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Xanthopoulos v Rakshina [2022] EWFC 30

Family Court, 12 April 2022, Mostyn J

The husband in person; Simon Calhaem, instructing by Family Law in Partnership, for the wife.

The husband and wife had two children. The husband was Greek but was born, and had spent much of his life, in Russia. He described himself as a homemaker. The wife was Russian. She held a senior position at an extremely large Russian retail grocery business, with some 1,300 outlets. The couple began cohabiting (according to the husband) in 1999. They were married in Moscow on 25 March 2006 and separated in September 2020. The husband’s English divorce petition was issued on 21 September 2020. The wife instituted parallel divorce proceedings in Russia. Despite there being a Hemain injunction in force against the wife, on 11 March 2021 a court in Russia pronounced a divorce on the wife’s application.

In June 2021 it was agreed that, on condition the husband would not challenge the Russian divorce, the financial proceedings would proceed under Pt III of the Matrimonial and Family Proceedings Act 1984. The wife gave an undertaking that, pending determination of the husband’s financial claims, she would preserve and not deal with, charge or in any way diminish an account with Coutts and all sums that it contained. The husband and wife also litigated in both England and Russia about the children. The English litigation concluded at the end of 2021 with a declaration that when the wife issued child arrangement proceedings in Russia, the children were habitually resident in Russia and with recognition of a Russian child arrangements decision made on 18 March 2021 providing that the children should live with the wife and permitting her to take them to Russia.

The parties had exchanged Forms E. The wife remained living in a property held in her sole name located in a prestigious area of London, estimated to be worth £5.25 million. The wife also owned an adjacent property which is also said to have a value of £5.25 million; she claimed that her brother was the true beneficial owner. Both properties were subject to an injunction preventing the wife from dealing with it. The husband was living in rented accommodation, funded by the wife pursuant to an interim order at a cost of £10,000 pm, in a similarly affluent area of London. Real property located in Russia had been valued at approximately £1 million. The Coutts account held approximately £11 million. Various other accounts held comparatively modest sums. Both parties had various liabilities, the most relevant of which related to legal costs. The wife had an interest in the grocery business, the nature of which was in dispute. The husband suggested that the wife’s corporate interests were conservatively worth more than £300 million.

In January 2021, a legal services payment order was made in the husband’s favour of £750,000, payable at the rate of £150,000 pm. This was designed to take the husband to the conclusion of the jurisdictional hearing in the children proceedings and to the divorce and a proposed mediation. In October 2021, an order was made releasing the wife from her undertakings to the extent of enabling her to pay £590,355 from the Coutts account to the husband’s solicitors and also £496,267 to her own solicitors. Those funds were supposed to take the parties to the conclusion of the children hearing in November 2021 and to the First Appointment in the Pt III proceedings, then listed on 25 November 2021 but later fixed for 28 April 2022.

On 15 March 2022, an order was made releasing a further £110,000 from the Coutts account, being £90,000 to satisfy arrears of interim maintenance (including for the husband’s rent) and £20,000 to the wife for her own living expenses. The husband was seeking a further legal services payment order and also orders that the wife pay his costs to date and on an ongoing basis. It was said that a considerable amount of work had needed to be undertaken that had not been envisaged at the time of the October 2021 order. In a letter to the wife’s solicitors dated 21 March 2022, the husband’s solicitors clarified that they sought the release of funds from the Coutts account totalling some £1 million for the husband and accepted that the wife needed a further £500,000.

On 25 March 2022, the wife applied in Form D11 for a partial release from her June 2021 undertaking, so as to enable the release of sums from the Coutts account to pay for both parties’ legal fees in an amount to be determined at the hearing and also for release from her undertaking in respect of the Coutts account at least for the purpose of meeting her reasonable legal costs on the basis that that each time the wife made a payment for legal costs to her solicitors, an equivalent sum be paid (plus VAT) to the husband’s solicitors.

The husband’s (now former) solicitors applied in Form D11 dated 28 March 2022 for an order pursuant to FPR rule 26.3 that they be removed from the court record. That application was granted on 29 March 2022.

In the 18 months since the husband filed his divorce petition on 21 September 2020, the parties had incurred costs of £5,401,503. Estimates for future costs suggested a range between £330,000 (if the husband was refused permission to appeal the decision in the children proceedings) and about £1,135,000 (if permission to appeal was granted, the appeal allowed and the children case reheard).

The husband agreed that any legal services payment order would need to be paid from the Coutts account, but resisted any other relaxation of the undertaking.

