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Financial Remedies: Costs and 'Invading' Needs Based Award

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Costs & Fees

Family

VV v VV [2022] EWFC 46

The High Court considered an application for costs in financial remedy proceedings asking the Court to depart from the general rule whereby each party bore their own costs.

At paragraph 3 of his Judgment, Mr. Justice Peel outlined the rules,

“As is well-known, the starting point for costs in financial remedy proceedings is that each party should bear their own costs.  By FPR 2010 28.3(6) the Court may depart from the starting point to make a costs order against one, or other, or both parties.  Factors to be taken into account are listed at 28.3(7) and include:

(b) Any open offer to settle made by a party;

(c) Whether it is 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 aspects of a parties’ conduct in relation to proceedings which the Court considers relevant; and

(f) The financial effects on the parties of any costs order.

Rule 4.4 of the Practice Direction 28A states that:

“The Court will take a broad view of conduct for the purposes of this rule and will generally conclude that to refuse openly to negotiate reasonably and responsibly will amount to conduct in respect of which the Court will consider making an Order for costs.  This includes in a “needs” case where the applicant litigates unreasonably resulting in the costs incurred by each party becoming disproportionate to the award made by the Court.””

The case of Rothschild v de Souza [2020] EWCA 1215 was considered where it was held that it was not unfair for the party who was guilty of misconduct to receive ultimately a sum less than his/her needs would otherwise demand.  

Further, the Court held that at paragraph 6 that:

“A sensible attempt to settle the case, or unreasonable failure to make such attempts, would ordinarily be a powerful factor one way or the other when considering costs.  As Mostyn J said in OG v AG [2020] EWFC 52

“If, once the financial landscape is clear, you do not openly negotiate reasonably, then you will likely suffer a penalty in costs.””

In the current case the husband had ultimately made an offer of up to £400,000 to settle the claim, £750,000 ultimately being awarded.  However, when legal fees were taken into account this £400,000 offer was effectively nil.  Conversely, the wife had sought an award of £5,000,000.  The award of £750,000 being significantly under this amount.

The Court called the husband’s conduct “deplorable” for his failure to give full and frank disclosure of his assets.  After the failure to provide certain information was discovered by the wife, the Court held that it was right that she should have been mistrustful for any further position that the husband had taken, however, she had raised two significant issues which she had failed to succeed upon during the litigation.  

First, she did not succeed in establishing a significant period of pre-marital cohabitation such as to have entitled her to sharing against certain of the husband’s assets.

Second, the husband has established to his satisfaction that the wife was actually guilty of misconduct insofar as she had actually caused him financial losses which had probably run into the tens of millions of dollars by reason of having prevented him from selling part of his units following a company listing.  

Those two issues were hotly contested and if they had not been, then the case would have been a relatively straightforward needs based claim and the costs would have been relatively minor. It was likely that those two disputes rendered the case impossible to settle.

As a result at paragraph 11 it was held that:

“It seems to me to be unfair for H to bear the burden of all his costs as well as all of W’s costs which, absent any costs order, will be the effect of my judgment.  Their combined costs are over £1.2m, yet at the end of it all, W achieved an award of £750,000, for below her open proposal, and having failed on either the cohabitation or the conduct issues.  I am satisfied that it is appropriate for W to make a contribution towards H’s costs.  It does not seem to me to be unfair to invade her needs based awards to an extent.  She should not be entirely protected from costs consequences.  Weighting up all the factors, I will make a costs orders against W of £100,000, which shall be set off against a lump sum payment of £750,000.  How she trims her needs to take account of this costs order will be a matter for her.”

Conclusion

This is a further example of the Court being willing to make a costs order against a party where there has been both an unreasonable tack taken during the litigation in respect of both the offers of settlement put forward by the parties and the issues raised during the proceedings.

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