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R-H v R-H [2008] EWHC 347 (Fam)

Judgment in ancillary relief proceedings relating to costs.

The proceedings had been complex involving both pre-acquired martial assets on the husband’s side and an inheritance to the wife acquired after separation but before the divorce: she only accepted that this was to be included in the assets at a late stage in proceedings. There were also several properties involved, including some in Italy. For that reason there were several significant changes in negotiating stance throughout proceedings which are recounted here in Singer J’s judgment.

In his initial judgment Singer J had awarded the husband a clean break award of £670,000 that accounted for a write back of his costs of £225,000. The husband’s costs, found to be excessive, stood at £486,000 and the wife’s at £265,000.

In this judgment Singer J first rejects the husband’s contention that the write back was wrong and confirms that the £670,000 award would stand. He then reviews the costs regime governing this case, which preceded the changes of April 2006, and concludes that he does not have to apply Rule 29D rigidly as it would be unjust to the wife. However she should have accepted the husband’s final offer and so ordered her to pay a sum of £150,000. This was not the full amount incurred because the husband’s costs for that final litigation were excessive.

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Neutral Citation Number: [2008] EWHC 347 (Fam)

Case No: FD02D00829
IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 27/02/2008

Before:

MR JUSTICE SINGER
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Between:

C P R-H (Applicant)

- and - 

A M R-H (Respondent)

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Mr Philip Cayford QC and Mr Brent Molyneux (instructed by Payne Hicks Beach) for the Applicant Husband
Mr Timothy Scott QC and Miss Victoria Domenge (instructed by Mishcon de Reya) for the Respondent Wife

Hearing dates: 3 May and 10 July 2007
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Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.


.............................

MR JUSTICE SINGER

This judgment is being handed down in private on 27 February 2008. It consists of 52 paragraphs and has been signed and dated by the judge.  The judge hereby gives leave for it to be reported.

The judgment is being distributed on the strict understanding that in any report no person other than the advocates or the solicitors instructing them (and other persons identified by name in the judgment itself) may be identified by name or location and that in particular the anonymity of the children and the adult members of their family must be strictly preserved.
 
Mr Justice Singer:
Background to costs applications
1. On 2nd March 2007 I handed down judgment ([2007] EWHC 396 (Fam)) in this complex and protracted ancillary relief application brought by the husband (H) against his wife (W). For the reasons I then gave I decided that W should pay H £670,000 on a clean break basis, and that he should pay each of their two children periodical payments of £7,500 p.a. (subject to index-linking). This now is my judgment in relation to the costs of those applications, which each sought against the other.

2. W's position until part-way through the hearing had been that she did not seek payment of the award which she argued I should on the figures make against him, but that she should pay H nothing. By the end of the main hearing W had accepted the premise which underlay H's case: that there should be a capital adjustment in his favour to achieve equality.

3. But they remained apart on the assets to which that should be applied and their value. W contended that the value of her inheritance from her father (which had been received after the parties' final separation but while they remained intertwined in property transactions here and in Italy) should be disregarded. Until a late stage her case was that her inheritance (with a value of about £1.55M) should be entirely excluded. By the time of final submissions she accepted that equalisation should take into account a part but not all of the assets derived from her inheritance. I found against W on that major issue.

4. H's open case had throughout been put on the basis that equalisation of their capital situation should be applied across the board. For this purpose he was prepared to have taken fully into account the value of the assets which he brought into the marriage and to the acquisition of which W that therefore never contributed; and his pension fund CETV of £197,416 notwithstanding its illiquidity.

5. As to pre-acquired assets he put their value at the time of the marriage at £2M, a figure I found he had not established and had indeed by artificial presentation attempted deliberately to inflate. But on any view his capital base at the time of the marriage greatly exceeded W's.

6. It was necessary for me, en route to the £670,000 quantification, to decide a host of detailed issues, though far fewer than the parties vigorously pursued in evidence and submissions.

