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Something must be done – will a partial return to Calderbank fit the Bill (or at least reduce it)?

Tom Wilson, pupil at 1 Garden Court Family Law Chambers, examines the possibility of a partial re-introduction of the Calderbank offer

Tom Wilson, pupil at 1 Garden Court Family Law Chambers

A number of recent Family Finance decisions have seen a sustained assault on the current costs regime. In J v J [2014] EWHC 3654 (Fam), Mostyn J appealed to law-makes to 'stop saying something must be done and actually do something'1 This article proposes that what should be done is a partial re-introduction of the Calderbank offer.

The Problem
The problem facing family finance lawyers is a simple one. In cases that fail to settle, whether 'big money', 'medium money' or 'needs-based', pursuing the matter to a final hearing inevitably increases costs exponentially. In many cases, the legal costs can represent a substantial proportion of the matrimonial pot thereby leaving much less for redistribution between the parties.

The effect of this problem is apparent in a number of recent cases, but is perhaps most notoriously so in the case of Evans v Evans [2013] EWHC 506 where the costs of litigation reached £2.7million, out of a total assets pot of approximately £40m. Moylan J noted that 'the level of costs incurred in this case has now been said to be unacceptable and disproportionate by three judges'. 2

Two recent cases further highlight the pervasive nature of this problem. Chai v Peng [2014] (Fam) was a decision in a further maintenance pending suit application in which the Wife's costs for the one-day hearing were £55,000. Holman J described the likely costs of a final hearing as 'mind-boggling'. 3 In J v J, the parties spent £920,000 litigating over assets totalling £2,885,000. Mostyn J criticised the 'grotesque leaching of costs' 4 and noted the 'disfiguring impact of excessive costs' 5.

This problem is not confined to financial proceedings following divorce. Seagrove v Sullivan [2014] EWHC 4110 concerned applications under TOLATA and Schedule 1 Children Act 1989. There was only one principal asset, worth approximately £1million. The parties accrued £1.3million in legal costs, described by Holman J as a 'truly absurd amount of money'. 6 His Lordship's opinion, clearly encompassing all forms of family financial litigation, is neatly expressed in the opening sentence of his judgment:

'Despite numerous attempts to rein it in, the scale, intensity and cost of family financial litigation remains often out of control and completely disproportionate to the issues at stake.'

Where Next: Fixed Costs and Cost Capping?
In J v J, Mostyn J engaged in an extensive discussion regarding the state of the current costs regime. Quite firmly, His Lordship proposes two fundamental reforms. The first is fixed pricing for cases:

'In my opinion a litigant should be able to demand a fixed price for each of the three phases of an ancillary relief case namely (1) Form A to First Appointment, (2) First Appointment to FDR and (3) FDR to trial.' 7

The second is cost capping:

'The second measure that needs to be taken is for the court in ancillary relief proceedings to be able to impose at the very beginning of the case a costs cap on what may be charged by the lawyers to their client for each of the three phases of the case. Naturally this cap would be variable if circumstances change but the change of circumstances would have to be a big one for a variation to be allowed.'

The merits of these proposals have already been analysed by Ashley Murray in his article 'Excessive costs and J v J: a practitioner response', published in the January 2015 edition of Family Law. This article does not seek to rehearse the analysis to be found there. However, three brief comments can be made.

Firstly, family finance cases are inherently unpredictable. As the parties prepare to make the significant transition from one stage of their lives to the next, circumstances change that demand more or less work than expected. The parties are subject to a duty of ongoing disclosure and assets may become disclosed that fundamentally increase the matrimonial pot. Unexpected arguments may arise concerning the nature of certain property, the housing needs of the parties or other elements of the claim. All such attributes of family finance litigation render the advent of cost capping arbitrary and unfair. Moreover, as Murray observes:

'If fee caps are placed on the three phases of the progress of a financial remedy case and those amounts are to be recovered both by the diligent and indolent, they are no reflection of the ability or industry engaged. Financial remedy is not an art of speed alone but of due care of the client's interests. The profession is not made up of an intellectual elite moving from case to case, but in most instances hard working professionals with a variety of skill levels, who invariably do not bill their clients for every hour spent.'

Second, it was suggested that such arbitrariness can be mitigated by permitting applications to be made to increase the cap. With the greatest of respect, it is submitted that such a course would rapidly increase the level of satellite litigation. Would the other party have a right to oppose any application? What change of circumstances would be considered 'big'? Presumably, the answer to such a question would require a detailed examination of the conduct of proceedings to date. Paradoxically, this would see litigation costs spiral upwards.

