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Will the new rules on open proposals actually work?

Family Procedure (Amendment) Rules 2020 (SI 2020/135)

This post covers two points (1) the new rules on open proposals and costs estimates, which took effect on 6 July 2020, and (2) are these likely to actually work?

THE NEW RULES

The amendments were announced on 10 February 2020 which, it is astonishing to realise, was only five months ago. The commencement date for most of the changes was 6 April 2020, save for four adjustments of the Part 9 financial remedy rules, which come into effect on 6 July; two are covered in this note.

The first major change is the introduction of FPR Pt. 9.27A:

Open Proposals 21 days after FDR (9.27A)

As of 6 July 2020, and following a FDR which doesn’t lead to settlement (or an adjourned FDR), the parties must (unless the court directs otherwise) exchange open proposals within 21 days of the FDR. Accordingly, if an FDR takes place on 27 July 2020 and the court gives directions to a final hearing (but does not deal specifically with open proposals), pursuant to r.9.27A, the parties must exchange open proposals by 17 August 2020.

This will be well in advance of the final hearing and before Section 25 statements have been exchanged.

If this is going to present difficulties in a given case, the parties should seek a direction from the FDR judge, pursuant to r.9.27A(1)(a), providing for different dates.

Alternatively, where there has been no FDR, an open proposal pursuant to r.9.27A(2) should be sent no less than 42 days before the final hearing (unless the court directs otherwise).

In addition to this new rule requiring open proposals shortly after the FDR (9.27A), the parties will also have to comply with FPR 9.28 which requires open proposals 7 or 14 days before the final hearing: Hence, parties who cannot settle face the curious requirement to serve two open proposals between FDR and final hearing.

Costs estimates (9.28)

According to Moore’s Law, computing power (expressed as the number of transistors in each microchip) doubles every two years. While the Family Procedure Rules are not expanding at quite that rate (yet), year on year they steadily increase in size and scope.

The latest change replaces the old FPR 9.27 (130 words) with a new, much more detailed, rule which is over four times as long (over 500 words). Previously the rule directed the parties to file a Form H before every (financial remedy) hearing and a Form H1 14 days before the final hearing.

The new provisions are set out below. The key differences are

(1) at First Appointment an estimate of costs up to FDR should be filed;

(2) at FDR an estimate of costs to final hearing should be filed;

(3) confirmation of service must be lodged,

(4) copies of the schedules ust be brought to court,

(5) the amount of the parties’ costs must be recited to the First Appointment and FDR order on of service must be lodged;

(6) failure to lodge a costs estimate must be recorded on the face of the order and redressed within three days:

“9.27.—(1) Except where paragraph (4) applies, not less than one day before every hearing or appointment, each party must file with the court and serve on each other party an estimate of the costs incurred by that party up to the date of that hearing or appointment.

(2) Not less than one day before the first appointment, each party must file with the court and serve on each other party an estimate of the costs that party expects to incur up to the FDR appointment if a settlement is not reached.

(3) Not less than one day before the FDR appointment, each party must file with the court and serve on each other party an estimate of the costs that party expects to incur up to the final hearing if a settlement is not reached.

(4) Not less than 14 days before the date fixed for the final hearing of an application for a financial remedy, each party (“the filing party”) must (unless the court directs otherwise) file with the court and serve on each other party a statement giving full particulars of all costs in respect of the proceedings which the filing party has incurred or expects to incur, to enable the court to take account of the parties’ liabilities for costs when deciding what order (if any) to make for a financial remedy.

(5) A costs estimate filed and served in accordance with paragraph (1), (2) or (3) and particulars of costs filed and served in accordance with paragraph (4) must include confirmation—

(a)that they have been served on each other party; and

(b)in the case of a party who is legally represented, that they have been discussed with the party on whose behalf they are provided.

(6) Each party must bring to a hearing or appointment a copy of any estimate of costs filed and served in accordance with paragraph (1), (2) or (3) and any particulars of costs filed and served in accordance with paragraph (4).

(7) The amount of—

(a)a costs estimate filed and served in accordance with paragraph (1), (2) or (3); and

(b)particulars of costs filed and served in accordance with paragraph (4),

must be recorded in a recital to the order made at the hearing or appointment before which the estimate or particulars were filed or served.

(8) If a party fails to comply with paragraph (1), (2), (3) or (4)—

(a)this fact must be recorded in a recital to the order made at the hearing or appointment before which the costs estimate or particulars of costs should have been filed and served; and

(b)the court must direct that the relevant costs estimate or particulars of costs must be filed with the court and served on each other party within three days of the hearing or appointment or within such other time period as the court directs.

(Rule 28.3 makes provision for orders for costs in financial remedy proceedings.)

(Practice Direction 9A makes provision for statements of truth to be included in estimates of costs and particulars of costs filed and served in accordance with this rule.)”.

WILL THEY ACTUALLY WORK?

The thinking behind requiring an earlier open proposal is that if parties can make privileged offers at FDR they should be able to make open ones shortly thereafter; and that this will encourage compromise and earlier settlement. The potential sanction for breaching this rule (e.g. failing to make an open proposal post-FDR or making a wholly unreasonable one) is set out at FPR PD28A § 4.4, which defines litigation misconduct which might resound in a costs order under FPR 28.3(6) to include that:

“…[t]he 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.”

As to how this will work in practice, how the requirement for parties to make two open proposals, will bed in, there are grounds to be sceptical.