7. H's final quantification at trial of what he claimed should be the right equalising amount was about £950,000. But in addition he launched and sustained a major attack on W's credit, asserting that she had both dissipated and concealed funds, and that the award in his favour should also reflect W's litigation conduct. This assault failed. I found that W had indeed, as she admitted, for a period some six months until May 2005 sought to conceal her ownership of one of the inherited properties in Italy by deliberate and false statements, her motive being 'to protect part of my inheritance'. Since then, as I found, she had done her best to deal with massive requests for information and documentation which resulted in about three ring binders prepared for the hearing. I set out my findings on this substantial part of H's case at [66] to [70] of the judgment. There was thus not even the 'slight shading' in H's favour to which by final submissions this barrage of claims and criticisms had reduced from earlier suggestions that a further £700,000 to £1M should be added to H's award to compensate him.

8. In arriving at the capital award I had regard to the very considerable disparity in the costs each had run up in the course of the litigation to that date (£265,000 on W's side, and £486,000 on H's) and decided to adjust the assets subject to division by, in effect, writing back £225,000 of' H's costs. I gave my reasons at [24] of the judgment which is in these terms:

"According to information I was given during the course of the hearing W had paid her solicitors all but £2,500 of the full amount of her costs then estimated at just under £265,000. Of H's total costs estimated at £486,000 he still owed £65,000. He suggests that the appropriate course would be to deduct that balance from his side of the assets Schedule. While that might in some cases be acceptable, the £221,000 disparity between the costs each has incurred is so marked that the preferable course seems to me to be to 'equalise' costs for the purpose of the Schedule by treating each as having depleted their assets by the amount of W's costs, £265,000, before the award is made.  This involves ignoring his unpaid liability and adding back on his side £160,000. That is intended as an entirely neutral adjustment and is subject to the submissions I will no doubt hear about costs. At this stage I can only attempt to mitigate the distorting effect on my award of the unequal costs burden, as the reasons for this very large difference between the liabilities incurred on each side have not been fully explored. "

9. Amongst the issues, all of which impacted on my evaluation of the ledger and thus of the balancing figure W should pay H were that:

10. The case had been bedevilled at various stages of its development by controversy over the taxable status of each party for CGT purposes. At one stage it appeared that W might have no liability on English property sales because of her residence in Italy: at another that H might have none because of time he spent abroad. By the time of the hearing on the available (and extensive and expensive) accountancy evidence amassed by each side it seemed that both would carry liability for CGT, and that is reflected conventionally (albeit subject to the serious reservations which I expressed) in my overall net worth assessment.

11. Each party continued however to harbour suspicions about the other's future intentions. In particular W expressed anxiety that H would remove himself offshore again, thus both enhancing the realisable value of his assets and endangering enforcement of child periodical payments and any school fees liabilities should he default.

12. These anxieties were rehearsed again at the two days of hearing which took place post-judgment, on 3rd May 2007 (when submissions were not concluded), and (after another hearing date had to be abandoned because of a preceding overrunning case) on 10th July 2007. I then reserved this judgment, but before I could conclude it fresh developments were brought to my attention at the beginning of October. It seems that at the beginning of September 2007 W informed H by email of her intention that their daughters should leave their London school and that she and they would vacate their London home at 22 S St and move to Italy. It would seem she had put these decisions into effect by the date of her email. H's solicitors protested on his behalf. His counsel by email invited me to revise the capital award in the light of H's belief that W would thus escape any CGT liability on the two English properties in her name which remain unsold. He awaited tax advice. At the beginning of November I was sent an Italian tax lawyer's advice to the effect that she has no liability to Italian tax in relation to any of the relevant property sales, past or prospective, and that the position is the same whether she is treated as resident or non-resident in Italy. Assuming that to be correct, therefore, her move to Italy did not give rise to any liability to Italian tax which would affect her net worth or the calculation of it which I made. I have no information whether, when and to what extent her potential liabilities to UK capital gains tax would alter the propositions applied in the judgment.

13. Mr Scott, leading counsel for W, correctly (as it seems to me) then observed by email that if H wished to rely on these developments he should make formal application to reopen the case. In December H's solicitors informed me of his decision not to apply to reopen the judgment.

14. I recount these matters to illustrate the continuing complexities of this case. W's actions and their effects have however no impact on the decisions I take as to costs. They may affect the manner whereby W will meet her liabilities to H and the form of the order to provide for that, which I will have to decide if the parties cannot reach agreement.

