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Zahra Pabani
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A reminder that the courts have wide discretion when awarding costs: AB v CD [2016] EWHC 2482
Date:2 NOV 2016
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This article looks at the outcome of the costs hearing in the long running case of AB v CD [2016] EWHC 2482. The general rule in relation to costs in family financial remedy proceedings is ‘no order’ thus each party pays their own costs. Certain applications are exempt from the ‘no order’ rule, in which case the court can use its discretion when making an order as to costs.

In this case, H made a successful application to set aside the consent order but when considering costs, the judge ordered that W should pay only 50% of H’s costs.

The background facts 


By way of background, the parties met in 2006, were married in November 2008, and were no longer living together by June 2009. On H’s case, the marriage lasted just 7 months; on W’s case, the marriage came to an end in July 2010. By March 2012, AB and CD had reached an agreement in respect of the finances, which was reflected within the consent order dated 10 April 2012 (the ‘consent order’). Under the terms of the consent order, H transferred his 4.6% shareholding in W’s company, B Ltd. Shortly after the consent order had been agreed, H discovered (through the publication of an article in the Sunday Telegraph) that W’s company, B Ltd, had been given a large injection of cash, which she had not disclosed and which, on H’s case, increased the value of the shareholding.

H therefore made an application to set aside the consent order on the basis of non-disclosure. The ensuing litigation was protracted. Despite being asked a number of questions by H’s legal team in May 2012 in relation to the cash injection, W maintained, until a late stage in proceedings, that B Ltd had only been provided with a loan of £150,000. The reality was that the company had received a cash injection of £3.5m. Offers to settle the case were made by the parties in 2014 but negotiations quickly reached a standstill.

It was found, at the hearing in January 2016, that W’s non-disclosure was material (but not fraudulent) and the consent order was set aside. The full case in respect of the set aside of the consent order is reported as AB v CD [2016] EWHC 10. By the date of the hearing in January, the combined bill of costs between the parties in dealing with the set aside application was significant: H amassed some £841,700, W some £478,000.

The case returned to the court on the matter of costs, with H making an application for the payment of his costs on an indemnity basis with an immediate substantial payment on account.

Financial remedy proceedings and costs: the law


The starting point in relation to costs in financial remedy proceedings is the ‘no order’ principle; namely, each party shall pay their own costs. Roberts J drew upon leading cases, the FPR 2010 and the CPR to set out the law on costs in relation to set aside applications.

The ‘no order’ rule is set out at FPR 2010, r 28.3(5): ‘the general rule in financial remedy proceedings is that the court will not make an order requiring one party to pay the costs of another party’. ‘Financial remedy proceedings’ is defined at FPR 2010, r 28.3(4)(b) with (i) setting out the types of orders which do not fall under the definition of a financial order, including, but not limited to, an order for maintenance pending suit and an order in respect of payment of legal services.

Case law has made it clear that applications to set aside a consent order do not fall within the remit of the ‘no order’ rule. The Court of Appeal, in Judge v Judge [2008] EWCA Civ 1458, held that the general rule at FPR 2010, r 28.3(5) did not apply to proceedings to set aside a consent order on the basis of non-disclosure, as while ‘the proceedings before the judge were in connection with ancillary relief, they were not for ancillary relief’.

In these cases, the court can use its discretion to make a costs award and look to the CPR for guidance.

Article continues below...

What factors does the court take into account when considering costs? 

Wilson LJ, in the case of Baker v Rowe [2009] EWCA Civ 1162, stressed that the fact that one party had been unsuccessful would often be a decisive factor in the exercise of the judge’s discretion as to costs. While often decisive, the buck does not always stop with the losing party as there are a number of factors which the court should consider when using its discretion. These factors are helpfully set out in Joy v Joy-Morancho and Others (No.3) [2015] EWHC 2507. 

The judgment in Joy v Joy-Morancho and Others set out that even in the realm of the ‘no order’ principle, the court must have regard to the following factors when considering whether a costs order is appropriate: 

(a) any failure by a party to comply with the rules, any order of the court or any practice direction which the court considers relevant;
(b) any open offer 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.

