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‘If you do not negotiate reasonably you will be penalised in costs’: OG v AG [2020] EWFC 52

27th August 2020

Mostyn J emphasised the importance not only of complying with disclosure obligations, but also of negotiating reasonably on an open basis once the financial landscape of a case is clear.

Henrietta Boyle, Pupil at One Hare Court


OG (“H”, aged 51) and AG (“W”, aged 53) had made cross-applications for financial remedies. H was from Germany, and W was from Poland. They had met in London in 1994, had married in the same year, and had had two children together (J and G, aged 25 and 10 respectively). After a 25 year marriage, the parties separated in 2017 and decree absolute was declared in 2019. W remained living in the former matrimonial home with G. H was resident in Dubai for tax purposes.

H’s family had established a successful ducting business in Germany. In 1987, H decided to create a ducting business in the UK. X Ltd (“X”) was incorporated and in 1989 H became a director of it. Various other companies were incorporated and shares transferred, but X was where business was conducted and where the value of the enterprise reposed.

In 1996, W also became a director of X. H resigned as a director in November 2018 and stopped working for X in 2019. As a result, since September 2019 W had been running X single-handedly. She wanted to take full control of the company to the exclusion of H, and at the final hearing, H did not object to this.

The parties enjoyed a comfortable lifestyle (including private education for the children), although both agreed it was not lavish. They focused so much on X that it appeared they amassed, almost incidentally, a great deal of wealth without knowing what to do with it. By the time of the SJE’s valuation X had surplus assets of nearly £10m. However, they did acquire a domestic and international property portfolio which produced a rental income. This portfolio consisted of five flats in London, three in Gibraltar, and eight in Dubai.

H’s conduct

H’s disclosure in relation to the Dubai properties, and other matters, had been made in a piecemeal fashion. In February 2019, AB LLP (“AB”) was incorporated. Its business was the manufacturing and distribution of ducting, and its shareholders were two close friends of H and H’s father. H tried to distance himself from AB, but W said AB was a façade and a way for H to compete unfairly against X. AB had been loaned significant sums of money by a company incorporated in Dubai, TT Ltd (“TT”), which H asserted was a vehicle to obtain residency in Dubai. H had advanced and/or loaned monies to TT, and at or around the same time, TT had loaned equivalent amounts to AB. H had been able to make such payments or loans as a result of his unilateral disposal of some of the parties’ properties in Dubai. W argued that H had siphoned off and warehoused the proceeds of sale from some of the Dubai properties to fund AB via TT.

Mostyn J considered that H’s conduct, inter alia, in concealing a number of the Dubai transactions and loans made to TT was ‘not only dishonest but futile and frankly inexplicable’ [27]. His non-disclosure meant that there had never been an effective FDR and that the parties had run up costs exceeding £1 million, a large amount of which ‘must be referable to the husband’s conduct’ [27]. Mostyn J inferred H’s conduct was due to ‘pure bloody-mindedness engendered by the toxic aftermath of the breakdown of the marriage and the confrontational personalities of each of the husband and wife’ [27]. Indeed, H’s litigation misconduct had even extended to altering an email to try to suggest that W had agreed to sell X, when she was saying quite the opposite.

W’s conduct

However, W was ‘not above criticism herself’ [29]. After the pre-trial review in June 2019, the financial landscape had been sufficiently clear and W had been in position to negotiate reasonably. However, her stance had been unreasonable: she had proposed a division of the assets two-thirds to her and one-third to H, which would amount to a sanction on H of nearly £1.9m. W sought, in effect, that H should suffer a triple jeopardy by reference to his conduct. Firstly, she sought to discount the value of X because H had set up a competitor business (AB), secondly, she sought to divide the assets so that she received twice as much value as H, and thirdly, she said that H should pay 93% of her costs. Mostyn J felt this position was ‘untenable’ [29].

Furthermore, W had herself been guilty of non-disclosure. She had failed to disclose in her Form E bank accounts in her mother’s name into which some of the rents from the London properties had been paid. These rents had also not been declared to HMRC, to whom there was a tax debt owed of circa £44,000.

Mostyn J’s assessment of H’s conduct

W explicitly pleaded conduct against H under s25(2)(g) of the Matrimonial Causes Act 1973. The conduct she relied upon related to H’s non-disclosure of the Dubai transactions, and his furtive establishment of AB to compete unfairly and unlawfully against X.

Mostyn J categorised conduct as rearing its head in four distinct scenarios:

1. Gross and obvious personal misconduct meted out by one party against the other (normally, but not necessarily, during the marriage).

This can extend to economic misconduct (as alleged by W against H in this case). If one party economically oppresses the other for selfish or malicious reasons, provided the high standard of ‘inequitable to disregard’ is met, it may be reflected in the substantive award.

