GS v L

This is an application for costs by GS (Wife) made in the light of a judgment given by me following the final hearing of her application for ancillary relief made following the breakdown of her marriage to her former husband L.

The trial was held over a period of approaching a week in the High Court between 28th March to 3^rd April and the 5^th May 2011. It is not proposed to rehearse the facts, or the detail of the court’s findings in this short judgment which should be read against the background of those findings.

Both the husband and wife now live in Spain. The wife is the primary carer of the two children of the marriage. Their two opposing approaches as put at the trial can be summarised as follows:

I dealt specifically with those submissions in paragraph 87 to 95 of the judgment. I did not allow either of the two “add backs” and directed that any “issue based” costs application should be argued only following consideration by both parties of the judgment.

The husband for his part sought to ring fence a figure of approximately £1.49m of the total assets of about £4.1m. This was on the basis that that sum represented assets which were owned by him prior to the marriage. The open position of the husband was that the case should be determined in accordance with Spanish law as set out by his Spanish expert. This arose out of his submissions that the marriage was governed, in its totality, by an Escritura de Capitulaciones Matrimoniales (CM). The CM, the husband submitted, meant that the assets alleged by the husband to have been pre acquired by him would be excluded from consideration before the balance thereafter was divided equally. Under Spanish law the wife would receive very limited maintenance for herself and over a very limited period of time. The children would receive a much lower level of maintenance than would be considered to be appropriate under English law.

During the course of his oral evidence the husband accepted that his proposals which had been prepared and shaped by his Spanish lawyers, were “unfair” and accepted for the first time that English law would determine the level of maintenance. The husband accordingly asked for a little time to consult with his English lawyers who were representing him at the hearing. He then returned to the witness box and made amended proposals which significantly improved upon his previously negligible offer to the wife and increased his offer in relation to his children such that the figure of child maintenance became agreed.

In broad terms in the judgment in relation to the role of Spanish law in the case I concluded that:

The wife having read the judgment now seeks to recover her costs in relation to the following:

The effect of allowing the application in its totality would be that the husband would have to pay the wife an additional £96,797 over and above that which was ordered to be paid to the wife by way of a lump sum in full and final payment of all her claims arising out of the marriage.

The costs regime:

Under the Senior Courts Act 1981, Section 51 (1) costs are in the discretion of the court subject to “any enactment or rules of court”. The Civil Procedure Rules 1998 (CPR) are ‘rules of court’ and apply to all proceedings in the County Court, High Court and the Court of Appeal. There are some exceptions, notably in family proceedings. (CPR r 2.1(2)). Notwithstanding this, in certain circumstances parts of the CPR are specifically incorporated into the Family Proceedings Rules 1991 (FPR) which are now in relation to orders for costs, replaced by Family Proceedings Rules 2010 (FPR 2010) Part 28.2.

The CPR Part 44 sets out the General Rules about Costs. The starting point being that the unsuccessful party will be ordered to pay the costs of the successful party (Part 44.3(2)(a)).

CPR Part 44.3 is headed “Court’s discretion and circumstances to be taken into account when exercising its discretion as to costs”. Having set out the general rule that costs follow the event, the balance of the rule sets out the issues to be taken into account and the forms of order available to the court in the exercise of its discretion when making orders for costs.

CPR rule 44.3(5) sets out the types of conduct which the court should take into account when deciding what (if any) order to make about costs including

(a)……….

(b)

Whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c)

The manner in which the party has pursued or responded to the application or a particular allegation or issue.

(d)………..

Financial provision following divorce were formerly ancillary relief proceedings and are now called financial remedy proceedings. These were governed by FPR 1991 as amended. The rules have now been replaced in their entirety by FPR 2010 in virtually identical terms.

Provision for orders for costs is found in FPR 2010 Part 28.2(1) and 28.3(2). Together they state that CPR 44.3(1) to (5) shall not apply to financial remedy proceedings. The general rule found at CPR rule 44.3(2)(a), that costs follow the event, therefore has no place in financial remedy proceedings.

