Costs and conduct in financial remedy cases

Costs and conduct are more frequently mentioned in my financial remedy practice than ever before. There has been judicial movement away from the standard ‘no order as to costs’ (the general rule pursuant to FPR 28.3(5)), most notably and stringently by the recently retired Mostyn J. This encourages proportionality and sensible negotiations; something lost after the demise of the Calderbank offer, which can now only be employed in interim applications.

A more civil-style approach to costs is being taken in financial remedy applications and practitioners should warn clients of the potentially harsher outcomes. There is a public interest point to this progression too; the judiciary’s time should not be overly burdened by unreasonable litigants, particularly when the court’s backlogs are high for both finance and children matters.  

There is regular judicial encouragement to ensure itigation conduct results in a costs order. In OG v AG [2020] EWFC 52, Mostyn J set out the four types of conduct and approach the courts should take in respect of each. Mostyn J signposted the revised wording of 4.4 of FPR PD28A, that a failure to negotiate reasonably and fairly when the financial landscape becomes clear, would result in a costs order. This assessment of conduct is broad; a party does not need to do something active, as the passive act of not negotiating is sufficient to satisfy the threshold. A disproportionate approach to the litigation generally would satisfy this test.

Costs orders as a quasi-remedy to litigation conduct now regularly feature in both sharing and needs cases.The case law varies from ultra-high-net-worth individuals (such as the recent example of Tsvetkov v Khayrova [2023] EWFC 130 and [2023] EWFC 131  where Peel J ordered the wife to pay 50 per cent of the husband’s costs on an indemnity basis) to lower value needs cases (MB v EB [2019] EWHC 3676 where a costs order made against the husband due to his conduct  meant he could not meet his needs).

In my recent practice, a needs case involving non-disclosure and litigation conduct resulted in costs being taken into account as part of the overall award, rather than as a separate order. Consequently, one party had a greater departure from equality in their favour awarded to reflect a notional costs order. Although the costs order was quantified, it was part of the lump sum ordered, rather than via a distinct costs order following a separate judgment. This holistic approach is adopted in CC v LC [2023] EWFC 52 where a costs order made against the husband was offset against the lump sum payment he was to receive. The husband’s conduct was extreme; he did not engage in the proceedings, breached multiple orders and failed to attend hearings.

In Mostyn J’s final judgment, Susan Nancy Baker v Andrew Hartill Baker [2023] EWFC 136, he made a costs order of £200,000 against the husband, to “reflect [his] misconduct” which “represents a significant sanction”. In the context of the wife’s total costs of £1.4 million, this is arguably not significant. Mostyn defended his judgment, stating the wife is not entitled “to have all, or even a large part, of those costs reimbursed”. This is an important demarcation; although costs orders are being made more frequently, they are likely to meet only a fraction of the costs (even if proportionately and reasonably incurred, though they were held not to be so in this case), even where the other party’s conduct was severe.

The difficulty facing practitioners and litigants is a judge’s assessment of conduct is done with the benefit of hindsight – after they have made findings in respect of each issue. Only then will a party know whether a judge has found in their favour on each point.

The best way to guard against a potential exposure to a costs order? Make an open offer as early as possible once the disclosure is sufficiently close to completion and, ideally, before 21 days after the FDR (per FPR 9.27A). If not, there should be persuasive evidence demonstrating why the financial landscape was not clear enough to make an offer sooner. In both instances, a cautious approach to the proportionality of costs should be taken throughout. And then there is the matter as to whether we ever return to Calderbank.

Leora Taratula-Lyons is an associate at Burgess Mee Family Law.

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