The costs write-back: paragraph [24] of the main judgment
15. Mr Cayford, leading counsel for H, contended strongly at the May and July hearings that I had led myself into error in discounting £225,000 of the costs his client had expended, so as to achieve parity of costs expenditure in the manner described in [24] of the judgment. Put at its simplest, he points out that if I had made full allowance for H's total costs of £486,000 his side of the assets schedule would have been £225,000 lighter, and that a further £112,500 would have been payable by W to achieve parity. Thus, he says the award should have been £782,500 rather than £670,000. A similar result would have been achieved if I had written back nothing in relation to costs, and had allowed unpaid costs on each side (£65,000 on H's, and about £2,500 on W's) to be deducted from the assets before division. Taking off all the costs was, he points out, the approach adopted by both sides when drawing the assets schedules prolifically produced as the case progressed, both during its gestation and throughout and after the final hearing.

16. The converse argument is that if one party profligately runs up for him or herself a grossly disproportionate costs liability, then if it is fully taken into account the effect (in a case resolved by equal or other proportional redistribution) is to saddle the party who has expended less with an automatic contribution of half the disparity.

17. In view of the conclusions I reach below, I do not propose to adjust the figure of £670,000.

The 'open' outcome
18. A broad overview of the extent to which each party succeeded and failed on the issues they pursued at trial is that there is not a lot to weight the balance decisively in favour of either of them. The prime issue on which W ultimately failed was the principle of equal division of an asset bank including her inheritance. H's major failure was to establish the factual basis for his assertion that aspects of W's conduct and disclosure should entitle him to very significantly more than half.

19. Moreover I have to say that I am now firm in my view that it was unreasonable for H to expend so much more on the case. A number of arguments were advanced for why this might be, such as the higher charging rate of the solicitor dealing with his case. Beyond that, says Mr Cayford, it is speculation arrived at without analysis, and one which bears unfairly on H. Well I have listened to what has been said, and I have looked again at the scale of the disparity, and I have come to the conclusion after hearing the costs debate that I was right in the main judgment to suspect 'that for some years he has regarded this litigation as his principal activity', and indeed that his approach to it has verged on the obsessional. He directed huge analysis to the bewildering detail of which party (on his case, W) and which party's properties (on his case, those in W's name) benefited more from monies released from the sale or refinancing of the other's. This was unfathomable, and should have been seen to be so from an early stage, given not least that the attempt at such a tracing exercise itself engendered myriad issues as to the accuracy of their assertions, and that there for the most part was no documentary or other satisfactory evidence to establish these issues one way or the other. The considerations advanced (whether in isolation or in combination) do not explain the disparity, that his total costs to the end of the main hearing are almost double hers. The ratio is 97:53.

20. On the basis of the 'open' progress of the case therefore I would have made no order for costs overall, and concluded that the effects of [24] of the judgment were not unfair to H in depleting the value of the asset pot in which he should share; nor to W who would otherwise be saddled with a half-share of what I do now conclude was his unreasonable and excessive costs expenditure. It would have followed that neither party would have succeeded on their argument that the other should pay all or a significant portion of their costs.

The Calderbank correspondence
21. The exchanges of Calderbank correspondence which I was shown during the costs submissions can be summarised, and their effect then can be seen in the light of the gestation of the case. All offers were made on the basis that there should be a clean break with no order as to costs.

22. W made offers/counter-offers none of which approached the outcome I ordered in their effect, put in the context of the evolution of the case to their respective dates.

23. In order to establish that none of these offers was as beneficial to H as my order, they have to be put into context bearing in mind the contemporary valuations (and, in the case of the last-mentioned Italian property, the price achieved on sale), CGT assumptions and costs estimates. The range of these variables necessarily makes this a very imprecise exercise, but one which I must undertake.

24. I can disregard the June 2005 offer, while noting that it remained in play as the high point of W's open aspirations until after the opening of the final hearing.

25. W's 21st November 2005 offer came shortly before what was envisaged as the following month's final hearing. It is not contended for W that this offer was effective for Calderbank purposes.

