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Tsvetkov v Khayrova [2023] EWFC 130: Assessing Conduct

The case of Tsvetkov v Khayrova [2023] EWFC 130 came into the spotlight after it was revealed that the wife of the Russian oligarch Dmitry Tsetkov had concealed her vast handbag collection, close to £1 million in value, in the high-stakes divorce dispute.

In delivering the leading judgement, Mr Justice Peel gave guidance on how the court should regard section 25(2)(g) of the Matrimonial Causes Act 1973, which outlines that the courts must take the parties conduct into consideration, if the conduct is such that it would be inequitable to disregard it.

Case Background:

The parties were married from 2009-2020 and shared two minor children. Most of the wealth was generated through the husbands (H) various enterprises, including art dealing, trading luxury goods, and involvement in a Russian coalmine operation between 2016 and 2020.

Mr Justice Peel valued the total assets at £48m, including cash, investments, property, business interest and chattels in the UK, Dubai and Cyprus. Despite the majority of the wealth being generated by H, from 2011 onwards, all assets were kept in the wifes (W) name to protect against Hs various debtors.

W was seeking a 50/50 (£24m/£24m) split and H was seeking a 60/40 (£29m/£19m) split in his favour.

During proceedings it was found that W had lied to H and the court repeatedly, had prevented Hs access to family accounts and shut him out of family assets, leading him to rely on his friend Mr D to support his lifestyle and accruing a debt of £1.1m.

The Four Categories:

Mr Justice Peel accepted these counts of misconduct and identified four categories that conduct must meet to be considered relevant, as outlined by Mostyn J in OG v AG [2020] EWFC 52, namely:

1. Gross and obvious misconduct from both parties. Such conduct is only to be considered in rare circumstances and when it has had financial consequences.

2. Add-back cases in which one party has wantonly and recklessly dissipated assets which would otherwise have formed part of the matrimonial property. (e.g. when W removed jewellery from the family lockbox, alleging to the court that H was the one in possession of and hiding the luxury goods, but was later seen wearing certain items of said jewellery in Instagram posts. This jewellery was estimated at a value £400k and added back to the matrimonial asset pool.)

3. Litigation misconduct (usually penalised in costs rather than affecting substantive disposition) e.g. Ws various litigation misconduct was penalised through costs.

4. The exercise of drawing inferences as to the existence of assets from a partys conduct in failing to provide full and frank disclosure (e.g. when W initially counted her bag collection at 20 total, but it was found to contain 150 bags estimated at a total value of £797,500.)

Stage One:

Mr Justice Peel then stated that conduct pleas must be evaluated in a two-stage process. The first stage is enacted by the party asserting conduct. They must prove:

1. The facts their claims rely upon.

2. That the established facts meet the high threshold for conduct.

3. That the conduct has led to an identifiable financial loss, and a causative link between the conduct and loss can be found.

Stage Two:

If stage one is successfully completed the courts will enact stage two. This involves the courts considering how the conduct and its financial consequences should impact the financial remedies proceedings.

Conduct allegations must be clearly stated in box 4.4 of the partys form E and in the event new conduct allegations arise post the Form E, they must be pleaded at the earliest opportunity so that they can be appropriately case managed. As seen in this case where H attempted to further his case on grounds of conduct that had not been previously established, allegations pleaded in the final hearing will be disregarded and admonished.

To Close, Mr Justice Peel elected to award the parties a 50/50 (£24m/£24m) split. Mr J Peel did not agree with H that the gravity of Ws misconduct justified a departure from equality in the splitting of the matrimonial assets; asserting that Ws conduct during proceedings should be punished in the form of costs, as is the norm.

The case of Tsvetkov v Khayrova is an extreme example of how conduct can impact financial remedy proceedings, but it highlights the high standard set by the court for successfully arguing conduct. Conduct is not relevant in every case, and parties should be cautious about raising such arguments if they cannot meet this stringent threshold.