Although para 15 of the High Court Statement of Efficient Conduct of Financial Remedy Proceedings provided that skeleton arguments for interim hearings must not exceed 10 pages, the husband’s skeleton argument ran to 24 pages and the wife’s skeleton argument ran to 14 pages. Skeleton arguments were due by 11:00 on the working day before the hearing, but the husband’s skeleton argument was filed only on the morning of the hearing, while the wife’s skeleton argument was filed at around 17:30 the day before the hearing. An order made in March 2022 provided that the husband’s statement was to be filed and served by 12:00 on 21 March 2022. However, the husband’s statement was dated 22 March 2022 and the wife claimed that it had only been served on her on 24 March 2022. The same order also provided that the parties’ statements for the hearing would be limited to 6 pages each, with any exhibit accompanying the same limited to 10 pages (a total of 16 pages). The husband’s statement ran to 11 pages and its exhibit ran to 15 pages (a total of 26 pages). The wife’s statement also ran to 11 pages and its exhibit ran to 28 pages (a total of 39 pages). FPR PD 27A para 5.1 provided that unless the court had specifically directed otherwise, there should be one bundle limited to 350 pages of text, but the judge was provided with four bundles respectively containing 579 pages, 279 pages, 666 pages, and 354 pages (a total of 1,878 pages).

During the hearing, the wife applied for an order that the parties be granted anonymity.

The High Court judge provided guidance about procedure, refused to make a further legal services payment order and released the wife from her undertaking on terms.

The utter disregard shown for the relevant guidance, procedure, and indeed orders was totally unacceptable. The court struggled to understand the mentality of litigants and their advisers, who still seemed to think that guidance, procedure, and orders could be blithely ignored, despite what had been said in cases like In Re W (A Child) (Adoption Order: Leave to Oppose) [2013] EWCA Civ 1177, and more recently in WC v HC (Financial Remedies Agreements) [2022] EWFC 22. It should be understood that the deliberate flouting of orders, guidance and procedure was a form of forensic cheating, and should be treated as such. Advisers should clearly understand that such non-compliance might well be regarded by the court as professional misconduct leading to a report to their regulatory body.

The cost of an FDR and a full trial of the Pt III claim would probably not be less than £750,000 per side, given the extraordinary rate at which the parties had incurred costs hitherto. So the total future costs were likely to be somewhere between £1.8m and £2.6m. Thus, the total cost of the litigation between these parties would be somewhere between £7.2 million and £8 million, of which £5.4 million had already been incurred. Figures like this were hard to accept even in a conflict between the uber-rich, but in this case the wife’s Form E disclosed two properties in London each worth about £5 million and a sum of about £11 million in the Coutts account, with predictable disputes as to the true beneficial ownership of one of the properties and of the sum in the Coutts account. Even if it were true that the wife was the 75th richest woman in Russia (and the suggestion was hotly contested), to run up in domestic litigation costs of between £7 million and £8 million was beyond nihilistic. The only word the court could think of to describe it was apocalyptic.

It was difficult to know what to say or do when confronted with such extraordinary, self-harming conduct. The rules had been changed so that orders had to record the costs incurred and to be incurred (FPR 9.27(7)). Para 4.4 of FPR PD 28A had been introduced to try to force parties to negotiate openly and reasonably in order to save costs. Yet costs continued to go up and up. In this court’s opinion, the Lord Chancellor should consider whether statutory measures could be introduced to limit the scale and rate of costs run up in these cases. Alternatively, the matter should be considered further by the Family Procedure Rule Committee. Either way, steps must be taken.

As a general proposition:

1. i) A legal services payment order should only be made in respect of outstanding costs to current solicitors where, without payment, those current solicitors would likely cease acting for the party in question (i.e. to ensure that that party can continue to access representation).
2. ii) The position was entirely different in relation to former solicitors as they had already ceased acting for the party in question (i.e. so payment of their outstanding costs had no relevance to the question of whether a party could continue to access representation).

As the husband’s solicitors had come off the record the day before this hearing, they therefore now fell into the second category and the court declined to make any award in respect of their outstanding costs. They now stood as a creditor of the husband and might seek recovery of their costs in the usual way.

Even if the husband’s solicitors had remained on the record, the court doubted that it would have made any substantive award in respect of their outstanding costs. The court might have adopted a similar approach to that taken in Re Z (No 2) (Schedule 1: Further Legal Costs Funding Order; Further Interim Financial Provision) [2021] EWFC 72, by awarding a proportion of the outstanding costs reduced by a notional standard assessment percentage. The court might equally, however, have declined to make any award at all on the basis that the husband, having been provided with a substantial sum to take him to the conclusion of the two hearings identified, should have budgeted with greater care.

Costs of £79,585 for an appeal hearing against the children judgment were entirely speculative as permission to appeal had not even yet been granted. Noting the President’s judgment in Re A I M [2021] EWHC 303 (Fam), the court  was prepared to accept that the jurisdiction to make such an award existed, but it should be exercised extremely cautiously, particularly in circumstances where permission to appeal had not been granted. The court would very likely have refused to make any order to cover these costs but might have been persuaded to adjourn the application with liberty to restore in the event the husband secured permission to appeal.

An application for costs of £285,095 for a five-day hearing in the event that an application for permission to appeal, and the substantive appeal against, the children judgment were successful was obviously premature. Although 5 days had been notionally set aside in July 2022 to determine any issues in relation to the children in the event of a successful appeal, it could not possibly be known at this stage what the precise issues at that hearing would be and therefore what the associated costs would be. The court would therefore have refused to make any order to cover these costs at this stage.