In financial remedy proceedings, the general rule as to costs is found at FPR 2010 Part 28.3(5) provides that:

(5)

Subject to paragraph (6) 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.

(6)

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)

It follows therefore that although the general rule in financial remedy proceedings is that costs lie where they fall; the court has discretion to make an order for costs in certain circumstances “because of the conduct of a party in relation to the proceedings”.

Before making such an order the court must have regard to the factors set out in Part 28.3(7):

It can be seen that Part 28.3(7) (c) and (d) is drafted in identical terms as CPR rule 44.3(5) (b) and (c). It follows therefore that the fact or manner in which a particular issue was raised or thereafter pursued, is relevant conduct for a court to take into consideration in an application for costs regardless of whether the application is made under the CPR (where costs follow the event) or the FPR (where they lie where they fall) although the starting point in each case is different.

The overriding objective

Part 1.2 of the Family Proceedings Rules 2010 provides that when exercising any power given to it under the rules (which therefore include applications for financial remedy), the court must seek to give effect to the overriding objective.The starting point for any assessment of conduct under Part 28.3(6) must therefore be with the overriding objective as set out in FPR 2010 Part 1.1(1)

The overriding objective

1.1

(1)

These rules are a new procedural code with the overriding objective of enabling the court to deal with cases justly, having regard to any welfare issues involved.

(2)

Dealing with a case justly includes, so far as is practicable –

(a)

ensuring that it is dealt with expeditiously and fairly;

(b)

dealing with the case in ways which are proportionate to the nature, importance and complexity of the issues;

(c)

ensuring that the parties are on an equal footing;

(d)

saving expense; and

(e)

allotting to it an appropriate share of the court's resources, while taking into account the need to allot resources to other cases.

The overriding objective was previously found in FPR 1991 r2.51D. Prior to the introduction of the 2010 rules, the overriding objective applied only to ancillary relief cases and in recognition of that fact in addition to the elements now found in Part1.1(1) (above), the court was also to deal with the case in a way that was proportionate taking into account the amount of money involved and the financial position of the parties. The overriding objective (as defined in FPR 1991), has been considered by the Court of Appeal on two occasions in the context of financial remedy cases:

Charman and Crossley were both appeals against case management decisions made by the Judge at first instance. FPR 2010 Part 1.3 says in terms that “the parties are required to help the court to further the overriding objective.” Thus the parties have the same obligation as the court to further the overriding objective. The court, in determining whether to make a costs order under Part 28.3(6), must therefore consider whether, in respect of the issue in question, the party pursuing that issue was proportionate in his or her approach and has sought only to use an appropriate share of the court’s resources.

The application of the old FPR rule 2.71 (Now Part 28.3(6)) is also subject to the President’s Direction of the 20^th February 2006 [2006] 1 FLR 865 which provides:

“Under the new rules the court will only have power to make a costs order in ancillary relief proceedings when this is justified by the litigation conduct of one of the parties (see new rule 2.71 of the Family Proceedings Rules 1991.) When determining whether and how to exercise this power the court will be required to take into account the list of factors set out in the rules. The court will no longer be able to take into account any offers to settle expressed to be “without prejudice” or “without prejudice save as to costs” in deciding what, if any, costs orders to make.

3………………….

4 Parties who intend to seek a costs order against the other party in the proceedings to which rule 2.712 of the Family Proceedings Rules 1991 applies should ordinarily make this plain in open correspondence or in a skeleton argument before the date of the hearing”.

In the present case the wife has made her intention to seek an order for costs abundantly clear from an early stage.

Issue based costs orders

Although CPR rule 44.3 (1) - (5) does not apply to ancillary relief proceedings the same is not true for the balance of CPR rule 44.3 as Part 28.3(3) provides that:

Rule 44.3(6) to (9) of the CPR apply to an order made under this rule as they apply to an order made under rule 44.3 of the CPR.

