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Another disproportionate costs case, and a lament for Calderbank

Just last week I wrote here about a financial remedies case in which the legal costs run up by the parties left little or nothing to be distributed between them. Only a matter of days after the judgment in that case was handed down, another judgment was published detailing another financial remedies case in which the parties had run up legal costs that were out of all proportion to the value of the assets involved.

The judgment was in the case ABX v SBX, handed down by Mr Justice Francis back in July. It concerned the final hearing of a husband’s financial remedies application, which took place over five days in May.

For the purposes of this post I will not be going into the details of the case, save to say that it was (obviously) fully and heavily contested by the parties, who were arguing over assets that Mr Justice Francis valued at “something below £2 million”. Against this, the parties ran up costs of almost £1.1 million, not including the costs of implementing Mr Justice Francis’s order, which caused him to comment:

“Whilst costs of this level are not at all uncommon in what might be termed the “very big money” cases, it will be obvious to anybody reading this Judgment that the costs incurred in this case are wholly disproportionate to the size of the assets”

He made it clear that the parties should have settled the case, which he considered was not particularly complicated. He went on:

“I … venture to suggest that were the Calderbank provisions still applicable the parties might have been forced to take a very different attitude towards this litigation. I say this because a party who turned down an offer that they failed to beat, under that regime, could be staring at a substantial costs order.  I recognise all of the pitfalls that were associated with the Calderbank principles, but I fear that there are cases where litigants now feel able to continue without the sanction of costs, save in cases of serious litigation misconduct.”

OK, for the benefit of those who don’t know what this is about, a little bit of history. Prior to 2006 it was possible for a party to a financial remedies application to put forward a settlement proposal that was ‘without prejudice save as to costs’. This was known as a ‘Calderbank’ proposal, after a 1975 case by that name. The point of such a proposal was that it could not be shown to the court (this is the effect of it being ‘without prejudice’), but if the proposal was not beaten by the other party then the maker of the proposal could show the proposal to the court and request the court to order the other party to pay their costs from the date of the offer, on the basis that those costs would not have been incurred if the offer had been accepted.

All of that changed in 2006 when new rules were introduced governing costs in financial remedy applications. Open offers (i.e. offers that could be shown to the court) were to become the norm, with the starting point in all financial remedy cases to be that there should be no order as to costs – i.e. each party should pay their own costs. The court can still make costs orders against a party, but only where it considers it appropriate to do so on the basis of the party’s conduct before or during the proceedings, and when considering this the court can take into account open offers made, but not Calderbank offers.

The problem with the new system, of course, is that making an open offer that the court can see is very committal. Many parties are not happy to make such offers, and obviously if they do then the offer is likely to be considerably less generous than a Calderbank offer, reducing the chances of an agreement being reached.

And more importantly, there is the point made by Mr Justice Francis that receiving a Calderbank offer can concentrate the mind of the recipient, as they know that if they do not beat the offer then they could be facing a substantial costs order. In this case, for example, the wife never even responded to the first open offer made by the husband. If she had had the ‘pressure’ of the Calderbank rules to consider, I doubt whether she would have ignored the offer, and obviously the case may have concluded much sooner.

Of course, we will never know for certain whether the Calderbank rules would have saved this couple from running up disproportionate costs, but they may have made a difference, and for someone like Mr Justice Francis to express the opinion that they might have done is significant. Clearly, the argument over whether the rules should be reintroduced, which has been running since 2006, is far from over.

You can read Mr Justice Francis’s full judgment here.

John Bolch often wonders how he ever became a family lawyer. He no longer practises, but has instead earned a reputation as one of the UK's best-known family law bloggers, with his content now supporting our divorce lawyers and child custody lawyers

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