Family Court takes into account husband’s blatant disregard for court process in ‘ruinous litigation’

A recent family law case considered points on a fair trial, special measures, post-nuptial agreements, litigation conduct and costs.

Senior associate Jenny Bowden discusses the recent judgment in Xanthopoulos v Rakshina:

Background

This case was heard before Mr Justice Cohen in March 2023. It related to the husband’s financial claims on divorce following a 15-year marriage. The parties had two children, and their life centred around Russia. Their connection to England for the purposes of pursuing the husband’s claims was described by the judge as “tenuous’”. At the time of the final hearing, both parties were in their 40s. There had also been contested proceedings in both Russia and England in relation to children matters and jurisdiction, and there had been numerous interim applications within these proceedings. It was hard-fought litigation on all fronts.

The wealth in this case all emanated from the wife’s family and work endeavours, with the husband doing very little (whether economically or in supporting the family), according to the judgment. The court was satisfied there were total assets of about £13m, which were almost all held by the wife. Of that sum, only around £2m was assessed as ‘matrimonial’.

One important point (and arguably the reason the husband pursued his claims) was that the wife also acquired 25% of the shares in her father’s business during the marriage. Those shares had increased in value, and the business, on a basic assessment, was felt to have a global value of around £400m. Twenty-five per cent of that value (the wife’s shareholding) would have a significant impact on the assets in the case, but Mr Justice Cohen was satisfied that the shares could be disregarded. He determined that the wife held the shares as a nominee for her father. He said that even if she did have any interest in them, they were non-matrimonial. Any growth was passive economic growth, and in any event, the parties’ post-nuptial agreement post-dated the wife’s notional acquisition of the shares.

Four key lessons can be taken from the judgment.

1. Giving a fair trial and considering special measures

The husband’s team sought to adjourn the final hearing (again) on the basis that he was depressed. Mr Justice Cohen wasn’t satisfied there was any need for further adjournment and queried the evidence provided. With an abundance of caution, though, he did make adjustments to accommodate the husband’s mental health: sitting shorter days, taking breaks mid-session and permitting the husband to speak to his legal team during his evidence, if needed. In addition, Mr Justice Cohen permitted the husband’s team longer to provide documents and extended the time allowed for examination in chief (the husband’s evidence) if required. The focus was on a fair trial, which included fairness to the wife of ending what the judge called “ruinous litigation”. For the same reason, he didn’t want to strike out the husband’s claims as that wouldn’t bring the finality required. This is an important reminder to all practitioners of the potential adjustments that can be made, if required, to ensure justice is delivered.

Despite these adjustments, on the first day of the hearing, the husband’s team applied orally to come off the record. They were discharged. The judge was satisfied that although the husband did not attend, he had been engaging with his legal team to some extent only two days before the trial started and had attended a pre-trial review earlier in the year. Mr Justice Cohen was comfortable that he could proceed, and it would be fair for a few reasons:

1. he had the husband’s financial disclosure,
2. the wife accepted that the husband had no assets of substance,
3. there was a reasonably up-to-date schedule of the husband’s outstanding legal fees, and
4. many disputed points had been addressed in a preliminary issue hearing late last year.

Adjourning a final hearing simply because one party entirely disengaged would cause undue unfairness to the wife in finalising the proceedings.

2. The existence of a post-nuptial agreement, which provided the husband with no provision

This document was prepared at the husband’s behest to reassure his wife that he wasn’t just in the marriage for money. As these documents go, it was very simple, with each party to keep what they have and what they acquire in the future. Arguably the terms of the document would leave the husband with nothing, but that was at his insistence. The wife’s evidence was that she’d proposed a lump sum be incorporated within the draft, but he declined. Contrary to ‘good practice’, which should be adopted whenever a nuptial agreement is in contemplation, in this instance, there had been no disclosure between the parties and no independent advice. Despite this background, Mr Justice Cohen held that the agreement was entered into voluntarily and with an understanding of each other’s financial situation. The husband instigated the agreement and declined more generous terms. Mr Justice Cohen was satisfied it should be given some weight when determining a fair outcome.

