Pride and without prejudice

Many family solicitors are proposing that the Family Court should revise its rules and make Calderbank offers permissible in family proceedings. However, opinions about whether this should happen are mixed.

Negotiations about financial issues in divorce proceedings are usually conducted on a “without prejudice” basis; in other words, they are off the record. They cannot be mentioned in court and the judge is not allowed to know about them (apart from at a Financial Dispute Resolution Appointment, when the judge must be told about them and can then asked to give an informal indication about the likely outcome if the case was to be decided by the court. The district judge in question is then barred from involvement in the case thereafter because he or she knows what offers have been made).

However, a Calderbank offer subverts that rule. They are phrased as being “without prejudice save as to costs”. They cannot be mentioned during a trial until the very end after the judge has made his or her decision. At that point, the offer can be revealed to the judge and used to justify the court making an order that one party pays the other party’s costs.

The usual rule about costs in litigation is that “costs follow the event”. The loser is ordered to pay the winner’s costs, with the court setting the precise amount to be paid if it cannot be agreed. However, in many types of family proceedings, there is a presumption that both sides will pay their own costs. In particular, in divorce financial proceedings, an order for costs will only be made against a party if he or she has engaged in litigation misconduct (for example, failing to comply with court orders) or in a limited number of exceptions to the rule, such as applications for interim maintenance or in relation to disputes about preliminary issues (for example, a preliminary hearing might take place to decide whether or not one spouse has disposed of an asset in order to defeat the other spouse’s claims). It is possible for the court to make an order that the loser pays some of the winner’s costs if the case goes all the way to trial, if one party can persuade the court that the other party should have accepted the other parties’ open position before the trial, and therefore avoided the need for an expensive trial to take place.

The “without prejudice save as to costs” status of a Calderbank offer means that an off the record offer can result in the party who appears to have won the case nevertheless being ordered to pay some of the loser’s costs. How so?

The case of Calderbank v Calderbank took place in 1975. Mr Calderbank was awarded £10,000 by the court in his divorce. However, Mrs Calderbank argued to the court that she had made an open offer to transfer a house to Mr Calderbank that was worth £12,000. Therefore, although Mr Calderbank appeared to have won, he had failed to beat Mrs Calderbank’s offer. As a result, the court decided that Mr Calderbank had to pay Mrs Calderbank’s costs incurred after the date of that offer.

Mrs Calderbank’s offer was an open one, set out in an affidavit (a sworn witness statement) and was not without prejudice. However, in the years since the Court of Appeal’s decision, a practice developed whereby written proposals were put forward on “without prejudice save as to costs” basis. However, in family proceedings, they were abolished in 2006. Henceforth, the court could not take into account any offer unless it was made openly.

Many family litigators are now arguing that they should be reintroduced. They feel that the Calderbank offer was a useful way of exerting pressure on litigants by making them think about the costs consequences of pursuing the litigation further; not just what their own bill would be but also how much they might have to pay to their ex if they were unsuccessful. The benefit would be that unreasonable parties, with either an inflated view of their likely entitlement or who perhaps are just too stubborn to see sense, will then be encouraged to think again.

However, there is not a consensus about this amongst family lawyers. Not all of us want to see Calderbank offers return. My view is that Calderbanks are not very helpful and don’t actually encourage settlement. I haven’t noticed people being less inclined to settle or more inclined to litigate since Calderbank offers were abolished in 2006. Furthermore, the huge number of family cases now involve litigants in person, i.e. people representing themselves and it is doubtful that many of them will understand the consequences of failing to accept an offer.

The difficulty with costs orders in family proceedings has always been that there is a limited pot of assets from which those costs can be paid. The court already has to undertake a delicate balancing exercise between achieving fairness and meeting the parties’ needs, and costs orders can have the effect of completely undermining the outcome of that balancing exercise.

In my view, costs orders are essentially punitive in nature. Orders for costs are perfectly justifiable in cases where there has been litigation misconduct and where they are made against a party who has wilfully failed to comply with the terms of an order, or has been caught hiding assets or has just failed to turn up to a court hearing, thereby wasting the other side’s time and money. That type of costs order is very different to an order that is made against a litigant who has simply misjudged how much the court might award him or her. Personally, I hope they do not return.

Of course, the simplest way to avoid the risk of a costs order is to not litigate in the first place. Alternatives to court such as collaborative process or mediation do not carry the risk of a costs order being made. The possible reintroduction of Calderbank offers is yet another good reason to keep it out of court.

10 November 2019

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