David Hodson and Sarah Basso, of the International Family Law Group LLP, examine the recent Australian decision of Laniga and Carron (No. 2)1, in which a costs order was made against the husband following the final financial order being more favourable to the wife than various without prejudice offers made by her and rejected by him.
In contrast, an English court would have been unable to take the without prejudice offers into account and therefore would have been unable to make costs order on a similar basis. Had the matter been heard in England, it would have resulted in an unfair costs outcome to the wife who had made reasonable attempts to resolve matters without the need for costly litigation. The arguments for the removal and re-introduction of Calderbank offers are considered in this context.
Calderbank offers are offers which are made on a without prejudice basis, save as to the issue of costs. Named after the case, curiously also a children case, in which they were first considered, such offers cannot be revealed to a court other than on the issue of costs. Calderbank offers remain intact in English Civil Procedure Rules but their application in family law proceedings around the world is variable.
The Australian approach
Calderbank offers are still used in Family Law proceedings in Australia for the dual purpose of attempting to negotiate an out of court settlement but also to preserve and protect a client’s cost position.
Similar to the English position in most Family Court proceedings, the starting point in the Australian Family Courts is that each party to the proceedings shall bear their own costs. However, the courts may make an order for costs, if it is considered just to do so pursuant to section 117 of the Family Law Act 1975. There are several factors to which the court is required to have regard when determining whether to make a costs order. Relevant here is:
“whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer”. 2
The Australian Family Court has taken the view that the inclusion of the section makes it clear ‘that the purpose of that position is to ensure that offers to settle, if made seriously, are considered seriously, to ensure the costs of litigation is avoided…’ 3
The English approach
In contrast to the Australian position, Calderbank offers were removed from final financial remedy proceedings in the English Family Law jurisdiction in April 2006 (following SI 2006/352 coming into force). The stated reason was in part ‘to avoid procedural gamesmanship and uncertainty for the parties which these [Calderbank offers] can produce’. 4
Rule 28.3 of the FPR now provides:
… (8) No offer to settle which is not an open offer to settle is admissible at any stage of the proceedings, except as provided by rule 9.17. 5
Whilst Calderbank offers remain admissible in some Family Law proceedings (for example, in applications for maintenance pending suit or appeals in financial remedy proceedings), for an offer to be considered in a cost context in final Family Court proceedings it must be an open offer.
Langia and Carron – the Financial Order
In Langia and Carron, the parties married in 1998 and separated in 2015. The children were 12 and almost 15 years of age at the time of the judgment in September 2018. The husband was self-represented for the duration of the proceedings.
The final financial order resulted in the wife receiving a total of 55% of the matrimonial pot (including an add back for legal fees), which was assessed as £753,265 (AU$1,343,539). The wife received £386,263 (AU$688,946) following the offset of a lump sum she had received following separation and the commencement of proceedings which was characterised at trial as a ‘partial property settlement’. (NB: a partial property settlement is, simply, a lump sum order which is made pending a final financial remedy order being made).
Throughout, and in one instance shortly prior to, the commencement of the proceedings the wife made four offers to settle.6 Most relevant from a costs perspective is that each of the offers were not accepted by the husband and if they had been accepted, would have resulted in the wife receiving less of the matrimonial pot than she received by the financial order. The second and third of the four offers were said to be made pursuant to Calderbank.
Costs order in Langia and Carron (No. 2)
The husband was ordered to make submissions on the issue of costs and was asked to address the question whether an order should be made on an indemnity basis. The husband asserted that he had been unable to consider or propose any offers until the matrimonial pot had been agreed between him and the wife.
Ultimately, an order was made requiring the husband to pay the wife’s costs on a scale basis, from the date of her first offer (which was made prior to the commencement of proceedings by her). The wife had, unsuccessfully, sought costs on an indemnity basis. In rejecting an order for an indemnity costs, one of the considerations made by the court (along with the husband’s conduct and his financial capacity) was that he ‘was at all times a self-represented litigant who did not have the benefit of sound legal advice.’7 The Judge continued:
“Though that is not always an excuse, I consider that the husband in this case ought to be given the benefit of the lesser of the two costs orders able to be made against him.”
What if Langia and Carron (No. 2) had been heard in England?
Had the English Family Court heard Langia and Carron (No. 2), it is likely that under the current law, no costs order would have been made against the husband. Given the numerous attempts made by the wife to settle the matter prior to the final trial (and one offer prior to the proceedings) and noting in particular that each of those offers were lower than the order which was otherwise made in her favour, it seems unfair that she should have to carry the burden of legal costs.
