Costs in financial cases

By 8 February 2012Law news, News

…or the Return of the Calderbank letter…

When a couple who are married or in a civil partnership are moving towards a divorce or dissolution, sometimes regrettably the court has to be involved in assessing a fair division of the finances. It is rare that cases go all the way to a trial, but when the two people involved are not able to come to an agreement, obtaining a court order may be the only option. The court process can be long, drawn-out and expensive, and the costs of the procedure can weigh heavily on the family involved. (For more information on the process, click here to download our factsheet.)

Costs have long been a difficult issue in family law. In April 2006, rules came in that enforced a default position that each person would pay their own costs in financial proceedings on divorce. Unlike in other types of litigation, it has since become very rare for the courts to order one person to pay the costs of the other, although there are provisions to enable the family court to make orders for costs in the face of severe bad behaviour by one side during the litigation.

Before the rule change, the courts used a system whereby each side could be penalised in costs if he or she failed to accept a reasonable offer made by the other. The reasonableness of the offer was assessed by the judge after he or she had made the final order. In practice, it worked like this: say the court ordered the husband to pay a lump sum of £100,000 to the wife in final settlement of their financial responsibilities on divorce. After the order was made, the judge would ask the parties or their advocates to make submissions on costs. At that point, if the wife could show a letter containing an offer that she would settle for less, say, £75,000, the judge might make an order that the husband should pay the legal costs that the wife incurred from 21 days after the letter was received. Alternatively, if the husband could prove he had offered the wife £125,000 at an earlier stage – i.e. if the husband had been ordered to pay less than his offer – the wife might be ordered to pay the husband’s costs from that point on.

These offer letters, marked “without prejudice save as to costs”, were called Calderbank letters after the first reported case in which they were approved. Being ‘without prejudice’, neither side could refer to the offers made during the trial itself, but once the court’s decision was made and costs were the only remaining issue, the contents could be revealed to the court.

Solicitors tend to feel that Calderbanks were useful in litigation as they could inject a realism into financial proceedings and give a spouse pause for thought about whether they really would do better than a good and sensible offer. Solicitors know that a carefully constructed offer could change the dynamics of the negotiations and put proper pressure on someone to settle the case at an early stage, as rejecting an offer could lead to paying the other person’s legal costs as well as their own. Fully contested litigation can be truly damaging to the wider family, in emotional as well as in financial terms, and rarely helps parents co-operate about children.

Judges, however, tended to despair that the orders they carefully crafted to ensure each person’s and the children’s needs would be met after divorce could be thrown into chaos by an unexpected liability for costs arising from a Calderbank letter. It was this factor that ultimately led to the demise of Calderbanks and the introduction of the starting point that there should be no order for costs in financial proceedings.

The problem that family lawyers have noted since Calderbanks were abolished is that there is little incentive for some people involved in financial litigation to accept a decent offer from their spouse or civil partner, except to minimise their own costs. Anecdotally more cases are going to trial as there is now little risk of the court making punitive costs orders. With the government now desperate to reduce pressure on the family justice system and encourage people to settle their differences at the end of a relationship without recourse to the court, it appears the ‘no order for costs’ rule may not be considered to be serving the required purpose.

It was no great surprise to us to hear that the reintroduction of Calderbanks is being discussed in certain high-level family justice committees. We at CFLP would like to see them reintroduced as they can be very helpful in promoting settlement in family finance disputes and ensuring that each person is realistic about what might be achieved at trial. As long as each person in the dispute has a sensible legal advisor on board, Calderbanks can do a great deal of good in the process, particularly for future co-parenting arrangements. However, with the increase of litigants in person and the proposed removal of legal aid from family cases, the potential for exploiting a difference in financial and bargaining power may be significant. We would urge judges to use discretion when they consider the final impact of offers on the question of costs, but look forward to new era in court practice on family finance if Calderbanks do come back, in the hope more families will be able to settle their cases without requiring extensive court intervention.

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