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Limiting the ‘license to litigate’? MB v EB (No.2) [2019] EWHC 3676 (Fam)

20th February 2020

Mr Justice Cohen recently gave judgment in MB v EB (No. 2) [2019] EWHC 3676 (Fam), and sounded a cautionary note to parties in needs-based cases in financial remedy proceedings who run up unreasonably large legal costs under the (mistaken) belief that the financially stronger party will be ordered to pay them. Referring to the recent amendments to FPR 2010 Practice Direction 28A, Cohen J was firm in his judgment that it was not for the wife, in this case, to ‘bankroll this litigation’ which he found to have been unreasonably conducted by the husband. This case serves as a warning to parties who have a needs-based claim that this does not give them a so-called ‘license to litigate’, and underlines the importance of making sensible proposals in negotiations.

This final judgment comes after Cohen J’s ruling in June 2019 at the conclusion of a three-day preliminary issue hearing, which determined three issues: the length of the marriage between the parties, the impact of a separation agreement that they had entered into in 2011, and to determine whether there was any marital acquest.

The case had an unusual factual background, detailed in full in the earlier judgment. In brief, the parties had met in 1999, when W was a businesswoman and H a struggling artist supporting himself through modelling. W came from an immensely wealthy family. The parties married in 2000, and lived in Vienna. In 2004, W was embroiled in a scam, following which she was arrested and remanded in custody. After her release, her passport was confiscated and she was not permitted to leave Austria. H however returned to the UK, where he began a new relationship and began to cohabit with his new partner.

H sought a divorce from W in 2005 when he learned that his new girlfriend was pregnant, but W refused to sign the papers. Over the following years, the parties saw each other infrequently. H formed another new relationship, but the parties remained ‘emotionally entangled’, per Cohen J. By 2009, H was dissatisfied with his precarious financial position, and offered W an ultimatum: either he would commence divorce proceedings, or they would remain married and she would provide him with a property to live in and derive an income from by renting out rooms. The parties eventually signed a separation agreement in 2011, in which W was to pay £245,000 to H in order to cover his housing needs and a further lump sum of £35,000, in full and final satisfaction of any claims.

By 2016, relations between the parties had deteriorated significantly, and in 2017, H petitioned for divorce. H gave the date of separation as September 2016, while W asserted it was 2004 (when the parties had last lived together.) Mrs Justice Roberts directed that the length of the parties’ marriage was to be determined as a preliminary issue, along with the impact of the separation agreement, and the determination of whether there was any marital acquest.

In June 2019, Cohen J determined all three issues in favour of W. He found that the parties had separated in 2004 (although noted that there remained ‘a clear emotional involvement between them’ until at least 2016.) He also determined that there had been no marital acquest, given that W had been entirely dependent on her family’s wealth. Finally, he found that H had no grounds for vitiating the separation agreement, save for a potential argument that it did not meet his income needs. This was not a matter that was open for Cohen J to consider at that hearing, as he did not have the information available to him to determine whether H had an outstanding needs claim which W should meet.

Cohen J had concluded his June 2019 judgment by urging the parties to come to an agreement between themselves, ‘speedily and without significant further expenditure.’ He noted that the parties had by that stage spent £1m on legal costs, a sum that he considered to be wholly disproportionate. He was particularly troubled by H’s precarious financial position: his only asset was his house, valued at c.£300,000, against which there was a charging order pursuant to a LASPO in the sum of £236,000. He owed his solicitors £170,000, and his income, which was minimal, was derived entirely from renting out rooms from his property. Without further provision, H would me made bankrupt and left without a home or an income.

The parties were unable to reach agreement, and following a final hearing, Cohen J gave judgment on 19 December 2019. He began by setting out the parties’ respective positions. W had resources available to her of some £50m, and accordingly was more than capable of meeting any order that may be made. By contrast, H was in financial difficulties. He described himself as an artist, yet had sold just two paintings in the last four years, for a total of £5,000. He received a net income of £16,500 from renting out his flat, but this required him to live in a converted garage/studio with a sleeping platform. He put his income needs at £30,000 per year.

W’s position was that whatever income H had available to him, he would live within it, as he had always done. However, her counsel did not directly challenge the figure of £30,000 per year as unreasonable, save for that it included a figure of £5,000 per year for exhibiting artwork for sale. Cohen J agreed that this sum should be disallowed, remarking that ‘If H’s artwork does not wash its face, that is nothing that W should be obliged to fund.’ Matters therefore proceeded on the basis that H had an income need of £25,000 per year.