The pros and cons of Calderbank offers
Before the restriction on the use of Calderbank offers in English Family Law, Nicholas Mostyn QC (as he then was, sitting as a deputy High Court judge) in his judgment in GW v RW (Financial Provision: Departure from Equality)  EWHC 611 Fam, compared the use of Calderbank offers to forcing parties in financial remedy proceedings ‘to engage in a mandatory form of spread betting.’ He said that the difference was that with betting the amount lost or won is the difference between the result and the amount bet. However, with Calderbank offers, a slightly lower amount than the amount bet (or offered) being awarded in the final order, could result in the full amount of costs being required to be paid. He referred to the offers as ‘guesses’ which would result in costs being paid if the guess was accurate.
Along with the concern outlined in the explanatory memorandum, another was that a costs order being made following a final financial order may greatly (depending on the size of the pot) reduce the amount which would have otherwise been retained by that party, leaving them unable to meet their needs. When making a cost order, regard is to be had to ‘the financial effect on the parties of any cost order’.8 In J v J  EWHC 3654 Fam, Mr Justice Mostyn referred to this consideration as ‘highly important’ and said that it ‘requires the court to ensure that its primary disposition, which will usually be strongly influenced by considerations of need, is not undone and subverted by a costs order.’9 Whilst in one sense, a costs order could lead to an unfair outcome to the party whose needs are no longer met, the inverse is that those legal costs (and their legal costs) would not have been incurred had they accepted an offer which was reasonably made earlier in the proceedings.
From the judicial perspective, Calderbank offers are sometimes a hugely frustrating element in the process. The judge has spent time at a final hearing considering the evidence and trying to strain the available resources for the needs and requirements of the applicant, counterbalancing the position of the paying party. Having done their best in a finely balanced outcome in the judgement, they then find that one party has a genuine bona fide claim for costs because the other has unreasonably refused to make or accept good offers, and indeed may have so-called “beaten” the outcome in their offer, meaning that the edifice of the financial structure within the judgement has to be torn down as a consequence of the costs order.
The party who is barely receiving sufficient for her needs is perhaps shown as having unreasonably refused better offers and now faces a claim that the bare amount received should itself be reduced because of costs orders. The paying party who may have surplus resources after the final judgement may then receive more because of the failure of the other party to accept generous offers previously made, even though each party have paid their costs to date which may have been similar. There are still real problems with the Calderbank process at this stage in the case.
The potential cost consequences of Calderbank offers can act as a deterrent to a financially stronger party litigating to “wear down” the financially weaker party. These costs risks can impact the way a party conducts themselves in litigation. Mr Justice Francis commented on the impact that Calderbank offers can have on the approach to litigation in ABX v SBX  EWFC 81 on 31 July 2018. He said:
“I also 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.”
The day before, Mr Justice Francis had questioned in WG v HG  EWFC 84 whether “the removal of the Calderbank regime has helped to add to the costs crisis one frequently finds in this type of case.” In WG v HG, the parties had spent almost £1.4 million between them on legal fees, which was said to exceed ‘at least one side’s estimate of the housing need of one of the parties’.
Whilst there are potential downsides to Calderbank offers, they do have a place in financial remedy proceedings, whether in their original format or with slight amendments to their application. With the case law available (both in Australia and England) to guide family lawyers in advising clients on likely outcomes and therefore proposals to settle, offers should not be a ‘guess’, even an impressionistic guess.
Calderbank offers can act as an incentive to reach a negotiated outcome prior to final trial, assuming that full and frank disclosure has been made by each of the parties. An incentive to consider making and accepting reasonable offers would in turn assist with minimising costs, particularly as parties spend an increasing amount on legal fees which are continually reported (in England) to be disproportionate to the matrimonial pot. It would also lead to a quicker resolution and given the current backlog in the Australian Family Courts this would significantly assist with reducing delays (particularly in Australia).
If Calderbank offers were to be re-introduced, with the FPR in its current form, a Judge would need to balance their ability to make a costs order against the effect of the order on a party’s needs (by considering the financial effect of a costs order). This should help to appease concerns about the inequity of costs orders which eat into capital awarded to meet needs.
David Hodson OBE MICArb is a co-founder and partner at The International Family Law Group LLP, London. He is an English solicitor, arbitrator and mediator and also an Australian qualified solicitor, and sits as a part-time family court judge at the Central Family Court. Sarah Basso is a Senior Paralegal and qualified Australian Solicitor (QLD) at iFLG. www.iflg.uk.com