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Costs Rules in Financial Remedies

Which costs rules apply when?

This article seeks to answer what should be a simple but important question: Which costs rules apply at any given financial remedy hearing?

Non-family lawyers may be surprised how often this issue arises in practice, and that the answer isn’t always straightforward.

Does the court start with the presumption of each party paying their own costs, or does it exercise a wider discretion? Having determined the application, can the court see any ‘without prejudice as to costs’ (i.e. Calderbank) letters, or are these inadmissible?

The two costs regimes

By way of overview, there are two main costs regimes that apply in financial remedy litigation:

(1) the ‘General Rule‘, i.e. presumption of no order as to costs. This is set out at FPR 28.3, and covers ‘financial remedy proceedings’ as defined at FPR 28.4(b). Under the general rule, each party pays their own costs, save where, applying the checklist of factors at FPR 28.3(7), a party’s conduct warrants that he should pay the other side’s costs. Only open offers are admissible on costs, save at the FDR: FPR 28.3(8);

(2) the ‘Clean Sheet‘, i.e. application of a broader discretion, which arises in situations not covered by either (a) the ‘General Rule’ at FPR 28.3 (i.e. presumption of no order) or (b) the ‘General Rule’ in civil litigation at CPR 44.2(2) (i.e. unsuccessful party pays the successful party’s costs). In these cases, which fall between two stools, the court exercises what might be better described as a ‘soft costs-following the event’ approach (i.e. one party’s success is the first thing written down on the ‘clean sheet’). Calderbank offers are admissible.

So, which costs regime applies when ?

(1) First Appointment: General Rule

– The normal order at a First Appointment will be costs in the application.
– Where a party’s default (eg late service of Form E) has caused the First Appointment to be ineffective/ adjourned, costs may be ordered. In addition to the factors at FPR 28.3(7), bear in mind FPR 9.15(6) which requires the court to have “…particular regard to the extent to which each party has complied with the requirement to send documents with the financial statement and the explanation given…”

(2) Discrete hearing to consider Part 25 application: General Rule (probably)

Where an application to instruct an expert is heard as part of a First Appointment, the General Rule would apply;
– Query which costs rules would apply if the court was only dealing with a discrete Part 25 application?
– No authority directly on point, but (I suggest) probably still general rule.

(3) Maintenance Pending Suit: CLEAN SHEET

FPR 28.3(4)(b)(i) expressly disapplies MPS/ LSPO applications from the ‘general rule’, whereby the ‘clean sheet’ applies;
– Accordingly, Calderbank offers are admissible (hence, invariably do send a Calderbank offer, especially when on the defending side).
– In most LSPO applications, the costs of the application are normally included in the sum sought for legal services, whereby a separate costs order might amount to double-counting.

(4) Interim relief, e.g. freezing order, interim injunctions, declarations etc.: CLEAN SHEET

FPR 28.3(4)(b)(i) disapplies “any other form of interim order for the purposes of rule 9.7(1)(a), (b), (c) and (e)” from the ‘general rule’ FPR 9.7(1)(a), (b) and (c) cover different forms of interim maintenance application.
– FPR 9.7(1)(e) refers to ‘any other form of interim order’, i.e. as set out at FPR 20, notably at 20.2(f) a freezing injunction. The normal order at a without notice freezing application hearing is costs reserved (see template attached to UL v BK [2013] EWHC 1735 (Fam)

(5) Section 37 applications: CLEAN SHEET

– Logically, the same rules apply to a Section 37 application (ie an application to restrain or set aside a reviewable transaction) as would apply to a freezing order; hence, clean sheet. See Solomon v Solomon [2013] EWCA Civ 1095, per Ryder LJ at [19]-[25]

(6) FDR appointments: General Rule

– An ineffective FDR might conclude with a costs order, e.g. where there has been a failure to disclose or directions have not been complied with, e.g. applying FPR 28.3(7)(a);
– The editors of Family Court Practice suggest that it is possible that a costs order could be made after an effective FDR (no authority given) – presumably where one party fails to use his best endeavours to reach agreement (9.17(6)). In practice, this possibility can be discounted in all but the most exceptional cases. Any application for costs would also involve a range of difficult questions: How should a court assess ‘best endeavours’ to settle as relevant conduct? Would this arise where one party plays hard ball, refusing to budge from an initial proposal, or negotiating downwards? Or might it cover a failure to respond to an indication?