Finally, inordinate delay is not an unimaginable consequence. It is presumed that such an application would be heard by a judge later precluded from conducting any final hearing. It would be sensible for this to be the same judge who conducts the FDR; otherwise two judges would be precluded for finally determining the matter. While this may be perfectly possible in the Family Division, many smaller courts may struggle to list such applications before the appropriate judge in a timely way. Delaying proceedings is not only contrary to the overriding objective, but may well lead to yet further costs being incurred.

An Alternative Proposal: A Partial Return to Calderbank?
It is now incumbent on the writer to propose an alternative solution. It is argued that Rule 28.8 should be removed from the FPR 2010 and the Rules amended so as to render without prejudice offers admissible when determining the matter of costs. To be clear, it is not proposed that there should be a return to a presumption that "costs follow the event", nor is it suggested that either the old Rule 2.69 FPR 1991 or current CPR 36 should be introduced into the current costs regime so as to prescribe the usual outcome where a Calderbank offer is beaten. It is simply proposed that such without prejudice offers be included as one of the matters to which the court may have regard under Rule 28.3(7) FPR 2010 when considering whether to make an order as to costs.

By way of a short summary, a Calderbank offer was expressed to be "without prejudice except as to costs". Other than at FDR hearings, such offers were inadmissible throughout the proceedings until after determination of the application. Following determination, such offers could be examined by the court so as to consider whether the litigation had been unnecessarily or unreasonably protracted by one or other of the parties. If a party had refused to accept a Calderbank offer and ultimately the determination was less advantageous to them than the said offer, then that party was at risk of being liable for not only their own legal costs, but also those of the party who had made the offer. In many ways, it was similar to the current regime in Rule 36 of the Civil Procedure Rules.

Crucially, until April 2006 when Rule 2.71 was introduced into the Family Procedure Rules 1991, the Calderbank regime was coupled with a presumption that costs followed the event and therefore a costs order would routinely be made. Rule 2.71 introduced the "no order as to costs" presumption, which is maintained in Rule 28.3(5) FPR 2010.

The Calderbank regime was subject to a significant degree of criticism. In GW v RW (Financial Provision: Departure from Equality) [2003] EWHC 611 Fam, Nicholas Mostyn QC (as he then was) famously articulated a widely-held concern as follows:

'…it seems to me that the present system in effect forces the parties to engage in a mandatory form of spread betting. The parties are required to guess the outcome of the case and to take a position. If they have guessed correctly then they win a large amount; if they have not then they lose. But there is one significant difference to a spread bet. With a spread bet the amount the gambler wins or loses is the difference between the result and the position-maker's spread. If he has bought and the result is higher than the top of the spread he wins; if it is lower he loses. If he has sold and the result is lower than the bottom of the spread he wins; if it is higher he loses. The closer the result is to the position-maker's spread the smaller the amount the gambler wins or loses. The orthodox Calderbank theory in ancillary relief proceedings is however different in that it does not reflect the closeness of the litigant's call. Instead, the mere fact of beating his guess by even a tiny amount entitles the maker of the offer to call for payment of the entirety of his costs from 28 days after the date of his offer. Similarly if his guess is a fraction less than the result, then the other party can call for all her costs to be paid by the maker of the offer. So it can be seen that vast sums can swing on even the smallest failure to guess accurately. And there is no premium for guessing really well.' 8

In the face of such trenchant criticism, what can be the justification for reintroducing without prejudice offers that are admissible for consideration at any application for costs?

The most powerful justification is a simple one; such offers encourage early settlement and incentivise negotiation. Under the current regime, it is all-too-easy for a recalcitrant litigant to ignore or delay early attempts at settlement safe in the knowledge that there will be no consequence. Pursuant to FPR 9.17(3), the parties are of course under a duty to provide the court with evidence of all proposals and responses not less than seven days before the FDR, but there is no consequence for the recalcitrant party should he fail to respond or only make entirely unreasonable proposals. The judge conducting the FDR will, of course, give the appropriate indication, but this has no meaningful effect as the matter progresses to final hearing.

Of course, it is possible for the proactive litigant to make an open offer at any stage in the proceedings, but there are clear disadvantages of doing so at an early stage. For example, settlement offers often incorporate a degree of concession that may well prejudice a party's position should it be made in open correspondence. As a result, there is no effective sanction for uncooperative parties.