26. W's eve-of-abortive-hearing offer of 9th December 2005 must first be assessed in the context of the asset schedules produced for the June 2005 FDR, because (I am informed) even as late as the Friday before the Monday of the aborted November hearing competing schedules based on what remained contested valuations were flying hither and thither. On that basis W's offer fell significantly short of 50 per cent of what I have found should be included in the pot. I take that view even though the June 2005 FDR schedules assumed W would bear no liability for CGT (which was probably correct), but that H at that time was potentially liable (which was probably incorrect)! If H's potential CGT liability is taken out of the schedule (and, for parity of calculation, liabilities and the pension fund included) the percentage result of W's offer increases to about 56 per cent to her and 44 per cent to H.

27. By the time that the December 2005 hearing had been adjourned each party had produced 'final' revised schedules. It is impossible to draw clear conclusions from them because H's assumed he was potentially liable for CGT whereas no allowance was shown in W's, and conversely her schedule included potential CGT liabilities for her while his did not!

28. If though I simply look at the crude value of the payment W offered H in December 2005, then on the valuations which emerged for the December 2005 hearing she offered just more than my award of £670,000. If H had accepted her offer shortly after the abortive hearing he would on the valuations have achieved, a year and a year's costs earlier, a slightly better result in valuation terms than at the final hearing. But that ignores what emerged only a few months later, that the Italian property achieved on sale £105,000 to £110,000 less than the Savills valuation of the Italian property W offered and upon which that calculation is made. I do not believe I can ignore that within so short a time the true value of W's offer would have emerged as in the region of only £570,000 to £585,000, significantly below my award.

29. W's last Calderbank suggestion (I do not regard it as a counter-offer) in March 2006 was to transfer the overvalued Italian property to H. The reality is that both parties by then if not earlier knew or suspected that an offer at or near the €1,150,000 valuation was highly unlikely to materialise, and: so H would not in any circumstances regard it as in fact worth the valuation figure: nevertheless (as W's letter observed) that was the valuation to which he held for the purposes of computing W's wealth at that time. In fact it was by a letter dated 5th April 2006 that her solicitors first indicated in correspondence her intention to sell that property for only €900,000 to €950,000, €250,000 to €200,000 less than the valuation upon which the parties were working when she made her March offer. In correspondence H alleged (but did not establish) that W deliberately sold the property at an undervalue, or that the true (higher) consideration was concealed. The obvious alternative suspicion, supported by the history of long attempts to sell at or near the higher valuation set by the ultimately agreed joint valuer Savills, was that when W offered to transfer the property she and H both knew it was unlikely to be worth as much as that valuation. This letter cannot affect the attribution of costs.

30. It is to be noted in passing that the parties' costs to the end of the abortive hearing would have been £246,000 on H's side, and £156,000 on W's, a ratio of 49:31 which although very significant is still less divergent than the 97:53 which it had become a year later. During the following year his costs almost doubled, increasing by £240,000, and thus by more than twice the £109,000 increase in W's. So much higher an increase certainly is extraordinary in a situation when, according to both parties, they had been fully prepared for the December 2005 hearing, with the same teams then as now.

31. H too made a series of offers and counter-offers.  

32. W neither accepted nor rejected H's offer to accept £750,000 which, so far as I can detect, he never withdrew. It represented a discount of about £200,000 on his most recent calculation of the balancing figure to produce equal division of the assets which he claimed should be taken into account, principally of course including the assets derived from W's inheritance.

33. It is upon the effect of this offer which I concentrate as in simple cash terms it is £80,000 more than I awarded. H offered to abandon the various contentious issues in reliance on which he was pursuing an award which gave him more than 50 per cent. This offer is again based on there being no order as to costs. But each party must have appreciated that they might be subjected to a costs liability at the end of a contested hearing. W therefore could not assume that she would be immune to a costs order if the case proceeded to trial, and that this could well bring the total she might have to pay H to more than £750,000. Moreover, accepting the offer would have brought to an end costs expenditure on both sides, and W could by no means assume (or even, I suggest, feel confident) that she would recover all the costs she had yet to incur. This factor again, even if it had only been reflected in that element of W's costs irrecoverable on assessment, would further increase her total outlay.