CPR rule 44.3(6) to (9) in turn provides the menu of orders available to the court in circumstances where, having considered the factors set out in either CPR rule 44.3(4) & (5) or FPR 2010 Part 28.3 (7), it thereafter decides in its discretion to make an order for costs.

For the purposes of this judgment the relevant part of the rule is CPR 44.3(6) and (7) which provides as follows:

(6)

The orders which the court may make under this rule include an order that a party must pay –

a)

A proportion of another parties cost;

b)

A stated amount in respect of another parties cost;

c)

Costs from or until a certain date only;

d)

Cost before proceedings have begun;

e)

Costs relating to particular steps taken in the proceedings;

f)

Costs relating only to a distinct part of the proceedings;

g)

Interest on costs from or until a certain date, including a date for judgment.

(7)

Where the court would otherwise consider making an order under Paragraph 6 (f) it must instead if practicable, make an order under paragraph 6 (a) or (c)

The application of CPR rule 44.3 (6) and (7) to financial remedy proceedings means that where a court makes an order under CPR rule (6) (f) for costs to be paid by a party in relation only to a specific part of the proceedings (an issue based costs order), the court must if at all possible, make the order by way of an order for the payment of a proportion of the costs or from or to a certain date. There is however power to make an order for a stated amount. r44.3(6)(b)

Given the identical terms of CPR rule 44.3(5) (b) & (c) and FPR 2010 Part 28(7)(c) &(d) relating to the conduct of a party in relation to their pursuit of a particular issue, it follows that any observations of the Court of Appeal (and the High Court) relating to the interpretation of CPR rule 44.3 (6) and (7) should apply equally to applications for issue based orders made in financial remedy proceedings as to cases brought under the CPR. The court will, in the former case, approach the discretionary exercise from the starting point that subject to Part 28.3(6), the court will not make an order requiring one party to pay the costs of another party.

CPR rule 44.3(6) and (7) has been considered in the context of the CPR Rules 1998 on a number of occasions.

In Douglas v Hello! Ltd [2004] EWHC 63 when considering the issue of costs Mr. Justice Lindsay said:

“19.

I must reflect that time taken upon a particular issue in oral evidence does not necessarily affect the time and money spent upon it in research and in preparation and I have in mind too that if I make an order issue by issue there will undoubtedly be disproportionate time taken up at the assessment stage in arguing as to whether this or that preparation or evidence went wholly, in part or not at all to one issue or another. I prefer to mark the degree, which I have accepted, to which time and money was spent unnecessarily or disproportionately by awarding the claimants only a proportion of their costs of the liability hearing. I hold the appropriate proportion to be 75%.”

In Travellers Casualty and Sureties Company of Canada v The Sun Life Assurance Company of Canada UK Ltd [2006]EWHC 2885 Christopher Clarke J said:

[13]. On the other hand if the party raises a discrete issue which involves very substantial costs, and upon which he fails, justice may require that he bear his costs and pay those of his opponent on the issue……

[14]. …..in this respect there is the practical problem that it may be very difficult for the costs judge to work out what costs are properly attributable to an issue. Such difficulty may well mean that the appropriate order is one under CPR 44.3 (6)(a)-(c). CPR 44.3(7) enjoins the court when considering making and order for payment of the costs of an issue to make an order under one of the sub paragraphs a – c of 44.3 (6) if practicable [16] even if in relation to a particular issue, it is appropriate to order the overall winning party to bear some of its costs or pay the overall loser some of his, the issue in question, such as quantum, may itself have contained a number of sub issues, in respect of which the proper incidence of costs is not straightforward. One sub issue on which the overall winner lost may have had significant monetary value but taken little time to determine; another may be one which was of a much lesser value but took more time. Another sub issue may be one on which the overall winner won.”

