Many readers will have no doubt seen or heard that the Family Procedure Rule Committee (FPRC) is considering whether the FPR 2010 should be amended to enable Calderbank offers to be taken into account as “conduct” when the court is considering whether to make a costs order. A consultation was opened on 16 July 2019 to pose this question to practitioners.
What are Calderbank offers and when can they be used?
The use of Calderbank offers was widespread in financial remedy proceedings until as recently as 2006, when the “no order as to costs” rules were introduced. Up until 3 April 2006, the court could consider Calderbank offers when determining the issue of costs and, specifically, whether, in view of the final order, it was reasonable or not for a party to proceedings to have rejected such an offer. Use of the Calderbank offer has not been entirely killed off since 2006 and continues to apply within certain types of proceedings (on which, more below).
For those who may be unfamiliar, Calderbank offers are settlement offers expressed to be “without prejudice save as to costs”. At the culmination of contested proceedings (now limited to those types of litigation as detailed below), the court has the discretion whether to consider a Calderbank offer when deciding the issue of costs. In the event that the final order or judgment made by the court is more advantageous to a party who made a Calderbank offer, which was rejected by the other party, it is open to the offeror to invite the court to make an order for costs against the offeree on the basis that they should have accepted the offer made and avoided the costs of the hearing.
In this respect, Calderbank offers are not dissimilar to Part 36 offers which exist within civil litigation, although the latter are applied much more rigidly and without the same degree of discretion that family law practitioners are used to.
Application of Calderbank offers pre-2006
The use of Calderbank offers was provided for in the FPR from October 1992, which were further amended in 2000 to give Calderbank offers more weight. By 2006, the provisions that were set out in the FPR 1992 provided that Calderbank offers made at any time during proceedings could be communicated to the court when it was deciding the issue of costs. The court could order that the costs of the party that made a Calderbank offer which was matched or bettered by a judgment or final order be paid by the party who rejected that offer, unless the court considered it would be unjust to make such an order.
In deciding whether it would be “unjust” to order costs, the court would take into account all circumstances of a case including the:
- terms of any Calderbank offers made;
- stage of proceedings the offer was made at;
- information available to the parties at the time the offer was made;
- conduct of the parties in relation to the provision of information for an offer to be made or considered; and
- respective means of the parties.
The intention behind the enshrinement of the Calderbank principles in the FPR was to place both parties under an obligation to engage in genuine negotiations. The consequence of failing to engage in this way was to run the risk of being penalised in costs.
“No order as to costs” or Calderbank – What are the current rules?
Since April 2006, the general rule has been that ‘the court will not make an order requiring one party to pay the costs of another party” within financial remedy proceedings (r. 28.3(5) FPR 2010, SI 2010/2955). The main exception to this rule is that the court may make an order for costs against a party where “appropriate” with regard to their conduct in relation to the proceedings. The court can order costs on this basis at any stage in proceedings.
Types of conduct that the court will take into account include:
- any failure to comply with the rules, order or a practice direction;
- any open offer to settle;
- whether it was reasonable for a party to raise, pursue or contest any issue;
- the matter in which a party has pursued or responded to the application or a particular allegation or issues;
- any other relevant 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 (r28.3(7)).
Save for at the FDR hearing, any offer which to settle which is not an open offer is inadmissible in financial remedy proceedings and will not be considered by the court when determining the issue of costs.
Financial remedy proceedings – to which the Calderbank principle no longer applies – are defined at r28.3(4)(b) as proceedings for:
- a financial order except an order for maintenance pending suit, maintenance pending outcome of proceedings, interim periodical payments order, payment of legal services orders, or other form of interim order;
- financial relief after overseas divorce (an order under Part III of the Matrimonial and Family Proceedings Act 1984);
- financial relief after overseas dissolution of a civil partnership (an order under Schedule 7, Part 1 to the Civil Partnership Act 2004); and
- financial relief after two or five years separation under s10(2) of the MCA 1973 or s48(2) CPA 2004
Current applications of Calderbank
Calderbank provisions still apply to a number of financial applications including: interim orders; maintenance pending suit, preliminary issue; notice to show cause; Legal Services Orders; joinder of third parties or interveners; Schedule 1 to the Children Act 1989; applications to set aside a financial remedy order; appeals and enforcement proceedings.
