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Kara Swift
Kara Swift
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Pride and Without Prejudice: Is it time we reintroduced Calderbanks?

Date:9 AUG 2019

It is a truth universally acknowledged that family lawyers like a good debate, and that if you want to find out what particular issues are exercising the minds of practitioners at any given time, Twitter is as good a place to start as any. 

That was certainly the case in July when I became involved in a lively exchange of views with fellow financial remedy practitioners on the social media platform about Calderbank offers. The catalyst for this debate was the publication of a Ministry of Justice consultation, which asks a single question – ‘Do you consider that offers made without prejudice save as to costs should be admissible in considering the ‘conduct’ of a party for the purposes of FPR r28.3?’ The consultation is intended to inform the wider work of the Family Procedure Rules Committee’s judicially-led Costs Working Group which was established to review the costs regime in financial remedy proceedings and make recommendations for reform of the Family Procedure Rules (FPR). The deadline for the response is 31 October 2019 and respondents are asked to answer yes or no to the question but to support that with full reasons and examples.

Our Twitter debate unsurprisingly reflected the divergence of opinion amongst family lawyers. One camp is strongly opposed to the reintroduction of Calderbanks. They argue that prior to their abolition in 2006 for financial remedy proceedings (see below in respect of what this means) they had become an unnecessary and unhelpful complication that risked undermining carefully considered judgments. The opposing view is that the current rules do not provide adequate incentives to settle cases and that reintroducing Calderbank offers in some form will help address this.

I am firmly in the latter camp. I believe that it’s time to swallow our pride, admit that the removal of Calderbank offers has prejudiced settlement prospects and reintroduce them.
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A brief history

The Calderbank offer originated from the case of that name in 1975. Mrs Calderbank had made reasonable offers marked ‘without prejudice save as to costs’ which Mr Calderbank had turned down and then failed to ‘beat’ at trial. He was ordered to pay costs. The principle was therefore initially one of common law and it was not until 1992 that the regime was incorporated into the FPR 1991 by what was then rule 2.69. In 2000 that rule was amended to introduce very specific sanctions that, unless it was manifestly unjust to do so, required a judge to make costs orders if a party had fallen foul of a Calderbank offer and in some circumstances on an indemnity basis. Despite that indemnity costs aspect being removed in 2003, criticism of the system continued to build. Thorpe LJ in the cases of Norris and Haskins in the Court of Appeal [2003] EWCA Civ 1084 highlighted the perceived difficulties and Mostyn J was particularly vociferous in his opposition. Sitting then as a deputy High Court judge in GW v RW (Financial Provision: Departure from Equality) [2003] EWHC 611 Fam he described the regime as being akin to spread betting. Failing to beat a Calderbank offer represented a ‘cliff edge’ over which litigants risked plunging to disaster. 

As a result of this criticism, in April 2006 the FPR were amended. Rule 28.3 (5) provides that the general rule in ‘financial remedy proceedings’ (see below) is ‘no order as to costs’. 28.3(7) sets out the matters to be taken into account in deciding whether a costs order should be made, but r28.3 (8) states that, except at FDR, only open offers are admissible in that respect. It is this final rule that sounded the death knell of Calderbanks.

Finally, in terms of the rules, with effect from 27 May 2019, para 4.4 of the Practice Direction PD28A was amended with a view to making the intended operation of the current open offer regime clearer. It provides that the court will take a broad view and will generally conclude that a refusal to negotiate reasonably and responsibly will amount to conduct relevant to the decision on costs and that this will apply even in a ‘needs case’ if this results in costs disproportionate to the award made.

It should be noted that these rules do not apply to all financial cases. Rule 28.3 provides that they apply to ‘financial remedy proceedings’ which are defined in r28.3 (4). Whilst this is a relatively short list it does cover the financial cases on divorce that are the mainstay of the money practitioner’s work. Calderbank offers are still admissible in proceedings for maintenance pending suit, other interim applications, legal services order applications, Schedule 1 and appeals. The ‘no order’ principle is disapplied here as well. It may be that the Costs Working Group will recommend changes in these procedings, but the consultation itself focuses only on whether the impact of the 2006 changes on Calderbank offers should be revisited.

The competing arguments

Those opposed to the reintroduction of Calderbanks refer to the difficulties highlighted particularly by the senior judiciary in the run up to the 2006 reforms. A judge at final hearing has to balance the various s25 factors and endeavour to reach a fair decision which meets the needs of the parties. Under the old r2.69, he or she would then often have Calderbank offers produced like a rabbit out of a hat which had to be taken into account, thereby risking undermining the whole basis of the carefully crafted award. The focus shifted from a considered decision to whether one party had ‘won or lost’. The very nature of family proceedings makes it difficult if not sometimes impossible to determine whether one party has ‘beaten’ the other’s offer. For example, you may have put forward an offer on capital that was generous and should have been accepted, but have fallen short on the issue of maintenance. Further, and importantly, even attempting the exercise runs counter to the general view that in any event we shouldn’t be referring to winners or losers in family cases.

