wife, to reflect the wife’s unreasonable negotiation stance throughout the proceedings.

In providing his judgement Mr Justice Mostyn stressed that he hoped that “this decision will serve as a clear warning to all future litigants: if you do not negotiate reasonably you will be penalised in costs.”

If you would like to know more about the topics discussed in this article, please do not hesitate to contact a member of the Birketts' Family Law Team.

The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at September 2020.