In these types of applications, the starting point is that the parties have a clean sheet in relation to costs. The court holds a wide discretion to make an order for costs and can, and will, consider Calderbank provisions as part of this. As in civil proceedings, the starting point is that costs will “follow the event”, although this can be departed from based on the circumstances of the case.
It is essential to get the drafting of a Calderbank offers right in order for them to be valid. The offer should be:
- clearly expressed to be “without prejudice save as to costs”;
- addressed to the other party or their solicitor;
- clear and in precise prescribed terms;
- open for acceptance for a reasonable amount of time to allow the offeree to consider whether to accept;
- a genuine compromise that warrants consideration
- clear confirmation that it is the offeror’s intention to bring the offer to the court’s attention when deciding the issue of costs; and
- clearly accepted or rejected.
Why have Calderbank offers been criticised?
The introduction of the “no order as to costs” rule in 2006 followed complaints and criticism of the previous costs rules by solicitors, barristers and the judiciary, which led to a review and consultation. The need for reform was seen as especially important following the landmark decision in White v White, signalling the departure from the principle of (what was usually) a wife making claims against a husband’s assets to meet her “reasonable requirements”. As the approach of the courts post-White is to determine the parties’ shares of the matrimonial pot, it was considered to be unfair to penalise one party in costs in circumstances where they had both come to court for an order which distributes their assets between them.
The effect of a costs order would also often interfere with the carefully considered outcome of financial remedy proceedings. A party who had been ordered to pay their spouse’s costs would have to meet that order from assets which had been determined by the court to meet his or her needs. The combined effect could result in a situation where, despite the case being adjudicated, the parties were unable to move forward to financial independence from each other, as one party would have to bear the brunt of a costs order. This resulted in what was described as a cliff edge, where a judgment or order could be more advantageous to a party than an offer made without prejudice as to costs by the other party.
It was a commonly held view that the consideration of Calderbank offers placed too much emphasis on whether one party had “beaten” the other who then, as a punishment, should be penalised in the making of a costs order. This included, somewhat unfairly, circumstances where the “winner” had placed their case far higher than the court’s final order.
This combative approach drove the senior costs judge to write to the President at the time, Dame Butler Sloss (as she was then known), as part of the consultation process, noting that:
- Cost assessment proceedings following the culmination of proceedings appeared to continue animosity that had built up in the proceedings.
- Cost assessments in family proceedings were culminating in significantly fewer settlements than in non-family proceedings.
- Parties to family proceedings were using the cost assessment proceedings as a further battleground to engage with their former spouse.
- If the issue of costs were to be removed, the level of conflict would reduce far quicker, which led to his recommendation that the no order as to costs rule be introduced.
The recognition of Calderbank offers and the drafting of the Rules was strongly criticised by Nicholas Mostyn QC (as he then was). In the case of GW v RW (Financial Provision: Departure from Equality) [2003] EWHC 611 (Fam)), he commented that the rules required the parties to engage in a form of “spread betting” that required the parties to “guess” the outcome of proceedings. He noted the unfairness that the reward (or rather, punishment) for this guess or bet (which could be only slightly lower or higher than the final order of judgment) could be a requirement for the other party to pay the entirety or a large proportion of the other party’s costs. Mr Justice Mostyn remains vehemently opposed to Calderbank offers and made his criticism known again in 2014 in the case of J v J [2014] EWHC 3654 (Fam), in which he commented as follows:
“Some quarters are calling for the Calderbank principle to be reintroduced […] For my part I will fight its reintroduction to the last ditch. In my opinion it would be retrograde and unconscionable to allow a carefully crafted disposition to be turned upside down by virtue of a without prejudice letter produced after judgment has been given.”
What is the purpose of the consultation?
