One would of course normally expect the parties to a financial remedy application on divorce to incur reasonably similar amounts of legal costs, assuming that they are both legally represented.
But what if one party incurred significantly more costs than the other? What bearing, if any, might that have upon the financial settlement?
The question arose in the recent case OS v DT, which was heard by His Honour Judge Hess in the Central Family Court in London.
Grossly disproportionate
As Judge Hess recognised, the court has jurisdiction in a financial remedy case to penalise a party overspending on costs.
He explained the reasoning behind this as follows:
“Where one party has incurred legal costs at a sensible and moderate level and the other has incurred costs at a grossly disproportionate level, the simple inclusion of both debts can be unfair to the sensible and moderate spender, as the distribution exercise following the inclusion of such a debt … can in reality amount to something fairly indistinguishable from an inter partes costs order [i.e. an order requiring one party to pay the other’s costs]”
In other words if, as is usually the case, when calculating the assets available for division between the parties the court takes into account legal costs incurred by both parties as debts, that will result in a reduction in the amount of the assets. If one party has incurred significantly more legal costs than the other, this could mean that the party who incurred moderate costs could ultimately receive a smaller settlement than they would have received had the other party not incurred such high costs.
The effect of this, as Judge Hess stated, would be akin to the party who incurred moderate costs being required to pay, or at least contribute towards, the costs of the other party, which would be contrary to the general rule in financial remedy proceedings that the court will not make an order requiring one party to pay the costs of another party.
So how might the court deal with such a costs disparity?
As Judge Hess explained:
“…in obvious cases the court can deal with any unfairness arising … by making an adjustment in the distribution of capital, for example by excluding from the asset table a portion of the over-spender’s unpaid costs and/or adding back a portion of the over-spender’s costs already paid, thus appropriately penalising the over-spender without actually making an inter partes order for costs”
Penalising the husband?
In OS v DT the wife had incurred a total of £243,904 in legal costs, and the husband a total of £489,433. The wife argued that Judge Hess should deal with this disparity by penalising the husband, by adding back into the asset schedule the notional sum of £245,529, representing the difference between the costs incurred by the husband and those incurred by the wife.
But why were the husband’s costs so much higher?
The answer lay in the process of disclosure by the husband of his means, in particular in relation to the fact that he had, over many years, managed and invested and held money and other assets of substantial value on behalf of his parents and, after the death of his mother in 2015, his father.
The husband’s disclosure had been misleading and confusing, which caused the wife’s solicitors to be suspicious that he was hiding something, so they sought further information from the husband. As Judge Hess said, the husband’s attitude could be characterised as being ‘just trust me, why are you troubling me with these unnecessary questions‘, rather than attempting a proper explanation of a confusing situation with, potentially, significant amounts of money at stake.
The husband did eventually make full disclosure and this confirmed that he had not been hiding anything. Vindicated, the husband sought the reimbursement of what he said had been the extra costs involved by arguing about these matters.
In the event Judge Hess decided on balance that it would be wrong to penalise either party for the costs of this exercise. There were arguments on both sides and, whilst it was a great pity that costs were incurred on the exercise, he did not think this was an obvious case for blaming one party or the other. He did not therefore propose to make any adjustments to the asset schedule on the basis of the costs incurred on this argument.