M v M

This is an application for indemnity costs made by Mrs M (Wife), a judgment having been the handed down on 2 August 2013 in relation to her Part III application. The trial was the last of many hearings following the breakdown of her marriage to her former husband Mr M (Husband). The Husband neither attended the trial nor the costs hearing.

In addition to the Husband there were five other Respondents to the action: the 4^th, 5^th and 6^th Respondents are respectively Pankratrov Trust, Highlands Invest Ltd and Carter Court Ltd, (the Companies) and they were represented at the trial by Mr Wagstaffe QC. The Companies' case was that they were the beneficial owners of various properties in the UK which had been bought using the husband's money but in relation to which the legal interests were held in the names of the various Companies.

The trial was heard in the High Court between 24 January 2013 and 1 February 2013. Judgment was thereafter reserved pending the Supreme Court delivering their judgments in Prest v Petrodel Resources Ltd and Others[2013] UKSC 34. In January 2013 both the husband and the Companies were put on notice of the wife's intention to seek indemnity costs at the conclusion of the trial. A number of schedules of costs were served on both the husband and the companies last week on the 25 October 2013.

It is not proposed to rehearse the facts of the case, or the detail of the court's findings in this short judgment, which should be read against the background of those findings. Suffice it to say that the court made a number of findings amounting to serious litigation misconduct on the part of both the husband and the companies. I described the case as presented by the Companies at trial as "a fantastic charade with the husband a shady puppet master in the background" (para 17 judgment).

Over the last 3 years there have been no less than separate 22 appearances in the High Court in addition to further litigation in 6 other jurisdictions. The final hearing listed for four weeks was actually conducted in one week due to the Husband's failure to attend; there were 31 trial bundles. The husband did not attend but, the court found, "showing singular audacity" instead, "sent his companies" in to bat"" (para 18 judgment). The court held that (para 218):

The final order provided for the husband to transfer to the wife all of the English properties and to pay a lump sum of £38m. The Companies (the legal owners of four of the relevant English properties) were unsuccessful in asserting that they, not the husband, were the true beneficial owners of the properties. The court found that the properties which the Companies sought to defend were held by them on resulting and/or constructive trust for the Husband.

Neither the husband nor the Companies have attended today although Mr Wagstaffe QC with his customary courtesy contacted the court to explain that he was without instructions and would not therefore be at court.

In the absence of any opposition to the application, Mr Dyer QC therefore seeks a summary assessment of the wife's costs on an indemnity basis. Mr Dyer divides the costs incurred into two periods:

In relation to this Period the wife's costs amount to £1,041,063 (£887,904.56 domestic legal costs + £136,421.45 overseas legal costs + £96,680 costs in relation to the Former Matrimonial Home, less £79,944 paid on account by the husband).

FPR 2010, Part 28.3 and PD 28A FPR 2010 apply as between the Husband and Wife, as these are 'financial remedy proceedings' – the definition of which includes applications under Part III of the 1984 Act. The court may make any order in relation to costs as it thinks 'just' (Part (28.1)) and the general rule in financial remedy proceedings is that the court will make 'no order' as to costs. The court may, notwithstanding the general rule, make a costs order where:

In deciding whether to make a costs order, under Part 28.3(7) the court must have regard to (inter alia):

In submitting that the conduct of the husband is such that the court should use its discretion to made an order for costs against the husband, Mr Dyer relies first of all on the court's finding in respect of the conduct of the Husband dating back to the very beginning of the litigation process, namely the filing of his Form E, in respect of which the court held:

As can be seen from the judgment, evidence was obtained and disclosed by those representing the wife exposing a BVI structure holding a number of Russian commercial properties. Altogether assets worth in excess of £100m were identified. The wife's disclosure did not result in the Husband seeking to remedy the preposterous stance adopted in his Form E, but rather, during the course of the proceedings, he dismantled the BVI structures and moved the assets to Belize in a deliberate and elaborate attempt to defeat the claims of the Wife. I agree with Mr Dyer who suggests that it is hard to imagine a worse example of blatant litigation misconduct.

The Wife relies in addition to the following examples of litigation misconduct drawn from findings in the judgment:

In relation to Period 2 the wife's costs amount to £473,535 (£470,702 being the costs from the Companies going on + £2,833, being the sum the Wife has had to spend in order to stave of forfeiture proceedings in relation to Flat 4, Effes Road a property owned by Highlands Invest and in respect of which there are substantial outstanding service charges.)

On 21 December 2012, two months late and four weeks before the final hearing, the Companies filed Points of Defence in response to the Wife's application for a declaration that the UK properties were held on resulting trusts for the Husband. The defence was unsupported by any evidence of any officer of the Companies and no representative, whether Director or employee filed a statement in support or attended the hearing. The only evidence called was from the property/private client lawyers employed by the Husband in relation to the purchase of the UK properties held in the names of the Companies.

The Companies' disclosure was no better than that of the Husband and the court noted at para 147 that in relation to a short questionnaire which the Companies were ordered to answer on 15 January 2013:

In relation to the key witness called on behalf of the Companies in support of their contention that the beneficial interests in the properties were held by the Companies as part of a conventional tax avoidance scheme the court held:

The Companies' contempt of Court continued after the judgment was given and final order made.