34. The offer was expressed to be a 'package' to be accepted in full or not at all. It contained other provisions (as to child maintenance, for instance) which were by then uncontentious. It made no offer in relation to private school fees if and when incurred but, absent agreement at the time when they arose, did not of course preclude W from attempting to claim them. It also sought the return of some chattels which may or may not remain seriously in dispute.

35. This was in my view a genuine offer to compromise by H. I regard it as one which W should have accepted. Her failure even to respond to it (save for the almost transparently tactical suggestion that he should take the overvalued Italian property) had the result that the parties were doomed to proceed to trial on the full range of issues which I heard.

The applicable costs régime
36. These costs issues fall to be determined under the régime which applied until it was overhauled from April 2006, when changes were introduced which included the consignment to history of the Calderbank procedures as developed in FPR 1991 (as amended), rr. 2.69, 2.69B and 2.69D. The working of these rules has been subjected to critical analysis in GW v RW (financial provision: departure from equality) [2003] EWHC 611 (Fam): [2003] 2 FLR 108, a decision of Mr Nicholas Mostyn QC sitting as a deputy High Court Judge; clarified and corrected by the Court of Appeal in Norris v Norris; Haskins v Haskins [2003] EWCA Civ 1084, [2003] 2 FLR 1124; and further considered by Charles J in C v C (costs: ancillary relief) [2003] EWHC 2321 (Fam), [2004] 1 FLR 291. These were all cited to me but I do not consider it helpful, certainly in the context of this case, to attempt further to analyse them.

37. When, as here, applicable, rr. 2.69B and 2.69 D provide as follows:

2.69B Judgment or order more advantageous than an offer made by the other party
(1) This rule applies where the judgment or order in favour of the applicant or respondent is more advantageous to him than an offer made under rule 2.69(1) by the other party.
(2) The court must, unless it considers it unjust to do so, order that other party to pay any costs incurred after the date beginning 28 days after the offer was made.

2.69D Factors for Court’s consideration under rule 2.69B
(1) In considering whether it would be unjust, or whether it would be just, to make the order referred to in rule 2.69B, the court must take into account all the circumstances of the case, including –
(a)         the terms of any offers made under rule 2.69(1);
(b)         the stage in the proceedings when any offer was made;
(c)      the information available to the parties at the time when the offer was made;
(d)      the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated; and
(e)      the respective means of the parties.

38. I do not however feel that I am obliged to adopt the rigid consequences ordained by rule 2.69D because for a variety of reasons I consider it would be unjust to W to do so, on the footing that viewed in the context of the stage in the proceedings when the offer was made, and the information available to the parties at that time H's 9th February 2006 Calderbank offer should be regarded as satisfying rule 2.69B.

39. In deciding whether it would be unjust to apply rule 2.69D, rule 2.69D allows me to take into account all the circumstances of the case as well as those to which it specifically refers. One factor here is again the costs disparity between the parties. Others are aspects of conduct referred to in the CPR 1998, rr. 44.3(4) and 44.3(5). So far as I consider them relevant to the costs outcome in this case, they read as follows:

(4)      In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including –
(a)      the conduct of all the parties;
(b)      whether a party has succeeded on part of his case, even if he has not been wholly successful; and …

(5)      The conduct of the parties includes –
(a)      conduct before, as well as during, the proceedings and in particular the extent to which the parties followed any relevant pre-action protocol;
(b)      whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;
(c)      the manner in which a party has pursued or defended his case or a particular allegation or issue; and
(d)      whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.

The discretionary exercise
40. These identified rr. 44.3(4) and 44.3(5) factors are also ones which I feed into the mix when I consider how I should fairly exercise discretion, and in the course of this and the main judgment I have identified a number of relevant instances on both sides.

41. I have attempted to put H's February 2006 offer and the whole series of Calderbank correspondence into its context as best I can, and have concluded that this last was an offer W should have accepted, as she must have (or should have) appreciated both that her case for excluding her inheritance from account was by no means bound to succeed, and that she faced considerable costs risks if the case proceeded to trial.