(7) Final hearing: General Rule

– With the recent revision to PD 28A § 4.4 in relation to open offers, bear in mind the need to send open offers after FDR in addition to the open offers before the final hearing. The importance of these provisions have been underlined by Mostyn J in OG v AG [2020] EWFC 52:

[30] The revised para 4.4 of FPR PD28A is extremely important. It requires the parties to negotiate openly in a reasonable way. 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.

[31] 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.

(8) Variation Applications: General Rule**

General rules applies: FPR 28.3(4)(b) includes ‘financial orders’ which is defined to include a ‘variation order’: FPR 2.3

**However, PD 28A § 4.4 directs that a consideration of the overriding objective “…may be of particular significance” in a variation case. (Although, query what precisely that is supposed to mean in practice)

(9) Set Aside applications: CLEAN SHEET

FPR 28.3(9) expressly disapplies the general rule in set aside applications (i.e. under FPR 9.9A) Also see Judge v Judge [2008] EWCA Civ 1458, per Wilson LJ:

[51] .. her application for an order setting those orders aside was not itself an application for ancillary relief, as defined in r 1.2(1) of the Rules of 1991. So, although the proceedings before the judge were in connection with ancillary relief, they were not for ancillary relief… [53] there was no ‘general rule’ in either direction for the judge to apply to his decision. He had before him a clean sheet; but by reference to the facts of the case, and in particular, the wife’s responsibility for the generation of the costs of a failed application, he remained perfectly entitled to record upon it, as he did, that he would start from the position that the husband was entitled to his costs.  

(10) Intervenor claims: CLEAN SHEET

– Bearing in mind the nature of an intervenor claim (typically to assert an interest in property owned by a spouse) it might be argued that the family court’s approach should not differ materially from the county court’s (which might also have jurisdiction to entertain the issue by way of a TLATA claim), ie the starting point of costs following the event)
Baker v Rowe [2009] EWCA Civ 1162, per Ward LJ at [35]: “…The orders might well have been made in ancillary relief proceedings but they were not orders for nor even in connection with ancillary relief. The rule must be construed purposively as my Lord explained in Judge v Judge … and in his judgment above. Proceedings between interveners do not come within the ambit of the rule. The judge making the costs order has, therefore, a wide discretion”.

Hence, in A v A (No. 2) (Ancillary Relief: Costs) [2007] EWHC 1810 (Fam) W was responsible for a proportion of the trustee’s costs where she had failed to establish her sham case.

(11) Appeals: CLEAN SHEET

– “…an appeal is in my judgment in connection with and not in financial remedy proceedings and therefore is not subject to FPR 28.3(5)… it starts with a clean sheet” H v W (No. 2) [2015] 2 FLR 161 at [21]

Calderbank offers are admissible in an appeal, relating to the costs of the appeal: WD v HD [2017] 1 FLR 160 at [69]

(12) Schedule 1 applications: CLEAN SHEET

This is an important point to note. It is often overlooked that the presumptive order in Schedule 1 is not ‘no order as to costs’ and that Calderbank offers can be sent.

See KS v ND (Schedule 1: Appeal: Costs) [2013] EWHC 464 (Fam) per Mostyn J

[17] Schedule 1 Children Act 1989 proceedings have, since 6 April 2011, been excepted – along with certain other proceedings (of which the most prominent is maintenance pending suit) – from the “general rule of no order as to costs principle” introduced for almost all family financial proceedings with effect from 3 April 2006 by the insertion of rule 2.71 into the then Family Proceedings Rules 1991 (and which now is found in FPR 2010 rule 28.3).

[18] These, and the other specified proceedings, have thus been restored to the position in which all family financial proceedings were before 3 April 2006. Then, the position was that the general rule in RSC Ord 62 rule 3(5) of costs following the event was formally disapplied, but by virtue of the decision of the Court of Appeal in Gojkovic v Gojkovic (No. 2) [1991] 2 FLR 233, [1992] 1 All ER 267 an equivalent, but perhaps less unbending, principle should prima facie apply, at least to ancillary relief proceedings between husband and wife.

For a recent case in which costs were ordered (against the Applicant for her litigation misconduct in pursuing an entirely ‘misconceived’ application): see PK v BC (Financial Remedies: Schedule 1)  [2012] 2 FLR 1426.

Alexander Chandler, 10 February 2021

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