(1) The existing rule for open proposals (FPR 9.28) makes perfect sense. It obliges the parties to set out what orders they seek 7/14 days before the final hearing, at which stage all the evidence is generally available. Accordingly the proposal will only be open for acceptance for a relatively short time, and it is invaluable to the tribunal to know what each party is seeking in advance of the hearing

(2) The rationale behind having a first open proposal post-FDR, and then a second before a final hearing becomes a bit fuzzy when one considers some practical questions:

  • For how long should the first open proposal remain available for acceptance without costs consequences? accepted? If it takes six months from FDR to final hearing (which may become standard post-Covid), can it be accepted two weeks before the final hearing, when the second open proposal is made, which (presumably) has the effect of replacing the first? Or should a first open proposal include a term that once a period for acceptance has passed (eg 21 days) that costs from that date onward would be payable? (cf. CPR Part 36.5)
  • Is it acceptable to make the same open proposal twice? Presumably so if the objective here is to encourage earlier open proposals?
  • What happens if a party increases his open proposal (from first to second open proposal), to seek a greater share of assets at the final hearing, e.g. to defray his additional legal costs? Is that prima facie unreasonable? Conversely, where a party party reduces his open proposal (to be more generous to the other party), is that a sign of reasonableness and compromise or a tacit admission that the first offer was too low?
  • Does litigation misconduct under PD28A § 4.4 mean beating your own open proposal (rare) or soundly beating the other’s proposal (more common)?
  • If it’s the latter, to what extent will a court follow the convention that open offers present a court with the two goalposts, rather than spotting where the ball is expected to land? Is it no longer ‘reasonable’ to pitch your open case toward the top or bottom of the bracket?

(3) The answer to the above will presumably be the usual family law fudge (i.e. it depends on the facts of the case). But where an application for costs is pursued based on a first open proposal, on what basis should the judge consider its reasonableness? Logically it could only be tested against:

  • The assets and liabilities that existed when the offer was made (and not as they turned out to be at trial)
  • The state of the case in terms of disclosure, deficiencies etc.

Does it therefore follow that where a costs argument is likely to be raised based on a post-FDR open proposal, that the parties now have to prepare a second schedules of assets, showing the values at that stage (in addition to the assets at the date of the hearing)?. How, otherwise, is a court meant to gauge the reasonableness of the first open proposal?

(4) What happens where a party follows a FDR (or private FDR) indication to the letter in his first open proposal, and the final hearing judge takes a different view? It seems grossly unfair not to be able to even raise that argument due to the confidentiality of the FDR. Would not at that stage (ie after the court has determined the case) the justification fall away for keeping that indication private, as a shield against a costs argument? Surely it could not be said that following a judge’s indication is ‘unreasonable’ even if the indication got the outcome of the case wrong?

(5) There’s nothing currently preventing a party making an early open proposal now. Indeed, this is smart thinking in many cases. However, the new rules make it obligatory. And why should a party be required to openly make an offer before all of the evidence is in, before updating valuations and addendum expert reports are in. Why must a party take a punt on future developments which may be material, in terms of updating disclosure or reviews into the value of a company? Parties in civil claims aren’t required to make open proposals between the close of pleadings and witness statements. And under the new rule, in many cases parties will be expected to make open proposals before exchange of Section 25 statements, updating information and any updating expert reports;

(6) The effect of the new rule is that parties are required to engage in something like game theory: do I play safe and go high in my first open proposal, even though this may store up trouble for the future (if I’m way off beam at a final hearing, and the other side may opportunistically apply for costs). Or do I pitch low even though this may be under-playing my hand in terms of the litigation and I may settle on the cheap, before further investigations are made.

I’ll make a prediction. This new rules will have the unintended effect of giving parties ammunition to run dubious costs arguments at the end of final hearings.

The problem is uncertainty. The civil costs rules because they are clear and predictable (‘losing party pays the winning party’s costs’). The Calderbank rule, while more complicated, is based on an objective test: have you beaten your own offer?.

The ultimate test in the new rules is ‘reasonableness’, which is sufficiently subjective and broad to arise in many cases. (Or at least it could be arguable at the end of a case, which amounts to the same thing). And this might involve involve a judge who has just handed down judgment on the merits having to wrestle with questions such as: the reasonableness of the offer at the time it was offered? does there need to be a causal link between the unreasonable open offer and the case proceeding to final hearing? will the court have to engage in speculation as to what might have happened if a reasonable offer had been made? If the case was likely to proceed to final hearing in any event, what is the loss and how should a costs order be quantified? Should the court pluck a figure out of the air as a penalty?

The intention behind the new rules is laudable. But the unintended consequence may be quite different: an increased number of costs applications based not on an objective fact (I have beaten my offer) but complicated and subjective submissions as to the reasonableness of historic open proposals.

One suspects the court will be generally inclined to make no order as to costs.

Alexander Chandler

8 July 2020

2 replies on “Will the new rules on open proposals actually work?”

Hi Natalie, that’s a great question. Private FDRs aren’t specifically covered in the new rule. I would say that in many courts (eg the CFC) you’ll be back at court for directions shortly after the private FDR (if that doesn’t settle the case) and the issue of post-FDR open proposals could be left until then. But if you’re not going back to court (eg agreed directions to trial) then I would send an open proposal within 21 days of the private FDR.

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