In National Westminster Bank PLC and Kotonou [2007] EWCA Civ 223Lord Justice Chadwick giving the leading judgment said as follows:

[20] So the judge came to the conclusion that the right approach was to make an order based on the separate issues in the case: an order which he described as a split costs order or an issue-based order. That course was plainly open to him in an appropriate case; as appears from CPR 44.3(6) paragraph (f):

"(6)

The orders which the court may make under this rule [rule 44.3] include an order that a party must pay –

(f)

costs relating only to a distinct part of the proceedings."

[21] The first question, therefore, is whether the judge was entitled to proceed on the basis that this was a case which called for an issue based costs order. In my view, this case cried out for such an order. The issues which were fought and lost by Mr Kotonou included issues which, in the judge's view, should never have been raised at all: including issues on which the allegation of representation was dismissed on the basis that the representation had simply not been made. I would have been surprised if a judge, hearing a trial of this nature, had not reached a conclusion that this was an appropriate case for an issue based order. At the least, it is impossible to hold that this judge's conclusion that that was the correct approach was flawed in principle.

[22]CPR 44.3(7) requires that, where the court would otherwise consider making an order under paragraph (6)(f), it must instead, if practicable, make an order under paragraphs (6)(a) or (c) instead. Paragraph (6)(f), as I have indicated, is the power to make an issue-based costs order. Paragraph (6)(a) enables the court to make an order that one party pay a proportion of another party's costs. It is unnecessary I think to refer to paragraph (6)(c) in detail. The thinking behind rules (6)(f) and (7) is not difficult to understand. Separate assessments of the costs relating to individual issues are likely to be complex and expensive: difficult to carry out in circumstances in which there are common factors which spread over a number of issues. How should the costs of those common elements be apportioned between the separate issues? A more convenient method, while keeping in mind the issue based approach, is to assess all the costs together and then apply a proportion which reflects the fact that one party has won on some issues and has lost on the other issues. That is what the Costs Rules require.

[23]At paragraph 21 of his judgment this judge recognised that it would be difficult accurately to identify the separate costs occasioned by the separate issues. That is exactly the sort of case which the rule making body had in mind when it provided in paragraph (7) that, if practicable, the court must make an order under paragraph (6)(a). The judge indicated, in the first two sentences of paragraph 22 of his judgment, that he had decided to make a split order -- which in context meant an issue-based order as appeared from the last sentence of paragraph 20 -- but, to translate that split into simple percentages of the overall costs. That would obviate the need for a detailed assessment of the separate costs of each issue. That, as it seems to me, is not only a proper approach: it is the approach which is positively required by the Rules.

[24]The third question, then, was what proportions should be adopted in order to reflect the fact that the bank had won on some issues and Mr Kotonou on one of the issues; while recognising that overall Mr Kotonou was successful. The judge said this at paragraph 22:

"I think that I am well placed to translate the contribution of the issues on which Mr Kotonou lost and that on which he succeeded into broad percentages."

A judge who had heard nine days of argument and delivered the substantive judgment at the trial can be expected to be well placed to translate issues into percentages. Indeed, that is why costs are best dealt with by the trial judge.

The court following the approach of Chadwick LJ in Kotonou, suggests the following approach:

Miss Davidson QC submits that in relation to the 5 specific items set out in paragraph 8 above, the husband’s litigation conduct during the course of the proceedings added to the costs of the wife. In addition she asserts that by approaching the case as if it were a Spanish case was wholly misguided and added significantly to the costs and the length of the trial.

In my judgment the husband’s approach throughout the entire proceedings has been erroneously focused on his dogmatic belief that the case should be heard in Spain or, if not, that this court should apply Spanish law to the application of the wife for ancillary relief. As a consequence:

The wife has sought specific sums by way of costs in relation to a number of specific issues, some as low as £274.00. In my judgment the nature of financial remedy litigation is such that there will inevitably be aspects of the litigation where one party believes (rightly perhaps) that the other party has been unreasonable or failed to make a concession when they should have done so. That is part of the cut and thrust of litigation. Sums such as £274 are de minimus in the context of total costs of over £300,000 and the courts must be wary about undermining the essential premise set out in Part 28.3(6) that the court will not make an order requiring one party to pay the costs of another party.