This acts as a reminder to parties entering into such an agreement that procedural shortcomings will not always provide protection, and you should sign such documents with the expectation that you will be held to the terms. That said, best practice remains obtaining advice and exchanging disclosure. In this case, the judge was still able to depart from the terms of that agreement to the extent required to meet the weaker financial party’s needs.

3. Litigation conduct

The judgment offers a useful reminder to clients and practitioners alike. Litigation conduct (or misconduct) can fall within the factors the court is obliged to consider when determining financial matters on divorce.

If a party has behaved inappropriately, it can result in them getting less than they might otherwise be awarded by the court, perhaps even less than their ‘needs’ dictate. In this case, the husband breached court orders throughout. He also made no offers and effectively disengaged from the court process following an unsuccessful settlement hearing.

A further conduct point is that the wife, in effect, had to fund all the litigation for all parties, including the eldest child (who had separate representation) and the husband. There had been proceedings in England and Russia pertaining to jurisdiction, children and finances. In total, some £9m had been incurred in costs across all proceedings. Within that, there had been various orders making provision for the wife to pay for the husband’s legal advice in the absence of his own funding, which the wife had complied with. Perhaps unusually, the husband had changed solicitors seven times. At the point of the final hearing, he had £900,000 of debt still owing to various of those representatives. In addition, costs orders had been made against the husband exceeding £1m.

The husband’s blatant disregard for the court process (which he had instigated) resulted in significant financial costs for this family. That was ‘conduct’ relevant to Mr Justice Cohen’s decision and meant he felt able to adopt a ‘needs light’ approach.

4. Costs

By the final hearing, the husband had accrued debts to various solicitors over and above the sums sought by way of legal funding from the wife. Paragraph 153 of the judgment is worth considering in full in this respect. Mr Justice Moor commented: “It is not the job of the court to act as the insurers of solicitors who overshoot, let alone dramatically overshoot, the sum provided by way of a [legal services payments order]. I respectfully agree with what Cobb J said to the same effect in Re: Z (No. 2) [2021] EWFC 72. If the solicitors run short of funds, then it is their duty to apply to the court for a further order. If they choose to carry on with their work and incur further fees, then they do so at their own risk. I do not intend to make any provision for this liability of [the husband], if that is what it turns out to be.”

He also considered ways to mitigate the wasteful costs in similar cases. Solicitors and clients occasionally part ways; without funding, a new solicitor is unlikely to take the case. But, as Mr Justice Cohen considers from paragraph 155 onwards of the judgment, judicial continuity might assist, and the provision of funding should perhaps be tied to compliance with court orders.

Outcome

Given the significant debts the husband had accrued, it was clear that bankruptcy may be on the cards. Providing him with cash (or other assets) may not alleviate that position. Instead, Mr Justice Cohen determined that the husband should not be provided with outright provision. Accordingly, the husband was provided with a housing fund of £600,000 for as long as he needs the house, in addition to a modest term of maintenance spanning just four years. This would be paid on an ongoing basis rather than capitalised to preserve against bankruptcy. In addition, despite the costs orders being appropriate and fair, the order recorded that the wife was not to pursue the costs orders in her favour.

Similarly, her brother was not to enforce the costs orders in his favour. No further costs orders were made (in recognition of the fact the husband simply would be unable to pay them). The wife retained all the other assets.

Partner Lisette Dupré comments:

“We should carefully consider the proposition of linking funding provision to compliance with the legal process. The ability to obtain funding via a legal services order is an important part of the legal team’s armoury and can ensure access to justice where one party holds the wealth and the other does not. But a legal services order is not intended as a blank cheque.

In my view, the payer should not be penalised for poor choices made by the recipient. The court’s role includes achieving fairness between the parties. Some may take the view that where initial funds obtained have been exhausted with little benefit or progress being achieved in the proceedings, further funding ought to be limited. It will be interesting to see whether more guidance is given in this regard.”

Written by Jenny Bowden from Stewarts Law.