Costs of £233,295 as the costs between this hearing and the First Appointment in April 2022 were, on any objective view, exorbitant. It was hard to see how costs of this magnitude could properly be incurred in undertaking the relatively limited amount of work involved in preparing for a First Appointment. More fundamentally, it could not be right, when a legal services payment order had been made on the basis that it was to fund costs for a certain period, for there to be an enormous overspend, with the consequence that an applicant returned for a further order seeking more costs for the same period. The court would therefore have been extremely reluctant to award much, if indeed anything, in relation to this.

£75,533 sought to enable the husband to fund his defence to a claim mounted by an earlier set of solicitors in respect of unpaid bills could not possibly fall within the lawful scope of a legal services payment order. In truth it was an application for an interim lump sum, a form of relief that was beyond the court’s powers. The court would therefore have declined to make any award in respect of these costs.

The court was satisfied that there had been a significant change of circumstances since the wife’s June undertaking was given. The war in Ukraine was likely to have had a material effect. Also, in practice the undertaking had been so restrictive that further litigation between the parties about it would be highly likely, which was plainly undesirable. It was unfortunate that exceptions to the blanket restriction on the wife’s use of the account had not been agreed and incorporated in June 2021. The wife should be able to discharge her legal costs without having to seek the husband’s agreement or, in default of the same, an order authorising payment of sums to her for that purpose. Giving the wife this freedom was hardly consistent with this court’s strong criticism of the amount of costs run up by the parties, but the authorities gave the wife the freedom to spend her own money on her “proper costs“. Whether some measures could be introduced whereby the court could restrain a party from spending their own money on costs was a matter for the Lord Chancellor and the Rule Committee. The wife was to be released from her June undertaking on terms that an injunctive order was made restraining her from dealing with the Coutts account save as to payment of her legal fees and the husband’s interim maintenance. What, if any, further modification should be made to the restraint placed upon the wife’s ability to deal with the Coutts account could be considered further at the First Appointment.

The current anonymity rubric which was systematically attached, as a default condition, to all financial remedy judgments, was likely to be completely ineffective, save in relation to judgments about child maintenance. In the court’s opinion the standard rubric should be changed to provide: “This judgment was delivered in private. The judge hereby gives permission – if permission is needed – for it to be published.”

Having analysed the history of hearings in chambers, and the terms of the Administration of Justice Act 1960, the court had concluded that anonymisation of a financial remedy case (not mainly about child maintenance) heard in private could only lawfully and effectively be achieved via a case-specific anonymity order where in the individual case the “ultimate balancing test” set out in Re S (A Child) [2004] UKHL 47 had been undertaken, leading to a conclusion that anonymity was necessary to secure the proper administration of justice and to protect the interests of a party or witness. The overwhelming majority of financial remedy judgments were nonetheless issued anonymously, endorsed with the rubric, without the ultimate balancing test having been carried out. Clibbery v Allan [2002] EWCA Civ 45 had carved out an exception to the general rule concerning the reportability of proceedings heard in private, but In the court’s view, the 2009 rule change which allowed journalists and bloggers into the proceedings had had the effect of completely overturning that reasoning. In the court’s view, financial information referred to in such proceedings was not secret and could be fully reported unless the court made a specific order preventing publication.

The court would not issue a declaration as to the effectiveness of the standard anonymisation rubric in money judgments not covered by s 12(1) of the 1960 Act. If the court’s conclusion that the rubric was completely ineffective was wrong, then on the specific facts of this case, the court would disapply it and release this judgment into the public domain as, in the court’s judgment, the public interest demanded the exorbitance of the litigation between these parties to be reported fully. This judgment would not be anonymised, save in relation to the children. The court had made a specific reporting restriction order that the children should not be named, and that their schools and home address should not be identified. The Re S balancing exercise led easily to the conclusion that the children’s rights under Article 8 of the European Convention on Human Rights must prevail where there could be no good reason for the press to identify the children directly. However, the risk of indirect identification of children was always a consequence of any decision which was not anonymised and if that were a good reason for anonymisation it would apply in almost every case, including most civil cases. There was no evidence at all to suggest that the Russian grocery business would be remotely affected if people knew that the wife was involved in this litigation.

Irrespective of the terms of the standard rubric, s 12(1) of the 1960 Act, following long established principles, permitted a financial remedy judgment (which was not mainly about child maintenance) to be fully reported without anonymity unless the court had made a reporting restriction order following the balancing exercise set out in Re S (A Child) [2004] UKHL 47. The power of the Family Procedure Rule Committee to make rules under s 12(1) of the 1960 Act was strictly confined to making something presently punishable as contempt not so punishable. It could not make rules the other way round to make punishable as contempt something that was not presently so punishable. Therefore, any change to make financial remedy judgments systematically anonymous had to be done by primary legislation. The court hoped that the Financial Remedies Court Transparency Group would consider the legal issues raised in this judgment carefully.