Cohen J was clear that the separation agreement, signed in 2011, did not provide adequately for H. However, he also determined that this ‘came about because [H] overestimated his ability as an artist and/or underestimated the effect of his health difficulties’ (H had a longstanding history of depression.)

It was advanced on behalf of W that the parties had been married only for a very short period of time; that the separation agreement gave H exactly what he had asked for; that H had understood when he was signing the agreement that it was intended to be in full and final separation; and that the parties had autonomy to enter into the agreement and it was not for the court to curtail that freedom.

Ultimately, although considering that it was finely balanced – and having been particularly attracted to the autonomy argument - Cohen J determined that it would be improper not to make a needs-based award for H. Cohen J stated his reasons as follows: the separation agreement did not ever provide satisfactorily for the meeting of H’s income needs and capital needs – it could meet one, but not both; W knew at all material times that H could not provide for himself in income terms and had nowhere settled to live without provision being made for him; W was aware of H’s health difficulties; it was not satisfactory that H should live in a small converted garage/studio so that he could let out his house to provide an income; while the marriage had come to an end in 2004, the parties remained entangled for many years after and this could not be completely disregarded; the award necessary to meet H’s needs would only be a small pinprick in W’s wealth; and this was not providing an ‘after the event’ insurance – rather, this met a need that was always there.

Cohen J took £25,000 per year as H’s income need. On a Duxbury basis, this resulted in a lump sum of £325,000. Cohen J also determined that H should have a further £10,000 in order to replace his car.

This still left the issue of costs, however, which were substantial. H’s total costs were around £650,000. W had funded £236,000 of the sum by way of a charge on H’s property pursuant to LASPO. H had paid a further £36,000 to his solicitors. There was a further £380,000 outstanding (inclusive of interest.) Cohen J was extremely critical of the way in which H had conducted the litigation and the legal costs he had generated, labelling them ‘wholly disproportionate to what has been in issue’. He was clear that the case – which he described as one that ‘should have been a very easy case to settle’ – had not settled because of the way that H had chosen to run it. In particular, Cohen J pointed to the attempts by H to argue that the marriage had a 17-year duration; that he had made a full contribution to the marriage as a homemaker; that he had a sharing claim; that there was a marital acquest; and that the separation agreement has no relevance and had been entered into under undue influence or duress. Cohen J made clear that ‘every one of those proposals was misplaced and wrong.’

It was advanced on behalf of H that W should be made to cover the whole of H’s costs. In support, it was submitted that in a needs-based case, it is typically the ‘payer’ rather than the ‘payee’ who must pay costs, because to order otherwise would be to leave the payee with less than their needs.

Cohen J wholly disagreed with H’s arguments as to costs. He made reference to both FPR 28.3(7) and the relatively newly inserted paragraph 4.4. of PD 28A, which specifically provides that ‘the court will take a broad view of conduct for the purposes of this rule… 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.’

Cohen J took particular notice of the open offers made by each side: W first offered in June 2018 to pay H £336,000, and then in September 2019 increased her open offer to £336,000. H did not respond at all to W’s first offer, and failed to respond to the second offer until a week before the final hearing, at which point his open offer was that W transfer to H a flat she owned with a value of c.£400,000; pay a lump sum of £527,000; and forego her charge of £236,000. In total, H therefore sought provision of some £1.3m.

While Cohen J regarded W’s open offer as rather ‘light’, he considered H’s proposal to be ‘as far wide of the mark as can be imagined… massively overcooked.’ He also noted that in his view, had H countered W’s proposals with any form of constructive offer, negotiations could have progressed and it was highly likely that the case would have settled. Instead, he had chosen to continue the litigation in a manner that Cohen J regarded as ‘irresponsible and unreasonable.’

As such, it was not appropriate for W to be made to fund the entirety of H’s legal costs. Cohen J capped W’s liability to H’s costs at £150,000, meaning that H received a total award of £485,000. Cohen J accepted that as a result of his judgment, H would be left owing significant sums to his solicitors, but he considered that this was ultimately ‘a matter between him and them.’ What was clear, he considered, was that ‘it is not for W to bankroll this litigation.’

Kate previously summarised this case here: MB v EB [2019] EWHC 1649 (Fam)

by Kate Strange, Barrister, 1 Hare Court