Conversely, were negotiations to take place in the context of an explicit recognition that the parties' negotiating positions will be taken into account in any determination as to costs; there would be a clear and effective sanction for reluctant parties. Moreover, it would render the FDR a more effective process because it is hoped that  more realistic offers will have been made at an early stage, enabling the FDR judge to provide an insightful indication as to the path to settlement.

Some may argue that simply including such offers as a factor to which the court may have regard when considering costs does not go far enough. It may be argued that the procedure set out in CPR 36 is far more effective at incentivising settlement because it strictly prescribes the consequences of failing to beat one's position in negotiations. This is true. However, such an approach goes too far and returns matrimonial proceedings to the regime of 'spread betting' so firmly criticised in GW v RW. The proposal suggested represents a middle ground, encouraging early settlement while recognising the need for the court to retain discretion to justice to the parties.

Mostyn J, in as recent a judgment as J v J, articulated a further widely-held objection to the Calderbank procedure:

'Some quarters are calling for the Calderbank principle to be reintroduced (and it is true that the current rules permit it to be used for certain proceedings other than the final hearing of an ancillary relief claim). For my part I will fight its reintroduction to the last ditch. In my opinion it would be retrograde and unconscionable to allow a carefully crafted disposition to be turned upside down by virtue of a without prejudice letter produced after judgment has been given.'

Clearly, a concern that the making of a costs order will effectively undermine the reasoning behind the substantive determination is a valid one. In the determination of a financial remedy application the court will have examined all of the circumstances by reference to the s.25 factors and arrived at a decision that redistributes assets accordingly. In the overwhelming majority of such applications, this determination will be focused on meeting the needs of the parties as they transition from one household to two. It is inevitable that subsequently imposing an additional and often significant liability on one of the parties undermines the reasoning behind the courts' determination.

However, the current FPR retain a judicial discretion to do exactly that. The circumstances in which it is appropriate may be limited, and there may be a presumption against it, but the Rules clearly envisage such an order as being necessary. If litigation misconduct is considered sufficiently severe to warrant such an order, why should a failure to proactively engage in reasonable negotiations not be considered equally severe? The parties are under a specific duty to negotiate and to conduct proceedings in a proportionate manner, and there is a clear public interest in encouraging them to do so. As Holman J remarked in Seagrove v Sullivan:

'But litigation within the courts has to be the subject of much more rigorous discipline and structure, precisely because the courts have a duty to ensure that an appropriate, but only an appropriate, share of the court's resources are allocated to any one case. The same judges have to deal also with an enormous number of very difficult cases involving the future of vulnerable children, and the care and treatment of sick people, including mentally incapacitated people…

…The cost of running these courts is not inconsiderable. I cannot specify what the daily cost is, for I do not know, but the state has to provide and pay for the judge, the court staff, the "back office" staff, the provision of the courtroom, the maintenance of the courtroom and all the other associated costs. It is obvious that the daily running costs of a court and courtroom such as this run into several thousands of pounds. Multiply that by eight and one can see at once that there is an expectation that this state, which as we all know is struggling still to rein in the deficit following the recession, should expend completely disproportionate amounts on resolving issues and disputes of this kind.'

Given this public interest, there is an obvious justification for imposing more punitive sanctions than currently exist for failing to engage actively in seeking a settlement. It is argued that one must accept the impact that such a sanction will have on the substantive determination, but enable the court to do justice in the individual circumstances by having regard to both the effect of a costs order and the positions adopted by the parties during negotiations.

Conclusion: Will It Solve the Problem?
A degree of realism must be retained. The proposed amendment is a minor one. It will not prevent all easy-to-settle cases from reaching a final hearing nor will it encourage the most recalcitrant of litigants from refusing to engage in settlement discussions. However, it is hoped that the partial reintroduction of Calderbank offers would effect a significant culture change in family finance litigation. The knowledge that the position one adopts during negotiations may, indirectly, have an impact on the overall distribution of assets will encourage litigants to engage in meaningful settlement discussions. If such discussions are unsuccessful, the court may have regard to the parties' positions and, if there has clearly been unreasonableness, make a costs order reflecting this. However, the court would retain a significant degree of discretion, governed both by the presumption of "no order" and the continued requirement to have regard to 'the financial effect on the parties of any costs order' (FPR 28.3(7)). It is hoped that such parameters will prevent undue hardship and assuage the concerns held by many.


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