The requirement to negotiate reasonably …and the penalty for not doing so

The requirement to negotiate reasonably… and the penalty for not doing so

It is actually quite rare for financial remedy proceedings (i.e. proceedings relating to the financial settlement on divorce) to go all the way to a final contested hearing, at which the court has to adjudicate upon the matter.

The reason for this is simple: The vast majority of financial remedy cases are settled before they get to a final hearing – most of them before court proceedings are even issued. And the primary reason for that, of course, is the cost of contested proceedings.

The need for disclosure

Financial remedy proceedings essentially involve a two-stage process: disclosure and settlement (whether by agreement or court decision).

No settlement can happen until the parties have made full disclosure – of their means, and any other circumstances relevant to the financial settlement. After all, how can a settlement be decided, if there has not been full disclosure?

But once disclosure has taken place the court will expect the parties to enter into reasonable negotiations to settle the matter by agreement, in order to save the time and expense of contested proceedings. Note the word ‘reasonable’ – unreasonable negotiations will not satisfy the court, as we will see in a moment.

All of this is not to say that the court expects the parties to settle in all cases, just that they should make a reasonable effort to do so.

And if a party does not make a reasonable effort to settle, there could be costs consequences for them.

The general rule on costs

The general rule in financial remedy proceedings is that the court will not make an order requiring one party to pay the costs of another party. Thus in most cases each party will pay their own legal costs.

However, the court may 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).

The court will take a broad view of conduct for the purposes of this rule, and will generally conclude that to refuse openly to negotiate reasonably and responsibly will amount to conduct in respect of which the court will consider making an order for costs.

In short, once disclosure has taken place in a financial remedies case you should endeavour to negotiate reasonably, and if you should not do so you run the risk of being ordered to pay the other party’s costs (i.e. the costs that they incurred because of your failure to negotiate).

An unreasonable approach

All of this was well demonstrated by a recent Family Court case.

In the case the husband failed to make full disclosure, by concealing a number of relevant matters. The wife sought to take advantage of this, by proposing that the husband’s conduct should be ‘punished’, by him receiving only a third of the assets, and paying most of her costs.

Hearing the case, Mr Justice Mostyn considered the wife’s stance to be unreasonable. He pointed out that the rules require “the parties to negotiate openly in a reasonable way.” He went on: “To take advantage of the husband’s delinquency to justify such an unequal division is not a reasonable way of conducting litigation. And so, the wife will herself suffer a penalty in costs for adopting such an unreasonable approach.”

He then said this:

“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.”

This is critical: no matter what the case is about, or how much money is involved, once disclosure has taken place you must negotiate reasonably, and if you do not do so, then you are likely to be penalised, by being ordered to pay the other party’s costs.