This type of conduct will only be taken into account in very rare circumstances and would only be reflected where there is a financial consequence to its impact.

2. ‘Add-back’ cases, where one party has wantonly and recklessly dissipated assets which would otherwise have formed part of the divisible matrimonial property.

It will only be in a clear and obvious, and therefore rare, case that this principle will be applied.

3. Litigation misconduct.

Where proved, this should be severely penalised in costs, although it is difficult to conceive of any circumstances where litigation misconduct should affect the substantive disposition.

4. The drawing of inferences as to the existence of assets from a party’s conduct in failing to give full and frank disclosure.

This is taken into account during the computation rather than the distribution stage. Normally, the court is able to make an assessment of the approximate scale of the non-visible assets.

Regarding H’s conduct, Mostyn J firstly decided that the sums loaned by H to TT would all be added back to the matrimonial pot at full value. He then considered whether he should draw an inference that H had undisclosed assets (either in Dubai, or elsewhere), but although the documentation provided by H remained ‘in some minor respects incomplete’, Mostyn J was not satisfied that H’s ‘abysmal, and let there be no doubt, dishonest presentation’, coupled with the remaining minor deficiencies, should lead him to infer that H had ‘squirrelled away’ substantial sums stolen from X [42].

Mostyn J then asked whether H was the real owner of AB and whether the official shareholders were acting as his nominees. He found that H was ‘unquestionably the real owner of AB’ and that all the money derived from H, channelled via TT [45]. This finding was based on the fact that H referred to W as ‘the other owner’ of X in an email to potential customers, the fact that a private investigator hired by W (posing as a potential employee of AB) was told that H was the current owner of AB, and the fact that H had said ‘I have another company in Country T, namely AB’ in a witness statement in civil proceedings [46-48].


These were divided into three categories.

1. Non-business, non-pension assets

The non-business, non-pension assets came to a total of £3.68m.

2. X

X was valued by an SJE, who gave a figure in the range of £13.78m to £13.95m (with a median of £13.865m). Of this figure, £9.992m represented surplus assets (held as cash and quoted investments). The trading element of X was valued as being worth £3.945m. The tax SJE calculated the corporation tax payable on investment gains to be £44,458.

W argued that two discounts should be applied to the median figure of £13.865m: (1) a discount of 10% to reflect the effects of the Covid-19 pandemic and potential disruption from Brexit, and (2) a discount of 40% to reflect the fact that H had set up a business in direct competition with X.

Mostyn J agreed that a discount should be applied to reflect the effects of Covid-19 and Brexit, but applied a 10% discount only to the trading element of the valuation, since there was no logic in applying such a discount to the cash and investments held by X.

He also agreed that a discount should be applied to reflect the effects of H setting up a competitor company, but again only applied this to the trading element of X. The appropriate discount was held to be 30%.

After these discounts were taken into consideration, the net value of the parties’ interests in X came to a total of £10.7m.

3. Pension assets

The parties’ pension assets were worth £1.98m.

In total, the parties’ assets were worth £16.37m.

Moral judgment

Mostyn J thought that ‘[t]he question of conduct apart, this is a paradigm case for the application of the equal sharing principle’, since the marriage was long, and all the property was matrimonial [69]. Although each party ‘took the opportunity of seeking to denigrate the contribution to the business made by the other’, just as commercial and domestic contributions are intrinsically incommensurable, so ‘[d]ifferent kinds of commercial contribution within a family business are equally incommensurable. It is impossible to measure them separately’ [69].

Although in times gone by the courts in ancillary relief cases formed ‘first and foremost a moral judgment’, Mostyn J pointed out that ‘[t]he financial remedy court is no longer a court of morals’ [71-72]. Conduct should be taken into account ‘not only where it is inequitable to disregard but only where its impact is financially measurable’, and it is ‘unprincipled for the court to stick a finger in the air and arbitrarily to fine a party for what it regards as immoral conduct’ [72].

Mostyn J therefore rejected W’s submission that in addition to the competitor discount (which would fall on H alone) and the penalty in costs (see below), there should be an additional substantial departure from equality ‘to reflect the court’s indignation at the way the husband has behaved in the course of the litigation’ [73].

Distribution of assets

Mostyn J considered that H should receive £2.11m of the non-business, non-pension assets. 50% of the total of £3.68m for these assets was £1.84m, so H would have to pay W a balancing figure of £273,535 which would be deducted from the payment he would receive in respect of the purchase of his shares in X, by X.

In terms of X, it was decided that the company should buy H’s shares for 50% of Mostyn J’s calculated value of the parties’ interests in X of £10.7m, i.e. the purchase price would be £5.35m. Deducted from this figure would be money owed by H to the company, the balancing payment to W for the non-business, non-pension assets, the competitor discount, and a costs sanction. The overall sum payable to H was £3.78m.


Mostyn J laid emphasis on the revised para 4.4 of FPR PD28A, which requires parties to negotiate openly in a reasonable way and which is ‘extremely important’ [30]. W’s attempt to take advantage of H’s delinquency to justify such an unequal division of the assets as that proposed by her was not a reasonable way of conducting litigation, and so W would herself suffer a penalty in costs for adopting such an unreasonable approach. Mostyn J declared: ‘It is important that I enunciate this principle loud and clear: if, once the financial landscape is clear, you do not openly negotiate reasonably, then you will likely suffer a penalty in costs. This applies whether the case is big or small, or whether it is being decided by reference to needs or sharing’ [31].

W had incurred total costs of £617,126, consisting of costs of £411,807 up until the pre-trial review. She argued that it was only after that that there was sufficient clarity about H’s financial position to enable her to engage in reasonable open negotiations, and Mostyn J agreed. He considered that the right figure to allow for ‘normal’ costs that should have been accrued in that period was £100,000, which he set off against the headline figure of £411,807.

Mostyn J then made a second set-off. W had made a s37 application and had sought to freeze H’s Dubai bank accounts, as well as four properties in Dubai. Given that the Dubai assets only represented 7% of the total assets in the case, and that the remaining 93% were under W’s control or were effectively frozen by virtue of being in joint ownership, Mostyn J considered that those proceedings were unnecessary. On the basis that it would be surprising if those proceedings cost W less than £40,000, that amount was further set-off against W’s costs.

There was also a third set-off made of £10,000, to reflect W’s own non-disclosure. Mostyn J said that ‘[t]he message should go out that if you are guilty of deliberate non-disclosure, even if it is relatively minor, you will pay a penalty in costs’ [89].

Mostyn J considered that H should pay the reduced sum on the indemnity basis, because his conduct had ‘taken the case quite out of the ordinary’ [90]. Since one would normally expect about 90% of the actual costs to be awarded on the indemnity basis, Mostyn J ordered H to pay 90% of the reduced costs figure, which came to a total of £235,626.

Since the pre-trial review, W had incurred further costs of £205,319. W argued that this second period could not be looked at in isolation and was contaminated by H’s misconduct in the first period. Mostyn J again agreed, and in particular drew attention to the fact that H had denied being the owner of AB, and had given false evidence from the witness box with the motive of trying to prevent the competitor discount of £1.2m from being applied to the trading valuation of X. As such, Mostyn J held that H should pay 50% of W’s indemnity costs for the second period, which came to £92,394.

However, Mostyn J pointed out that the fact that H was maintaining an untrue position in relation to the ownership of AB did not absolve W from the obligation to openly negotiate reasonably. Consequently, £50,000 was deducted from the costs H had to pay W to reflect W’s unreasonable and untenable open negotiation stance. Mostyn J 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’ [93]. H therefore had to pay W £278,020, which represented 45% of her total costs.

Overall, W received £9.055m, and H received £7.316m (44.7% of the total assets), on a clean break basis. The departure from equality was in the sum of £869,741, which was ‘the price that the husband has to pay for his conduct in setting up a competitive business and conducting the litigation so abysmally’ [95]. Again, Mostyn J emphasised that he hoped ‘it will serve as a lesson to any future litigant who is tempted to behave in the same way’ [95].

Child support

Mostyn J had jurisdiction to assess how much child support H should pay for G, since H was not habitually resident in the UK. G’s overall annual school bill (including extras) was unlikely to be less than £15,000 once she moved to secondary school, and so H was ordered to pay £7,500 pa towards the school fees.

The decision in CB v KB [2019] EWFC 78 was referred to by Mostyn J, where he suggested that a useful starting point for gross incomes up to £650,000 was the statutory child support formula. He considered that a reasonable gross income to attribute to H was £200,000 pa, which gave rise to a liability under the formula of £19,248. Adding H’s portion of the school fees to this figure, H’s overall child support liability was £26,748, which Mostyn J rounded up to £27,000 pa, or £2,250 pcm. This was to be index-linked and was to continue until G finished secondary education. In tertiary education it would fall to 50% of the secondary education rate.


This judgment should stand as a warning to litigants. Not only has Mostyn J re-emphasised that deliberate non-disclosure, even if relatively minor, will be punished by costs penalties, but he has also made clear in this judgment that the revised para 4.4 of FPR PD28A must be complied with by litigants unless they want to be penalised in costs. This decision underlines the fact that it is absolutely crucial for reasonable offers to be made on an open basis once the financial landscape of a case is clear. Not doing so will only lead to punishment by the courts further down the line.

Henrietta Boyle, Pupil at One Hare Court