The answer, the Calderbank critics say, is to encourage judges to be more robust in applying the existing rules and to make more costs orders where a party doesn’t negotiate reasonably through open offers. The PD28A amendment in May is still very recent and it can be argued that it should be given time to bed in. 

Those who join me in the Calderbank camp take issue with these arguments for various reasons. First, whilst understanding and sympathising with judges on the point about awards being undermined, this is looking at the problem through the wrong end of the telescope. It is only a very small number of cases that end up at final hearing. The vast majority settle either without any proceedings at all, through mediation, collaborative practice or constructive solicitor-led negotiation, or during proceedings, particularly after FDR where of course WP offers are on the table and are an important factor in the negotiation at court and the guidance given by the judge. The key objective must be to encourage early settlement. Basing a whole regime on a small minority of cases that go to final hearing is illogical.

Secondly, the reality on the ground is that parties’ open offers are almost always, in the words of the consultation, unduly inflated or deflated. The open offers are pitched at the extremes. They represent the parties’ ‘best hope’ and frequently bear little relation to what each party would be prepared to settle for and to their without prejudice offers. This is despite what Moor J said in MAP v MFP [2015] EWHC 627 (Fam) Moor J when deciding that the wife in that case shouldn’t be held to a position stated openly earlier in proceedings. He said: ‘Now that we no longer have Calderbank offers, litigants must be encouraged to make open proposals as early as possible that are designed to encourage settlement. If the other party spurns such an offer, the court is entitled to ignore it completely and decide the case entirely on the merits. I will have no hesitation in a suitable case in awarding an applicant more than an open offer he or she has made if that is justified.’

I have quoted this authority in open offers, but the concern remains that when it comes to the crunch the trial judge won’t be able to ‘unsee’ that earlier more generous position and you will be stuck with it. It remains to be seen whether the strengthening of PD28A will help in practice, but I am not overly optimistic.

Thirdly, there is a particular issue where a represented party is up against a litigant in person. The LIP is not incurring costs. With the way in which the open offer regime is currently working he or she really faces no effective sanction for ‘rolling the dice’ and going to trial. Non-Calderbank without prejudice offers are simply ineffective as those determined to fight all the way will not be deterred even by strong indications from the judge at FDR if they do not believe it will land them with a costs order.

Although I am not aware of any statistics on whether more cases have gone to final hearing or settled later as a result of the demise of Calderbanks, there is a clear feeling amongst practitioners that this is what has happened. If that’s right, then the 2006 reforms have failed to achieve their objective. Bucking the pre-2006 judicial trend, Francis J felt this may be the case when saying in ABX v SBX [2018] EWFC 81: ‘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 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 solution?

In considering the competing arguments it is important to recognise that this is not a binary issue. No one is suggesting that we go back to the spread betting/cliff edge of the overly prescriptive and increasingly unworkable pre-2006 position. Equally, there is a general consensus that the current rules are not as effective as they might be in promoting settlement and something needs to be done.

There was a Resolution debate in October 2015 on the issue. The room was pretty evenly divided on whether Calderbanks should be reintroduced. However, a separate vote produced overwhelming support for something to be done to improve the costs rules. The question is whether the principle behind Calderbank offers remains valid and, if so, how they might be brought back effectively.

The Costs Working Group was very clear on two things. First, that the current ‘no order’ principle on costs should be retained. Secondly, that we should not opt for a family proceedings equivalent of Part 36 (although ironically Calderbank was the inspiration for that CPR development), as this would result in costly satellite litigation. I agree on both these counts. However, I believe firmly that the court should have the ability to take into account without prejudice offers when it comes to deciding on costs. I suggest that this should be combined with a requirement to make open offers at an earlier stage. Echoing Moor J’s remarks in MAP most family lawyers will encourage clients to make open offers as soon as possible (not only in the hope that agreement can be reached but also to increase prospects of a costs order under the current rules). However, the only actual requirement is under r9.28, which is for the applicant to put forward open proposals no later than 14 days before final hearing, with the respondent doing so 7 days later. This is far too late to promote settlement. Nearly all the costs will have been incurred by then. Why not amend r9.28 to require open offers shortly after the FDR? Disclosure should have been completed by then and it would give much more time for reaching agreement. 

This ‘third way’ would combine the best of the open and without prejudice regimes, without over-complicating matters. Parties would be able to argue openly nearer to their ‘best hope’ before and at trial but at the same time back this up through WP offers that the other party would have to take seriously in the knowledge that otherwise they are much more likely to face a costs order than at present. Judges would still retain a wide discretion, but this regime would have more teeth and should result in even fewer cases reaching trial.

Whatever side of the debate you are on, it is clear that there is an appetite for change and that it is likely to be coming our way fairly soon.