Financial Remedy and Costs: Back to Basics

The scope of this article is to give a simplified overview of the issue of costs in respect of financial remedy proceedings.

The starting point is to be found in rule 28.3 of the Financial Procedure Rules 2010 (“FPR”).

As a general rule, in terms of FPR 28.3(5) and subject to FPR 28.3(6), in financial remedy proceedings the court will not make an order requiring one party to pay the costs of another party.

However, the general rule needs to be considered in the context of (i) the definition of financial remedy proceedings and proceedings which fall outside of that definition and (ii) the provisions of FPR 28.3(6).

Dealing with FPR 28.3(6) first, the Court has a discretion whether to award costs in financial remedy proceedings where it considers it appropriate due to the conduct of a party in relation to the proceedings, whether before or during such proceedings.

In the exercise of its discretion, the Court has a mandatory duty to take into account the factors set out at FPR 28.3(7) which include (a) any failure to comply with the rules, order or practice direction which the Court considers relevant, (b) any open offer to settle [as opposed to a without prejudice offer which is admissible at the Financial Dispute Hearing stage], (c) whether it was reasonable for a particular allegation or issue to be raised, pursued or contested, (d) the manner in which an application or issue has been responded to or pursued, (e) any other aspect of a party’s conduct considered relevant and (f) the financial effect on the parties of any costs order.

“Financial Remedy Proceedings” are defined by FPR 28.3(4) as proceedings for a financial order except an order for (i) maintenance pending suit, (ii) an order for maintenance pending outcome of proceedings, (iii) a payment in respect of legal services or any other form of interim order for the purposes of rule 9.7(1)(a), (b), (c) and (e).  Therefore, the exceptions fall outside the provisions of FPR 28.3 and the general rule.

Interestingly, proceedings brought under section 37 (avoidance of transactions intended to prevent or reduce financial relief) of the Matrimonial Causes Act  1973 (“MCA”) (“section 37 proceedings”) fall within the provisions of FPR 28.3 and the general rule in that FPR 2.3 defines a “Financial Order” as including an avoidance of disposition order which in turn is defined in FPR 9.3(1) as including proceedings for an order under section 37(2)(b) or (c) of the MCA.  However, it is accepted generally that although section 37 proceedings fall within the provisions of FPR 28.3 and the general rule, intervenors (third parties, in other words, other than the main parties) fall outside the scope of FPR 28.3.

Proceedings, as cited above, which fall outside the definition of financial remedy proceedings and the FPR 28.3 general rule are in terms of FPR rule 28.2(1) subject to Part 44 CPR rule as amended in that CPR rules 44.2.2(2) and (3) and 44.10(2) and (3) do not apply.  Simply put, the general rule contained in CPR rule 44.2(2) that costs follow the event, in other words, the unsuccessful party pays costs, does not apply.

Rather, the Court is directed in terms of CPR rule 44.2(4) to exercise its discretion having regard to all the circumstances and in particular, the conduct of the parties (before and during the proceedings), the extent to which either party has succeeded in their case and any admissible offer/s to settle.  This is colloquially referred to as “the clean sheet” regime as indicated in the case of Joy v Joy-Morancho and Others (No 3) [2015] EWHC 2507 (Fam) at 201.  As Sir Peter Singer pointed out in the Joy case at 201, there appears to be contradictory approaches taken in respect of the “the clean sheet” regime:   Ward J in Baker v Rowe [2009] EWCA Civ 1162; [2010] 1FLR 761 at [35] observing that costs do not follow the event, the judge has a wide discretion when making a costs order in these circumstances and although the fact that one side had won and the other lost, this was not determinative nor even the starting point but simply a fact to weigh in the circumstances of the case.

By contrast in the case of Solomon v Solomon [2013] EWCA Civ 1095 at [22] Ryder LJ was of the view that the starting point for ‘clean sheet’ cases was that costs follow the event and quoted Butler-Sloss LJ (as she then was) in Gojkovic v Gojkovich (No 2) [1991] 2 FLR 233 (CA) who indicated that this starting point may be displaced much more easily than in other Divisions of the High Court.

In the Joy case at [202] however, Sir Singer indicated that given that Solomon referred to an unsuccessful application for permission to appeal the approach of Ward J was to be preferred.

One of the thorny issues to be faced by a Court dealing with financial remedy cases is when FPR 28(3) applies to certain issues and CPR rule 44 as amended applies to other issues of the same case.  In the Joy case at [196] Sir Singer adopted a broad brush approach and a global perspective.

In light of the above, as a rough guide, it is important to distinguish between issues in respect of which FPR 28(3) and CPR rule 44 as amended apply.  Once this has been established, the Court will still have a wide discretion in respect of costs.  Every case turns on its own facts.