42. This is and (as the factors outlined in this judgment exemplify) can only be a broad discretionary exercise. I intend to fix W's costs liability in a sum certain to avoid the delay, complexity and considerable cost of a detailed assessment.

43. I do not however regard it as just that, for instance, W should bear full responsibility for H's costs in fact incurred from that point. For the reality is that each (but in particular, it appears, H) reverted to diligent (or, in my view, in H's case over-diligent) preparation for a full and in-depth trial of the whole range of issues.

44. I have no information as to the level of H's costs at a date say 28 days after his offer, which would be 9th March 2006. Clearly the bulk of the £240,000 he incurred from the date of the aborted hearing in December 2005 would have been in the last nine rather than the first three months of that period. The only clue I have bears that out: there was a pre-trial review on 19th October 2006 when H's costs were put at £348,711: a £109,000 increase since December 2005, with a colossal further £137,000 yet to come to the end of the main hearing just one month later.

45. I can only make an estimate for H's actual costs from March 2006 to November 2006. On the admittedly incomplete evidence of the correspondence bundle and the chronology of the proceedings there was not much activity from December 2005 to March 2006. My estimate is that H actually incurred costs of about £225,000 in the final nine months.

46. At [24] of the main judgment I said that the £225,000 costs add-back (that the figure is the same as I arrived at in the preceding paragraph is mere coincidence) which I made on H's side when calculating the £670,000 award would be subject to the submissions I have now heard on costs. I have now determined that H's costs were in fact excessive, and particularly so during the last nine months to the hearing. H should therefore not by my costs award recoup more than it is reasonable for W to pay in respect of that period including the final hearing over which the Calderbank correspondence affects what would have been my conclusion (based on the way the case proceeded openly) that each side should bear their own costs.

47. That final trial was fought with all guns blazing on both sides. My judgment spiked those which H trained in support of his allegations of W's non-disclosure and dissipation. But W's shots fell wide of the mark she targeted of avoiding equal division of assets, and the inclusion of her inheritance. She had undoubtedly also at an earlier stage lied about her ownership of one of the inherited Italian properties. That is reflected in my award.

48. I conclude therefore that W should pay H's costs in the fixed sum of £150,000.

49. I add for the sake of completeness that I was invited to deal separately with costs reserved in November or December 2005 when W made but ultimately did not pursue an application designed to enable her to increase the mortgage on 22 S St. I do not have sufficient information to evaluate Mr Cayford's request that W should pay H's costs of that discrete application and I therefore make no separate order in respect of those costs.

50. I expected that I might receive submissions about the impact on costs of a flurry of revaluation activity the parties engaged in before, during and indeed after the final hearing. Neither counsel sought to rely save peripherally on these largely unproductive exercises as a factor for consideration. Perhaps that was because they took the view that neither party could achieve much mileage over the other. Whether or not that is a fair assumption, I agree with that conclusion.

Child periodical payments
51. As I have mentioned, there was since 2005 no serious dispute that £6,000 per annum per child (inflation-linked) was an acceptable amount of periodical payments for H to pay W towards their daughters' maintenance. The case proceeded before me on that basis, and each party affirmed their acceptance of that sum. At [72] of the main judgment I fixed on the figure of £7,500 per child. I was wrong to do so. My jurisdiction to make any order at that time arose solely because the parents consented. H had never consented to pay more than £6,000 index-linked. That will be the amount of the order, and it would be quite wrong of me to adjust the capital award to reflect the fact that, left to myself, I would have made a higher order. Nor would it be right now to adjust the capital order or to make some other provision to reflect the higher figure because the children are now resident abroad and the Child Support régime no longer inhibits the court's jurisdiction.

Remaining steps
52. In the light of this judgment there remain for consideration between the parties, and hopefully for agreement, the precise terms of the order, including as to the timing and method of payment. They will also have to consider where the costs of the costs application should fall, as to which for all I know there may be further Calderbank correspondence. To cover the eventuality that agreement cannot be reached a further hearing date before me should now be fixed, although I very much hope that the parties will not need to incur further costs in resolving these outstanding issues.