I remind myself that, only if the court is satisfied that the parties’ conduct in relation to the proceedings, (having taken into account the matters set out at Part 28.3(7) (a) – (f)) is such as to justify deviating from that basic premise should the court make an order for costs.

Mr Boydell submits on behalf of the husband that the consideration of an issued based costs order is a three stage process:

With respect to Mr Boydell’s skilful argument I do not agree. The rules are clearly set out in Part 28.3(6) & (7). There is no requirement for the party applying for an issue based costs order to show ‘significant extra cost’ to the other party or that the “conduct increased the other party’s costs above the natural level of costs in an identifiable way”. It goes without saying that in most cases the inevitable consequence of any conduct established under Part 28.3(6) will have been to have increased the costs above that which they would have been had there been no such conduct, it is not however an inevitable consequence. It is in my view neither appropriate nor necessary to add a gloss to the clear and straightforward criteria set out in the Rules.

Further a requirement that it has to be established that “conduct increased the other party’s costs above the natural level of costs in an identifiable way” risks adding a further layer of costs to the equation as the claiming party strips out and attempts to identify the so called ‘natural level of costs’ potentially leading to an expensive assessment exercise as it is argued whether this or that telephone call or letter should attributed to the alleged litigation contact. This concern is recognised in the CPR 44.3(7) and discussed by the court Kotonou. The combined effect of this difficulty is that the court in making an issue based costs order should, if practical, opt for expressing its order as a proportion of the costs. (or, which is not relevant in this case, costs from a fixed date).

In Kotonou the Court of Appeal approved an approach which translated the split of costs between issues into a simple percentage of the overall costs. Such an approach obviated the need for a detailed assessment of the separate costs of each issue. This approach did, as was noted by Chadwick LJ, still necessitate an assessment of the totality of the costs. In the present case I have considered carefully making such an order but given the inability of the parties to date to take a pragmatic approach to any single issue in the case, I take the view that it would inevitably be an expensive and time consuming approach requiring a detailed assessment of the wife’s costs before the relevant percentage could be applied.

In those circumstances having found, as I do, that the conduct of the husband in relation to the proceedings is such that having taken into account all the factors in Part 28.3(7), fairness requires that it is reflected in an order for costs. I intend to order pursuant to CPR 44.3(7) that he pays a proportion of the wife’s costs but I intend thereafter to translate that percentage into a stated sum which the husband will pay by way of contribution to the wife’s costs.

In exercising my discretion in fixing upon the appropriate percentage I take into account all the husband’s submissions and in particular his submissions that the wife failed herself in respect of her contention that certain expenditure of his should be the subject of ‘addback’.

Not only did the husband make a wholly inappropriate open offer and run the case as if it were being conducted in Spain, but he also failed to comply with various court orders, failed to disclose his income and bonus until the eve of the trial and, as I found in the judgment, he sought also to manipulate the litigation to his own ends. Inevitably this has led to the wife’s costs being far in excess of that which they would otherwise have been.

Even having taken into account all the submissions made on behalf of the husband and having paid special attention to the financial effect of any costs order I make upon him, I am satisfied in my discretion that the husband’s conduct in relation to the proceedings was not proportionate. It resulted in the matter having to be heard in the High Court and substantially increased the costs of both sides and the length of the trial. His conduct requires a costs order to be made. In fixing the proportion I bear in mind the wife’s failed submissions in relation to add back.

The order that I make in my discretion is that the husband should pay a sum which roughly equates to ⅓ of the wife’s unassessed costs of £162,361.82. In fixing that percentage I have taken into account that it could be expected that the wife’s costs would be reduced to some extent on assessment, even if the costs in relation to the issues the subject of this costs order were assessed on an indemnity basis. The figure that I order the husband to pay towards the wife’s costs is therefore £55,000.