Parties in financial remedy proceedings on divorce need to be alive to the implications that their behaviour may have on their final settlement by way of costs orders.

Both parties in the recent case of E v L (No 2 Costs) [2021] EWFC 63 were penalised in costs; the husband for failing to negotiate reasonably and pursuing ‘conduct’ against the wife, and the wife for her litigation misconduct.

There is a ‘no order as to costs’ rule that applies in financial remedy proceedings. A court can however, make an order requiring one party to pay the costs of another party at any stage of the proceedings, where it considers it appropriate to do so, because of the conduct of a party in relation to the proceedings (whether before or during them).

In deciding what order (if any) to make, the court must have regard to the parties' obligation to help the court to further the overriding objective that they deal with cases justly, having regard to the issues involved. The court must take into account the nature, importance and complexity of the issues in the case.

The court takes a broad view of conduct and will generally conclude that if a party refuses to openly negotiate reasonably and responsibly, it will amount to conduct for which the court will consider making a costs order (as in the case of E v L). This includes in a ‘needs case’, where the applicant litigates unreasonably, resulting in the costs incurred by each party becoming disproportionate to the award made by the court.

The courts may also make costs orders because of litigation misconduct, for example, where a party fails to comply with a court order or practice direction, such as failing to file their form E, or failing to make any open offers. The courts can take into account any aspect of a party's conduct in relation to proceedings, which they consider relevant. This is a catchall provision. The conduct must increase the costs of the other party.

Where a court makes a costs order, it must still take account of the effect that the costs order will have on the parties and the financial consequences of doing so. For example, where a court decides that a parent should have a home for the children, if making a costs order would make it impossible for the parent to provide such a home, it may decide not to make the costs order.

E v L (No 2 Costs) [2021] EWFC 63

In E v L (No 2 Costs) [2021] EWFC 63, the wife was awarded £1,515,000 and their legal costs were £900,000. The presiding judge, Mr Justice Mostyn (hereafter ‘Mostyn J’) found that the parties had not been able to reach a settlement because the husband refused to accept that the matrimonial assets should be shared equally. The husband clung to the notion that the only fair way of resolving the case would be to confine the wife to her needs, whereas it was clearly a case which cried out for the application of the yardstick of equality to the money made during the marriage. Mostyn J found that the husband’s stance rendered the case unsettleable, and as a result nearly £900,000 of legal costs were incurred.

The husband also attempted to run a conduct case against the wife for reading and taking photographs of his private documents on his computer. The conduct case was rejected by Mostyn J because if he had brought a civil claim for breach of confidence, the damages would probably have been no more than £2,000, so to allow him to run such a case in the family courts would be a disproportionate use of court time.

Mostyn J ordered the husband to pay 25% of the wife’s costs, which equated to £109,000, to reflect his unreasonable litigation conduct by seeking to insinuate conduct in the proceedings and his refusal to negotiate reasonably, openly and responsibly. He also ordered the wife to pay the husband’s costs relating to her litigation misconduct in accessing his computer, which equated to £23,400. This sum was offset against the £109,000, giving the wife a costs award of £85,600.

It is clear that the court can and will penalise failure to negotiate reasonably and responsibly and that conduct allegations could be treated as litigation misconduct leading to a costs order. The courts hope that these rules will encourage parties to litigate sensibly or engage in sensible negotiations.