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Tsvetkov v Khayrova [2023] EWFC 130

https://www.bailii.org/ew/cases/EWFC/HCJ/2023/130.html

Big money case in which Peel J considered the procedure to be followed where allegations of conduct are pleaded and valued W’s handbag collection at nearly £800,000!

Background

The parties were Russian but held UK citizenship. They married in 2009 and accumulated vast wealth through H’s business endeavours. The marriage came to an end in 2020. The total assets were found to be £48,518,478, and each party exited with around £24m. The factual matrix of the case is complex; however, of most interest for practitioners is Peel J’s explanation of the necessary procedure where allegations of conduct were pleaded.

Procedure for dealing with conduct allegations (paras 40 – 47)

Stage 1

A party asserting conduct must prove:

  1. i) the facts relied upon;
  2. ii) if established, that those facts meet the conduct threshold, which is 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. A causative link between act/omission and financial loss is required. Sometimes, the loss can be precisely quantified, sometimes, it may require a broader evaluation. But it is very unlikely that the quantification of loss can or should range beyond the financial consequences caused by the pleaded grounds.

Stage 2

The court will go on to consider how the misconduct and its financial consequences should impact upon the outcome of the financial remedies proceedings, undertaking the s 25 exercise, balancing all the relevant factors.

Peel J noted an increasing tendency for parties to fill in Box 4.4 of Form E by either reserving their position on conduct or recounting a litany of prejudicial comments which do not approach the requisite threshold. These practices are to be strongly deprecated and should be stopped. The following procedure should be followed when there are or may be conduct issues:

  1. i) Conduct is a specific s25 factor and must always be pleaded as such. It is wholly inappropriate to advance matters at final hearing as being part of the general circumstances of the case, which do not meet the high threshold for conduct. That approach is forensically dishonest; it impermissibly uses the back door when the front door is not available: para 29 of RM v TM [2020] EWFC 41.
  2. ii) A party who seeks to rely upon the other’s iniquitous behaviour must say so at the earliest opportunity and, in so doing, should (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. The author of the alleged misconduct is entitled to know with precision what case he/she must meet.

iii) Usually, if relied upon, the conduct allegations should be clearly set out at Box 4.4 of a party’s Form E, which exists for that very purpose.

  1. iv) The court is duty-bound by FPR 2010 1.1 to have regard to the overriding objective.
  2. v) In furtherance of the overriding objective, it is required to identify the issues and empowered to determine which issues should be investigated.
  3. vi) The court should determine at the First Appointment how to case manage the alleged misconduct. In furtherance of the overriding objective and FPR 2010 1.4, the court is entitled at that stage to make an order preventing the party who pleads conduct from relying upon it if the court is satisfied that the exceptionality threshold required to bring it within s25(2)(g) would not be met. The court should also take into account whether it is proportionate to permit the allegation to proceed, for a pleaded conduct claim usually has the effect of increasing costs and diminishing the prospects of settlement. Finally, the court should take into account whether the allegation, even if proved, would be material to the outcome.

vii) Of course, in some instances, alleged conduct may rear its head after the provision of Forms E. One obvious instance is where a party wantonly dissipates monies in the lead-up to trial. Should a party seek to advance a conduct claim, this must be brought before the court as soon as possible so that it can be case managed appropriately.

viii) Wherever conduct is relied upon, and the court permits it to be advanced at trial, it should be pleaded. It will be for the court to decide how best to manage the issue. Usually, an exchange of short, focused narrative statements will suffice (page limits are an indispensable tool in the judicial armoury and should be deployed), but such statements must set out in particularised detail (a) the facts asserted, (b) how such facts meet the conduct threshold, and (c) what consequential financial loss or detriment has occurred.

Peel J emphasised that this suggested procedural route is not necessary or appropriate where a party relies only on litigation misconduct, in which case the court will be able to deal with that by way of costs in time honoured fashion.

 

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