The 'no order' principle in FPR 2010 rule 28.3 only applies as between the two principal parties of the financial remedy proceedings. It does not apply to the costs of a person joined to the proceedings against his will: KSO v MJO and JMP (PSO intervening) [2009] 1 FLR 1036. In Baker v Rowe [2010] 1 FLR 761, (a case in which a third party had intervened) the Court of Appeal (applying the old FPR 1991), held that the CPR general rule that costs follow the event did not apply either as those proceedings were 'family proceedings' and under r.10.27(1)(b) the general rule was disapplied. It was submitted by the Wife, and I accept, that the same approach applies under FPR 2010 as rule 28.2(1) provides that the "general rule" in CPR costs (Part 44.2(2)) that costs follow the event, shall not be applied in family proceedings. In Judge v Judge [2009] 1 FLR 1287, CA, it was established that when there is no "general rule" as to costs for a judge to apply, he had before him a "clean sheet". However, as Wilson LJ observed in Baker v Rowe at para [25]:

Under CPR Part 44.2(4) (which does apply in family proceedings by virtue of FPR Part 28.2(1)), the court has a discretion as to whether costs are payable by one party to another, the amount of those costs and when they are to be paid. The court is to have regard to all the circumstances, including:

In relation to Period 2, the Wife, pursuant to Mainwaring & Another v Goldtech Investments Ltd (no 2) 1 WLR 745, seeks an order that the Husband and Companies are jointly and severally liable for the costs incurred between 12 December 2012 onwards.

The Wife's main point in support of her application for costs is that the Respondent Companies (with H, the puppet-master in the background), defended W's claim and lost. It was entirely unreasonable she submits, to raise, purse and contest a defence based on a tax avoidance scheme that was specifically found to have never existed. The Companies and/or the Husband are responsible Mr Dyer submits, for the generation of all of the costs incurred since 12 December 2012. In particular the court's attention was drawn to the finding that "..it was blindingly obvious on the evidence…" that the beneficial interest in the properties had been retained by the husband (para 248).

Looking at the factors set out in under Part 28.3 and CPR Part 44.2(4) I have no doubt in my mind but that the conduct of both the Husband and the Companies has been such that the making of an order for costs against both the Husband and the Companies is inevitable. The only outstanding issue is as to the basis of assessment. Mr Dyer submits that on the facts of the case the conduct of the Husband and Companies has been so extreme as to justify the making of indemnity costs orders against both.

CPR 44.3(3) (which applies both to 'financial remedy proceedings' and 'family proceedings') sets out that:

The indemnity basis of assessment differs from the standard basis, which requires the court to undertake a full analysis into the 'proportionality' of costs. When assessing on the indemnity basis, the court will have regard to all the circumstances in deciding whether costs were (i) unreasonably incurred; or (ii) unreasonable in amount (CPR 44.4(2)). The court will also have regard to the conduct of all the parties and the other factors set out in CPR 44.4(3).

In Excelsior Commercial and Industrial Holdings Ltd v Salisbury Ham Johnson [2002] C.P.Rep. 67, the Court of Appeal noted (at para 32) that "…there is an infinite variety of situations which can come before the courts and which justify the making of an indemnity order". At para 39, LJ Waller held that:

In Wailes v Stapleon Construction & Commercial Services Ltd [1997] 2 Lloyds' Rep.112, costs were awarded on an indemnity basis where the claimants had brought proceedings for an account of the defendant's dealings with the estate of the deceased. Nine out of the thirteen claims for damages were abandoned during the proceedings, the remainder of which were lost. At page 117, Newman J said:

The Wife submits that the following points take the case "out of the norm" in a way that justifies an order for indemnity costs in particular:

In my judgment the presentation of case in its entirety and the conduct of the Husband and the Companies in particular can unhesitatingly be categorised as 'out of the norm'. The whole case has been marked by the Husband's deliberately destructive and underhand behaviour. Time and again, as set out in the judgment, he has either taken a stance in the proceedings or issued proceedings which were obviously and inevitably going to fail and do nothing other than cause distress to the wife and increase the costs. For example:

The Husband, as I found in the judgment, was and is a shadow director of the Companies. He was without doubt masterminding the conduct of the litigation behind the scenes whilst ensuring that he was never exposed to cross-examination in the witness box or to being brought to book for his continuing contempt of court.

The Companies are separate legal entities who ran the case at considerable expense to the Wife. The initial replies of the Companies to the questionnaire were a disgrace and only compounded by the supplementary replies. I remind myself that, as parties to the proceedings, the Companies had a duty of full and frank disclosure. That part of the case that was tried (the 1^st, 2^nd and 3^rd Respondents having taken no part), turned in its entirety upon the assertion of the Companies that they were the beneficial owners of various domestic properties in the UK used by the family. Not one document was produced by the Companies of their own volition in support of that contention.

This is, in my judgment, a case, if ever there was one, where an order for indemnity costs is the correct order. Litigation conduct of the type exhibited by the Husband and, at his direction, the Companies, is of the most extreme type and thankfully not often seen.

The Husband was wilful and cynical in his attempt to hoodwink the court by his own actions behind the scenes over the many months when the case was waiting to come on for trial. Thereafter, through the medium of his Companies - and without exposing himself - he obtained the benefit of Leading Counsel to fight the case - but to fight it only in respect of those assets where there is a relatively easy route to enforcement, namely the domestic properties within the jurisdiction of England and Wales. The Husband has wasted no money on legal representation at the trial with a view to protecting his assets held abroad, having, as he believes, put them beyond the Wife's reach through the new Belize structure. Such manipulative and contemptuous conduct must be visited by an order for costs on an indemnity basis.

Neither the husband nor the Companies have chosen to attend the hearing. The Wife asks for summary assessment of her costs in the sums set out above. I note that the schedules of fees are not set out in a so-called 'Woolf schedule' whereby the costs are broken down on a letter by letter basis or telephone by telephone call basis. I am told by Mr Dyer QC that to conduct such an exercise would take a fortnight of chargeable time for the solicitors and would in my judgment be a disproportionate expense, as would the costs involved in a detailed assessment of the costs. Mr Dyer submits that such additional costs may not be recoverable – I fear he may be right.

In therefore make an order that: