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M v M [2009] EWHC 1941 (Fam)

Judgment arising from application for costs in ancillary relief proceedings that the wife should pay 50% of the husband’s costs. An order was made roughly equating to 20% of the costs.

The costs application arose from the wife’s attempts, introduced at the Pre-Trial Review, to have the husband’s shares in his company transferred to her. The husband vehemently opposed this, given the company’s debts and his position as a key man for the bank’s continuing support. This had the effect of changing the husband’s case as the wife had been allowed to file an amended Form A. When it became apparent that the transfer was not to happen, the wife made open proposals for periodical payments instead.

In this judgment, King J reviews the costs regime of the CPR in particular that of issue based costs orders. She concludes that this was a case for an issue based costs order as the application was misconceived. On the issue of quantum she concludes that the husband did not need to produce a detailed schedule and that the order should not be a percentage but, in line with CPR 44, for a stated amount of £175,000 of the total of £916,000.

Neutral Citation Number: [2009] EWHC 1941 (Fam)

Case No: FD07D01333

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 29/07/2009

Before :

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Between :

M (Applicant)

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M (Respondent)

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Mr. Tim Scott QC and Mrs. Victoria Domenage (instructed by Mischcon de Reya) for the Applicant
 Mr. Lewis Marks and Miss Elizabeth Clarke (instructed by Withers ) for the Respondent

Hearing dates: 22nd May 2009
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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.


Mrs. Justice Eleanor King: 
1. On 23 March 2009 I gave judgment at the conclusion of the trial in this matter. On 22 May 2009 the matter came back before the court for Directions. A number of outstanding issues required consideration, including an application by H that W should make a contribution towards his costs.

2. That application was not unexpected as Mr Marks QC had said at the conclusion of   the trial that such an application was likely.

3. H does not seek all his costs. What he seeks is an order that W should pay 50% of his costs. Mr Marks included in his written submissions 14 issues which he submits support his contention. Looking at that list, whilst it includes a number of matters about which I made adverse findings in relation to W, it seems to me that there are only two issues upon which H could succeed in relation to this application:

i) that it was unreasonable for W to raise, pursue or contest the issue of a transfer of H’s company to her and/or to make and pursue the allegation that by a devious and underhand stratagem H has thereby succeeded in pre-empting the Court’s decision whether or not to transfer [H’s company] to W.
ii) W’s late application for periodical payments at a rate of £420,000 pa

4. At the pre-Trial Review of this matter on 16 January 2009, seven weeks before trial Mr Scott QC, on behalf of W told H and the court that it was W’s intention to apply for a transfer of H’s shares in a company run by H It was made clear at that hearing by Mr Marks that H vehemently opposed such an application.  H’s concern as to the potential consequences to the business of an approach by W or her advisors to the company’s bankers provoked in court what Mr Scott described as  ‘a storm of protest’

5. The matter having been raised, Mr Justice Ryder made Case Management orders. W’s change in tack was sufficiently fundamental for it to be necessary for Ryder J to give W leave to file an amended Form A.

6. In the first week of February W travelled to New York to see Mr D, H’s business partner in the company. Mr D refused to consent to W’s proposal that H’s shares in the company be transferred to her.

7. On 6 February H’s solicitors wrote to W’s solicitors asking her to refrain from approaching the company’s Bank.  Those representing H said that, if it was felt to be essential to make such an approach, the matter should be raised as an issue at the start of the trial.

8. Notwithstanding Mr D’s lack of enthusiasm for W’s plans her amended Form A was filed on 12 February 2009.

9. On 16th February a letter was sent by the Company’s bankers, (the Bank letter), this letter dealt with the Bank’s proposed revised terms. These terms had been negotiated by H in the weeks leading up to the trial against the backdrop of the company being in breach of its loan to value covenants on the developments occasioned by the drastic drop in their value during the course of 2008. At the time of trial the company was in default to the extent of £53.4m and the loans outstanding amounted to £240m.

10.  The Bank said in the letter of the 16th February that they required additional fees.  These will in all probably amount to probably £11.5m. The Bank specified as a further term that H, or a company wholly owned by him, should continue as asset manager of the company.

11. W referred to this letter in the course of the trial as having been ‘the killer blow’ to her aspiration to have the company transferred to her.

12. In his written opening submissions Mr Marks described W’s application “as a very unwelcome and complicating development in the case and one towards which all of H’s evidence and energies have been directed ever since”.

13. There can be no doubt that the change in tack by W required a complete change in focus on the part of H’s legal team.  It inevitably led to a significant amount of additional work being carried out in order to respond to it; H made this clear in his affidavit filed on 18 February 2009.

14. Under the rules W should have filed her open proposals for the resolution of the case by the 23 February 2009. Neither her open proposals nor her affidavit due on 16 February 2009 were filed until after close of business on Friday 27 February 2009. The trial began on 5 March 2009. The accompanying letter disclosed a second change of plan.  The letter said that W’s case would no longer be put on the basis of W seeking a transfer of the shares in the company as “H has succeeded in particular by his recent secret dealings with[ the] Bank in a deliberate attempt to prevent a transfer of [the company] to the wife”.

15. W’s open proposals substituted for the proposed transfer of the company a claim for periodical payments at the rate of £420,000 pa.  W put her case on the basis that fairness required such an order to be made as H was retaining the business with its guaranteed income stream, W derives no income from a second company owned by H and finally that her income from her other assets was limited.

The Law
a)  The costs regime: 
16. Under the Supreme Court Act 1982 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) 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)) In certain circumstances parts of the CPR are however incorporated into the Family Proceedings Rules 1991 (FPR) which rules which govern family proceedings.

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

18. 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.

19. 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

(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.

20. Financial provision following divorce namely Ancillary relief proceedings,  are governed by FPR 1991. Provision for orders for costs is found in FPR rule 2.71. FPR rule 2.71(1) state that CPR 44.3(1) to (5) shall not apply to ancillary relief proceedings. The general rule found at CPR rule 44.3(2)(a) that costs follow the event therefore has no place in ancillary relief proceedings.

21. In ancillary relief proceedings, in contrast to the position provided for by the CPR the general rule as to costs,  which is found at FPR 2.71(4), provides that:

a) the general rule in ancillary relief proceedings is that the court will not make an order requiring one party to pay the costs of another party but
b)  the court may make such an order 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).

22. It follows therefore that although the general rule in ancillary relief procedure 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  it must have regard to the factors set out in r 2.71(5) namely:

(5) In deciding what order (if any) to make under paragraph (4)(b), the court must have regard to—

(a) any failure by a party to comply with these Rules, any order of the court or any practice direction which the court considers relevant;

(b) any open offer to settle made by a party;

(c) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(d) the manner in which a party has pursued or responded to the application or a particular allegation or issue;

(e) any other aspect of a party's conduct in relation to the proceedings which the court considers relevant; and

(f) the financial effect on the parties of any costs order.

23. It can be seen that FPR rule2.71 (5) (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 perused, 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).

b) The overriding objective
24. Rule 2.51D(3) of the Family Proceedings Rules 1991 provides that, when exercising any power given to it under the rules for financial relief following divorce or when interpreting any rule relating to ancillary relief, the court must seek to give effect to the overriding objective. The starting point for any assessment of conduct under rule 2.71(4))b) must, therefore be with the overriding objective as set out  in FPR  rule 2.51D(2)

2.51D The overriding objective

(1) The ancillary relief rules are a procedural code with the overriding objective of enabling the court to deal with cases justly.
(2) Dealing with a case justly includes, so far as is practicable—

(a) ensuring that the parties are on an equal footing;
(b) saving expense;
(c) dealing with the case in ways which are proportionate—

(i) to the amount of money involved;
(ii) to the importance of the case;
(iii) to the complexity of the issues; and
(iv) to the financial position of each party;

(d) ensuring that it is dealt with expeditiously and fairly; 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.

25. The overriding objective has been considered by the Court of Appeal on two occasions:

i) In Charman v Charman [2006] EWHC 1879 (Fam); [2006] 2 FLR 422 CA para [51], the Court of Appeal  emphasised in particular FPR rule2.51D(2)(c) and the importance of ‘proportionality’ in cases of financial relief
ii) In Crossley v Crossley [2007] EWCA Civ 1491; [2008] 1 FLR 1467 Thorpe LJ said

[13] ……I would particularly stress the overriding objectives that govern all these rules, carefully and fully drafted in r 2.51D. It is easy to attach this case on its facts to a number of the objectives there articulated. It is very important that the judge in dealing with the case should seek to save expense. It is very important that he should seek to deal with the case in ways proportionate to the financial position of the parties. It is very important, more so today than it was when these rules were drafted, that he should allot to each case an appropriate share of the court's resources, taking into account the need to allot resources to other cases. In his general duty of case management he is required to identify the issues at an early date and particularly to regulate the extent of the disclosure of documents and expert evidence so that they are proportionate to the issues in question.

26. Charman and Crossley were both appeals against case management decisions made by the Judge at first instance. FPR rule 2.51D(4) says in terms that “the parties are required to help the court to further the overriding objective.” Thus the parties are equally bound by the same obligation to further the overriding objective. The court in determining whether to make a costs order under FPR rule 2.71 must, therefore, consider whether in respect of the issue in question the party pursuing the issue was proportionate in his or her approach.

27. The application of FPR rule 2.71 is also subject to the President’s Direction of the 20th 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.


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”. 

c) Issue based costs orders
28. Although CPR rule 44.3 (1) - (5) does not apply to ancillary relief proceedings the same is not true for the rest of CPR rule 44.3. FPR rule  2.71(2)  says:

“CPR rule 44.3(6) to (9) apply to an order made under this rule as they apply to an order made under CPR rule 44.”

29. CPR rule 44.3(6) to (9)  provides the menu of orders available to the court when, having considered the factors set out in  CPR rule 44.3(4) & (5)  or FPR rule 2.71 (5) (as a result of its incorporation into the FPR 1991), it 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)

(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)

30. The application of CPR rule 44.3 (6) and (7) to ancillary relief 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 for a stated amount.

31. Given the identical terms of CPR rule 44.3(5) (b) & (c) and FPR rule 2.71(2) (c) & (d) relating to the pursuit by a party 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) apply equally to applications for issue based orders whether made in ancillary relief proceedings or in pure civil cases. 

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

33. 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%.”

34. 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]. … 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.”

35. Recently in National Westminster Bank PLC and Kotonou [2007] EWCA Civ 223 Lord 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.

36. The court following  the approach of Chadwick LJ in Kotonou must therefore:

i) decide whether or not this is a case calling for an issue based costs order

and if so

ii)  make the order for costs under CPR 44.3 (6) (a) or (c) by expressing the order by way of a percentage or fixed sum rather than making it under CPR rule 44.3(6)(f) (the rule which accords the court the power to make an issue based costs order.

Is this a case for an issue based costs order?
37. Mr. Scott referred me to the President’s Direction set out above, whereby the party intending to seek a costs order should ordinarily indicate their intention to seek such an order in open correspondence or in a skeleton argument before the date of the hearing.  Mr. Marks accepts that there is no such open correspondence but rightly reminded the court that he had raised the issue at the conclusion of the judgment.

38. The matter can have come as no surprise to W’s advisors who were aware not just throughout the whole of the trial but from the PTR and the open written submissions that H complained bitterly about an application being made to transfer H’s shares in the company to W.  Not only did they regard it as a costly waste of time but something which could have jeopardised the already perilous state of the company.

39.  I do not, therefore, reject Mr Marks’ application on the ground that the claim was not made in open correspondence and was only contained in a skeleton argument served late in the day.

40. Turning then to the substance of Mr Marks’ application.  Mr. Marks’ case can be summarised in this way; he submits that time, effort and money have been devoted to issues which should never have been raised, or which, once raised, should have been quickly abandoned. The changing by W of the fundamental basis of her application, very close to the trial was bound to increase tension and costs. To do so twice, once at the PTR and once in the last days before the trial began, was Mr. Marks submits, irresponsible to the point of recklessness.

41. Mr Marks relied in support of his submissions relied on matters specifically referred to in the main judgment. I shall not attempt, in this costs judgment, to summarise all the facts found in that judgment but will assume that they, and the arguments covered in that judgment, are in mind. In particular Mr Marks relies on paragraph 44 to 73 of the judgment which deals with the application of W for the transfer of the company.

42. Mr Marks summarises the relevant matters as follows:

i) The decision to apply for the transfer of the company and its timing
ii) The failure to abandon that decision, despite W having visited Mr D in New York where he expressed his opposition to any suggestion that she should replace H as his partner.  Mr D subsequently confirmed his position by an undisclosed email.  Mr. Marks refers to the following passage in the judgment:

[48] The wife said in oral evidence that even after receiving the very negative letter or e mail from Mr. D she felt that it was still worth pursuing the company for two reasons:

• that Mr. D had been polite to her when he had met her and therefore she thought if he was presented with a fait accompli that he would soon learn to work with her.  This, with great respect to the wife, shows the extent of her financial and business naivety.  It is hard to imagine how the fact that Mr. D was courteous and polite to the wife of his very long standing business partner at a meeting in New York could be construed as an ability to work with her if, (contrary to his wishes,) she was foisted upon him as his partner in place of the husband, particularly during the current economic maelstrom.
• ……..

iii) The unfounded allegation (para 62 of the judgment) in relation to H’s “devious and underhand stratagem” which was said to be the reason for the W’s belated abandonment of that application
iv) The failure of W’s expert Mr W to appreciate the clear language of the bank loan documentation (together with W’s belief that those critical documents had never been brought to her attention). These documents unequivocally showed that throughout H’s relationship with the bank it had been a term of his loan agreements that he should be owner and controller of the company.  Mr Marks refers to the judgment:

[60] What the court can and does find is, regardless of what she may have been told, the wife believed that the first that she knew of the control covenant was on receipt of the bank letter.  She was completely convincing in her obvious dismay and in her protestations that she would never have considered pursuing the company had she known. 

v) The failure of Mr G, W’s forensic accountant to read the crucial ‘bank letter’ correctly: the result of this failure was that, presumably, not only did Mr G wrongly attribute the company with a value of tens of millions of pounds, but he led W (and her legal team) to believe that there was a significant surplus of rent after the bank borrowings had been serviced which could be drawn out of the company as income. The relevant passage in the judgment says:

[71] Mr. G said in his evidence that he had seen the Bank letter but had misinterpreted it so that he had not appreciated that there would be any penalty interest, whether £6.5 million or £11 million.  He was, he said aware from an appendix to Mr. H's report that "surplus income is mandated to the bank to pay down loans".  One wonders therefore why he produced illustrative valuations ignoring that fact.

43. In addition to the issues surrounding the company, Mr Marks referred to a number of other areas where I made serious adverse findings.  He emphasised in particular:

a) The very unfortunate approach and presentation of W and her US advisors in relation to her family wealth which I had found to be evasive and in some respects misleading.
b) The preparation and submission by W of a ‘revenge; budget of in excess of £1m pa  and her involvement of the parties’ children in the preparation of the same
c) The failure of the W to disclose a bank account containing close to £1m

44. These latter matters would not in themselves have led to the making of an issue based order in this case. What they do  is inform the court in its overall consideration of the application for costs and in particular in its consideration under FPR rule 2.71(5) of

“(e) any other aspect of a party’ conduct in relation to the proceedings which the court considers relevant”

45. These findings in my judgment revealed an approach to the litigation on W’s part that was neither open nor constructive and, on her own admission in her oral evidence, driven at least in relation to her ‘budget,’ by a desire for revenge against H.

46. I thus consider H’s application for an issue based order in relation to W’s application for the transfer of his shares in the company against the backdrop of W’s approach to the litigation as a whole. 

47. In my judgment when contemplating an application for the transfer of the company there were three significant factors any one of which should have brought W up short:

i) The Bank’s historic requirement that H should control the business
ii) The reluctance of Mr D to agree to W replacing H as his partner which, if overridden may well have catapulted W into litigation had she, as I put it in my judgment  “driven a coach and horses through the protection Mr D believed himself to have by virtue of a long standing and he believed binding agreement”
iii) That upon a proper construction of the documentation, provided to W’s advisors and accepted by Mr G on her behalf when giving evidence,  it was clear beyond peradventure that there would be no surplus of rent available for distribution for at least the next four years (para 73 Judgment)

48. Even without these factors specific to the company the whole application was in my judgment misconceived. W as I found, has led a privileged and protected life surrounded by the advisors put in place by her father. She has no business expertise. Her proposal was that a business, which at the time of the filing of the Form E had a value of £343m and at trial of £226.45m, should be transferred to her notwithstanding that  lack of expertise or experience.

49. No doubt the wife’s intention was that a raft of advisors would run the business on her behalf. It is difficult to see how that could ever have worked given that the position was that the loans stood at £244.7m (against a value of £226m) and the relationship with the Bank of the key man (or woman) was critical to the company’s survival.  In the judgment I summed it up as follows:

[61] The wife said that a desire for income motivated her to seek the transfer of the company to her.  The company is a highly complex and substantial business in which Husband is the key man. Far from running itself, it requires intensive and delicate handling if it is to survive. It is remarkable that could ever have been thought that it could be run by the wife with or without advisers. 

50. Mr Scott in reply strenuously opposed the application for costs.  He submitted that the court should bear in mind that this was an extraordinary case in that the asset base fell from around £150m when the case started to £28m at trial. He said this meant that, inevitably, the entire shape of the case changed leading to increased costs.  He submitted that, if W was slow to adapt to the changes she was in the company of most financial institutions and indeed Governments.

51. In relation to FPR rule 2.71(5)(c), (whether it was reasonable for a party to raise pursue or contest a particular allegation or issue), Mr Scott submitted that the claim was raised at a late stage in response to the falling value of the husband’s assets and then dropped. It was he said, to her credit that she did not pursue it at trial. It would he concluded be unfair for the court to make what would amount to a specific issue costs order without a detailed breakdown of the relevant costs. The issue, he said, was not had the court been critical but does it sound in costs?

52. Mr Scott accepted that Mr G had been ‘caught out’ and that the court had been critical of Mr T (the wife’s US advisor).  Mr. Scott, rhetorically, asked could it be fair as a point of principle where a wife reasonably looks to her expert advisors and they let her down for her to ‘carry the can’.  It would not, Mr Scott submitted, be right to visit on W the faults of her experts.

53. Mr Marks, in reply to this last point, said that W may well not have been given the service to which she was entitled by Mr W and Mr. G but for the purposes of these proceedings, she has to bear the responsibility and, if she chooses, seek recompense from her advisors hereafter.

54. I agree. If, as I do, I conclude that the application for the transfer of the company to W should never have been made, it is not in the circumstances of this case for H to suffer the consequences of that decision.

55. The decision to seek the transfer of the company was not simply a poor tactical decision or even an application which although properly made, stood little or no prospect of success.  In my judgment it was a wholly misconceived application based on a number of false premises which arose in large measure by the misinterpretation of critical information about the company by not one but two of her experts:

a) Mr W failed to understand the significance of the husband’s covenant to manage the company which was replicated in every loan agreement he ever had with the Bank. Mr Scott told me during the costs argument that W now accepts she was mistaken in her evidence to the court and she had in fact been told of this running term. I accept completely that if Mrs. Reeves (solicitor for W) says that W was told of this then she was. I am equally convinced that W did not absorb that information at that time or that those explaining it to her did not understand its significance. I do not resile from my observation in the judgment to the effect that W was stunned when she understood and meant it when she said that had she understood that there had always been such a covenant she would never have ‘spent all that money’ trying ‘to get’ the company.

b) Mr G made two serious errors:

i) He misread the bank letter with the result that, in valuing the business, (both for the purposes of the trial and for advising W as to the value to her of a transfer) he failed to take into account the vast penalty fees of over £11m to be paid for the breach of the loan to value covenants.
ii) Although he said he had read the documents which told him that the bank required the totality of the rents to be paid to them for the foreseeable future, he failed to factor it into his calculations.  As a consequence he valued the company on the basis that there was surplus rent of millions of pounds each year which could be withdrawn as income.  It was on that basis that W sought the transfer in the belief that it would produce substantial income for her.

56. I have no hesitation in concluding that this is a case where an issue based costs order should be made.

57. In my judgment the late application for periodical payments which followed on from W abandoning her claim for the company forms part of the moving target which H’s team were faced with in the days and weeks leading up to the trial.  My order is unaffected as to quantum by the making of that application

What order should be made?
58. In the light of Chadwick LJ’s observations in Kotonou it follows that I do not accept the submission made by Mr. Scott that the husband should have produced a detailed and broken down costs schedule relating specifically to W’s application for the transfer of the company and for periodical payments for herself. Further I do not accept that in order for the court to make an issue based order for costs, it is necessary to prove by reference to a detailed analysis of costs, that the raising or continuation of the particular allegation or issue led to identifiable increased costs.

59.  Mr Scott submitted that it would be wrong for the court to make an issue based order expressed in percentage terms.  It should be noted that neither side referred to the cases referred to in paragraphs 33 to 36 above.  I did, however, indicate to Counsel my intention to read and refer to any authorities I felt to be relevant in relation to the parallel provisions in the CPR.  Both sides have been given an opportunity to make supplementary submissions in respect of those authorities and have declined to do so.

60. The costs in this case are colossal. H’s Form H discloses costs of approximately £916,000, W’s of over £1m even before her very substantial American costs are taken into consideration. 

61. I accept that this was always a complex piece of litigation ranging as it did over two continents and that the costs must have been significantly increased by the catastrophic and unexpected fall in the value of H’s business assets.

62. I also accept, as submitted by Mr Marks, that the complete change of tack by W only weeks before trial necessitated the whole focus of trial preparation on the part of H’s advisors to shift, only to shift again a matter of days before trial when the claim for the company fell away to be replaced by a claim for periodical payments. The effect on the timely preparation of the case was evidenced by the fact that, as W went into the witness box the only budget available to H’s team was the inflated budget annexed to her Form E devised by W ‘in revenge’ and again by the fact that on the first day of the trial, although the report of Mr G had been disclosed to H (albeit very late), W had to make an application under Daniels v Walker [2000] 1 WLR 1382 for introduction of the same into the proceedings.

63. 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 this case that would be expensive and time consuming requiring a detailed assessment of H’s costs before the relevant percentage could be applied.

64. I have decided that this is a case where the court should properly make an issue based order for costs.  Mr. Marks ambitiously submitted that the proper order in such an event is one whereby W has to pay 50% of H’s costs. I bear in mind that this was a case where there had been very few interlocutory hearings, so an unusually high proportion of the costs relate to trial preparation.  However, an order that W pays 50% of H’s costs would not in my judgment adequately acknowledge:

a) the inevitability of substantial costs in this case and
b) that the starting point is that costs lie where they fall.

65. The order I make is that W should pay a sum which roughly represents 20% of H’s untaxed costs of £916,000. In order to avoid the expense and delay of detailed assessment I intend to make an order pursuant to CPR rule 44.3(7) and CPR rule 44.3(6) (b) that W pays costs to H of a stated amount, namely a rounded down figure of  £175,000.