Dual rules
Date: 18 September 2009
Authors: Geraldine Morris
Issue: Online only
Categories: Features, Family
The mere mention of the Civil Procedure Rules (CPR) 1998 is enough to make the blood of many family lawyers run cold. Family lawyers are often much more at ease with the Family Proceedings Rules (FPR)1991, but the recent decision in M v douglaM [2009] EWHC 1941(Fam) highlights the need to be fully au fait with the intricacies of the CPR, in particular in relation to costs.
The background
The key events in M v M took place at the pre-trial review only seven weeks before trial when counsel for the wife (W) raised the issue of the a transfer to her of the husband’s (H) shares in his company. This was greeted with what was described as “a storm of protest” however, the matter having been raised Ryder J made case management orders at the pre-trial review and gave W leave to file an amended Form A. There then followed a series of events relating to W’s application for a transfer of the shares:
W travelled to New York to see Mr D, H’s business partner in the company and Mr D refused to consent to W’s proposal that H’s shares in the company be transferred to her.
H’s solicitors wrote to W’s solicitors asking her to refrain from approaching the company’s bank and that if it was felt to be essential to make such an approach, the matter should be raised as an issue at the start of the trial.
A letter was sent by the company’s bankers which, inter alia, specified a term in relation to the company borrowing that H, or a company wholly owned by him, should continue as asset manager of the company.
W later referred to this letter as having been “the killer blow” to her aspiration to have the company transferred to her.
Subsequently the husband sought an order for the wife to pay 50% of his costs and made a number of submissions which were narrowed down by King J to the following key areas: whether it was unreasonable for W to raise, pursue or contest the issue of a transfer of H’s company to her and/or to make and pursue the allegation that by a devious and underhand stratagem H had succeeded in pre-empting the court’s decision whether or not to transfer H’s company to W; the significance of W’s late application for periodical payments at a rate of £420,000 per annum.
King J acknowledged in her judgment that “the change in tack by W required a complete change in focus on the part of H’s legal team” and “It inevitably led to a significant amount of additional work being carried out in order to respond to it.” The question was how the costs of that additional work should be approached.
Compliance with the FPR
Also damaging to the wife was her failure to comply with the FPR requirements. Her open proposals and affidavit were due on 16 February 2009 but were not filed until after close of business on Friday 27 February 2009. The trial began on 5 March 2009. The letter accompanying the open proposals and affidavit disclosed a second change of plan substituting the proposal for the transfer of shares with a proposal for periodical payments at the rate of £420,000 per annum and alleging that the claim for the transfer of shares had been abandoned due to H’s “...recent secret dealings with [the] Bank in a deliberate attempt to prevent a transfer of [the company] to the wife.”
The law
In M v M King J considered the relevant law relating to H’s claim for costs at length. Her first task was to ascertain the appropriate rules to be applied to determine the husband’s application.
The FPR costs provisions
Ancillary relief proceedings are governed by the FPR. The FPR costs provision is at r 2.71. FPR. Rule 2.71(1) states that CPR rr 44.3(1) to (5) shall not apply to ancillary relief proceedings thus the general rule found at CPR r 44.3(2)(a) that costs follow the event has no place in ancillary relief proceedings.
In contrast to the CPR, the general rule as to costs in ancillary relief proceedings (FPR r 2.71(4)) provides that the court will not make an order requiring one party to pay the costs of another party but the court may make such an order at any stage of the proceedings where it considers it appropriate to do so because of the conduct of a party in relation to the proceedings (whether before or during them).
Where the court exercises its discretion on the basis of conduct, before making such an order the court must have regard to the factors set out in FPR, r 2.71(5) as follows: any failure by a party to comply with the FPR, any order of the court or any practice direction which the court considers relevant; any open offer to settle made by a party; 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 responded to the application or a particular allegation or issue; any other aspect of a party's conduct in relation to the proceedings which the court considers relevant; and the financial effect on the parties of any costs order.
It should be noted that FPR, r 2.71 (5) (c) and (d) is drafted in identical terms to CPR r 44.3(5) (b) and (c).
The overriding objective
Also of significance is the overriding objective as set out in r 2.51D(3) of the FPR which provides that dealing with a case justly includes, inter alia, dealing with the case in ways which are proportionate to the amount of money involved, the importance of the case, the complexity of the issues and to the financial position of each party.
FPR, r 2.51D(4) states that “the parties are required to help the court to further the overriding objective” and thus the court, in determining whether to make a costs order under FPR r 2.71, must consider whether the party pursuing an issue was proportionate in their approach.
The application of the CPR
CPR, rr 44.3(6) to (9) apply to ancillary relief proceedings by virtue of FPR, r 2.71(2) and set out the orders available to the court (having considered the factors set out in CPR, r 44.3(4)–(5) or FPR, r 2.71 (5)) if it decides to make an order for costs. The orders the court may make include that a party must pay:
a proportion of another parties cost;
a stated amount in respect of another parties costs;
costs from or until a certain date only;
costs before proceedings have begun;
costs relating to particular steps taken in the proceedings;
costs relating only to a distinct part of the proceedings;
interest on costs from or until a certain date, including a date for judgment.
The costs in M v M
King J took the view in M v M that “given the identical terms of CPR rule 44.3(5) (b) & (c) and FPR rule 2.71(2) (c) & (d) relating to the pursuit by a party of a particular issue, it follows that any observations of the Court of Appeal (and the High Court) relating to the interpretation of CPR rule 44.3 (6) and (7) apply equally to applications for issue based orders whether made in ancillary relief proceedings or in pure civil cases”.
She went on to consider the relevant civil authorities including Douglas v Hello! Ltd [2004] All ER (D) 202 (Jan), Travellers Casualty and Sureties Company of Canada v The Sun Life Assurance Company of Canada UK Ltd [2006] EWHC 2885, [2006] All ER (D) 221 (Nov) and National Westminster Bank PLC v Kotonou [2007] All ER (D) 328 (Feb). Following the approach in Kotonou the key issues for the court in M v M were to: decide whether or not it was a case in which an issue based costs order was appropriate; and if so whether to make the order for costs under CPR, r 44.3 (6) (a) or (c) by expressing the order by way of a percentage or fixed sum rather than making it under CPR, r 44.3(6)(f) (the rule which accords the court the power to make an issue based costs order).
Having considered lengthy submissions by the parties King J concluded that the application for the transfer of the company to W should never have been made and thus H should not suffer the consequences of that decision.
She referred to it as “not simply a poor tactical decision or even an application which although properly made, stood little or no prospect of success...it was a wholly misconceived application based on a number of false premises which arose in large measure by the misinterpretation of critical information about the company by not one but two of her experts” and stated she had no hesitation in concluding that this was case where an issue-based costs order should be made.
H sought an order for 50% of his costs to be paid by W but King J held that such a proportion would not adequately acknowledge the inevitability of substantial costs in the case and that the starting point is that costs lie where they fall. On that basis she ordered W to pay a sum roughly representing 20% of H’s untaxed costs of £916,000 and summarily assessed the costs to a rounded-down figure of £175,000.
False security?
Parties in family proceedings may feel a level of false security from the general rule in ancillary relief proceedings that costs “lie where they fall” but the decision in M v M makes it clear that misconceived applications or issues will result in a costs penalty based on the conduct provisions of FOR, r 2.71(5).
With the relative lack of family case law on costs family lawyers need to be familiar with relevant civil decisions as well as the CPR given the application of both in the instant case.
Geraldine Morris is a solicitor, the technical editor of Butterworths Family Law Service and the editor of Butterworths Family and Child Law Bulletin
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