In addition, as per PD28A para 4.4, the court must also have regard to the obligation of the parties to help the court to further the overriding objective. The court should also take into account the nature, importance and complexity of the issues in the case. 

The case of Joy v Joy-Moroncho and Others also reminded family practitioners that they are not confined to the FPR 2010 and that the court can also rely on relevant parts of the CPR when using their discretion in awarding costs. In particular, the court may rely on CPR rule 44.2, and consider: 

(a) the conduct of all the parties including, conduct before and during proceedings and whether the pre-action protocol was followed; whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue; the manner in which a party has pursued or defended an issue; whether the claim has been exaggerated, albeit successful;
(b) whether a party has succeeded on part of its case, even if that party has not been wholly successful; and
(c) any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply.

It was against this legal backdrop that Roberts J considered H’s application for costs. 

Each party’s position 


H sought to rely on the fact that he had been the successful party in the proceedings; put simply, he had made an application for the set aside of the consent order on the basis of material non-disclosure. The court had found that there had been material non-disclosure; they had set aside the order as per H’s application and, according to H, such finding should be reflected in the costs order. Although W had made an offer to contribute to H’s costs, the offer was for just £50,000, a mere 6% of the costs. In the circumstances, such an offer was unreasonable and H could not accept it. 

W’s position was that although she had lost the case, the reason the costs were so high was, in part, due to H’s litigation conduct. For example, he had, on the wife’s case, been obsessive in litigating against her and had been adamant that her non-disclosure was not only material but also fraudulent. H’s determination to push the fraudulent non-disclosure argument resulted in greater legal costs. H had also spoken to the Daily Mail and divulged confidential information from the proceedings, including extracts from W’s Form E. W attempted to rely on this indiscretion to justify her vague response to questions throughout proceedings. 

The decision 


Roberts J struck a difficult balance in applying his discretion in awarding costs, considering not only the outcome of the set aside application but also each party’s litigation conduct. The very practical reality that W was now facing extreme financial difficulties was noted by the court. Whilst Roberts J was sympathetic to W, and went to great lengths to reiterate that he had not found her non-disclosure to be fraudulent, there was no shying away from the fact that H had succeeded in his application to set-aside the order: ‘the central issue in the circumstances following the Odey Investment in B Ltd was the fundamental ‘drive’ for the hearing. H was successful in establishing the grounds for the setting aside of the consent order thus his successor the fundamental ground is a critical factor which I must fold into my deliberations in relation to costs under CPR r 44.2(4)(b) irrespective of his own conduct under CPR r 44.2(4)(a)’. It was accepted that W had made a serious offer to H during the course of proceedings in 2014 but the fact that she had lost the application could not be ignored. 

Although H had gone to the press in the past, W’s concerns in relation to H abiding by the rules of confidentiality did not justify the misleading comments she provided throughout the proceedings. Ultimately, ‘the tragedy of these current costs [was] that most of them could, and should, have been avoided by a clear and transparent response from W at the outset.’ 

In considering the parties’ conduct throughout proceedings, Roberts J noted that H’s conduct did have to be taken into account as it had ‘fallen short of what might be expected of him in terms of his conduct in relation to the litigation’. Finding that H had approached the Daily Mail journalist with malign intent towards W, Roberts J considered that his task in this application was to ‘stand back and address the global perspective of this litigation with a broad brush, just as Sir Peter Singer did in Joy v Joy Marancho’. 

Having stood back, Roberts J rejected H’s application for the immediate payment of substantial sum for the costs and instead ordered that W must pay to H 50% of his costs, to be assessed on an indemnity basis. Although H had succeeded in his application to set aside the application, his litigation conduct in consulting the press, the fact that W had succeeded in defending the accusation of fraud, and the offer made in February 2014 could not be ignored and justified a reduction in the costs to 50%. 

This may not be the last we have heard of AB and CD: Roberts J stayed the application on costs until the financial remedy application had been heard and thus H was not successful in obtaining immediate payment of the costs. 

Comment 


AB v CD
 [2016] EWHC 2482 highlights the importance of litigants considering their litigation conduct throughout proceedings. The courts have wide discretion in relation to costs. This case serves as a stark reminder that a successful application is simply not enough to guarantee that the “losing” party in cases will walk away with a costs order made against them. 
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