Following the exclusion of Calderbank offers from financial remedy proceedings, it was hoped and intended that parties would engage in open negotiations more extensively to avoid the need to attend a final hearing. Indeed, the FPR 2010 requires the applicant to file and serve on the respondent an open offer for settlement not less than 14 days before the final hearing, which the Respondent must reply to not less than seven days later (r9.2 (1) and (2) FPR).
Unfortunately, this has not resulted in an increased use of open negotiations. As all practitioners will know, negotiations will invariably be conducted on a without prejudice basis both pre- and post- FDR. Open offers will often only be exchanged shortly before the final hearing, in accordance with the Rules, which many will agree is counter-productive and an unsatisfactory state of affairs, especially where one party is represented and the other is a litigant in person.
It was (and is) felt that parties are not being sufficiently encouraged to negotiate. The FPRC identified that the practice directions fail to give proper guidance to make clear the costs consequences of failing to litigate sensibly, and to encourage parties to engage in negotiations and make realistic and reasonable proposals.
As a result, earlier this year, with effect from 28 May 2019, an amendment was made to PD28A, paragraph 4.4 as follows:
“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 responsibility will amount to conduct in respect of which the court will consider making an order for costs.”
This includes in “needs” cases where an applicant is considered to have been unreasonable to litigate.
While there continues to be no sanction for one party choosing to reject a without prejudice offer many consider that the amendment does not go far enough. As it currently stands, it is still potentially more advantageous for one party to take the chance of attending a final hearing, given that they then will face no costs consequences for their failure to engage in meaningful negotiation and proposals. These problems are felt more acutely where one party is represented and the other party is not, with the unrepresented party feeling they have nothing to lose by attending a final hearing and the represented party losing faith in the process.
Where to next?
Although there are problems with Calderbank offers, there are clear benefits to be derived from them and these should not be ignored. As identified by Dame Butler-Sloss (as she then was) in the case of Norris v Norris; Haskins v Haskins [2003] EWCA Civ 1084:
“….the Calderbank process must have some teeth which can bite. Both parties are under an obligation to engage in genuine negotiation with the other side, otherwise one party may have to be penalised in costs.”
Their reintroduction in financial remedy proceedings would encourage parties to put forward sensible proposals for settlement to avoid a costs liability, particularly if the other party’s negotiating stance is unreasonable or unrealistic. Mr Justice Francis observed in ABX v SBX [2018] EWFC 81 as follows:
“[W]ere 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.”
If the Calderbank principle were to be reintroduced, FDR hearings would be used more effectively with parties more focused on avoiding the need to attend a final hearing and using the indication given by the FDR judge to negotiate sensibly. It could also assist practitioners advising a party who wants to reject a reasonable offer or to negotiate unrealistically.
However there should be caution as to whether the Calderbank principle should make a return, particularly in respect of how this would impact upon litigants in person. The current legal landscape is very different to when Calderbank offers were enshrined in the costs rules, and the exercise of “spread-betting” or “guessing” identified in GW v RW may result in a party who has greater access to legal advice or expertise enjoying an unfair advantage over a spouse who has not had the benefit of legal advice or who cannot afford advice for the entirety of proceedings.
How can you give your views?
The FPRC want views from practitioners on whether Calderbank offers should be admissible in considering conduct for the purposes of FPR r28.3. The deadline for responding is 31 October 2019.
The general “no order as to costs” rule will remain, however the consultation is concerned with whether a party has acted reasonably or unreasonably in the course of negotiations (both open and “without prejudice save as to costs”) and how such a party should be treated.
Subject to the outcome of the consultation, it is recognised that amendments may have to be made to FPR 2010 (i.e. admissibility of without prejudice offers).
The consultation question is as follows:
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?
If you wish to respond, please say “Yes” or “No” and give full reasons and examples to support your answer. If you are unable to answer this question, please say “Don’t know”.
Please send your comments to Simon Qasim at the address below by 5pm on Thursday 31 October 2019
Address: Family Justice Policy, Post Point 7.17, Ministry of Justice, 102 Petty France, London, SW1H 9AJ
Email: FPRCSecretariat@justice.gsi.gov