District Judge Roger Bird untangles the costs rules for ancillary relief and examines the proposals for change

Costs in ancillary relief are always a problem.

They can be substantial, so that the client has to make considerable sacrifices if she has to bear them herself.

And an award of costs party and party can easily upset the delicate balancing exercise that the judge has employed in making an order.

In May 2003, the family division president's ancillary relief advisory group (PARAG) endorsed a report by one of its sub-committees that recommended radical changes in the present system.

The report made several proposals: the rule that costs follow the event should disappear; the costs of each party be regarded as part of that party's reasonable needs, to be assessed by the court; the only offers for court consideration be open offers (thereby abolishing Calderbank letters); and costs be ordered party and party only in extreme circumstances.

It was thought that consultation and a rule change might follow these recommendations.

In the meantime, Mr Nicholas Mostyn QC, sitting as a deputy High Court Judge, made a bold decision in GW v RW (Financial Provision: Departure from Equality) [2003] EWHC 611 (Fam).

In that case, he ruled that it was not necessary to wait for a rule change and that he should apply principles similar to those that are set out above.

He said the starting point should be no order as to costs, and costs outstanding should be regarded as a debt in the schedule of assets.

He gave leave to appeal, and it was thought that the appeal that was lodged might enable the Court of Appeal to give a more authoritative ruling.

In the event, that appeal was withdrawn but similar issues as to costs have been raised in two other appeals, Haskins v Haskins and Norris v Norris [2003] EWCA Civ 1084, [2003] All ER (D) 472 (Jul) CA.

In their judgments, both the family division president and Lord Justice Thorpe endorsed the PARAG recommendations and urge an early rule change.

They also sympathised with the sentiments lying behind Mr Mostyn's ruling but were adamant that it was not for him, nor indeed for them, to reform the law by judicial decision; the rules are the will of Parliament and must be obeyed until they are changed.

Nevertheless, that is not the end of the matter since helpful guidelines were given as to how the present combination of rules and case law should be interpreted.

Here is a summary of the recommended approach:

- Gojkovic v Gojkovic No 2 [1992] Fam 54 was authority for the proposition that costs follow the event, and for the practice of Calderbank letters.

- Family Proceedings Rules 1991 (FPR) rule 2.69, as amended, provided for the then current code on Calderbank letters to be followed.

- The starting point in rule 2.69B is whether the party who has made an offer (the offeror) has offered more or less than the court order.

If less, he will pay the costs incurred 28 days after the offer was made, unless the court thinks it would be unjust for him to do so.

- Rule 2.69D is important.

In deciding whether or not an order for costs would be unjust, the court must take into account all the circumstances of the case.

This includes the terms of any offers that must include counter-offers.

It also includes the respective means of the parties; this enables the court to look at the whole position of the parties after the order is made and see whether costs may fall disproportionately on one party.

It may enable the judge to mitigate, to some extent, the uncom-fortable consequences of a Calderbank situation.

This gives the court greater latitude than may have been supposed.

- Therefore, rules 2.69B and 2.69D can be managed, and where the court considers it unjust to apply 2.69B, it can make a different costs order to reflect the justice of the case.

- Rule 2.69B only bites in respect of costs incurred 28 days after the offer.

Costs prior to that date are to be dealt with in the exercise of the court's discretion.

- Both the Civil Procedure Rules 1998 (CPR) and the FPR apply to ancillary relief cases.

The harmonious integration of the separate codes is best achieved by treating CPR rule 44.3 as covering all cases.

This requires consideration of all the circumstances including the parties' respective conduct and degree of success, and any offers made.

If in a specific case no Calderbank offer has been written, the judge will apply CPR rule 44.3 without more ado (but not rule 44.3(2), which is specifically excluded from applying to family proceedings).

Where a Calderbank letter has been written, or offers are relied on, the judge should apply CPR rule 44.3, notionally inserting into the exercise FPR rule 2.69 in substitution for CPR rule 44.3(4)(c).

Reading the two sets of rules together, the court has a wide and general discretion to depart from the starting point of 'winner takes all'.

Therefore, the question to be asked at the conclusion of any case seems to be: 'Has any Calderbank offer been made?' If the answer is 'no', apply CPR rule 44.3.

Consider the conduct of the parties, whether a party has succeeded on part of his case, even though not wholly successful, and any admissible offer.

'Conduct' includes whether it was reasonable for a party to raise or pursue any particular issue, the manner in which a party has pursued or defended the case, and whether a party who has succeeded in whole or in part has exaggerated his claim.

If the answer is 'yes', apply CPR rule 44.3 in respect of costs incurred before 28 days from the date of the Calderbank offer.

In respect of costs after that date, still apply rule 44.3 but in place of 'any admissible offer', substitute FPR rules 2.69B and 2.69D.

So what of Mr Norris and Mr Haskins, whose appeals were the vehicles for these statements of principle? In Haskins, the judge awarded the wife 1.23 million and ordered the transfer of some shares.

The husband had never made a sufficient offer by a wide margin.

He had never taken steps to resolve his liquidity problems.

However, the wife had not sought to negotiate, and some of her evidence might, if presented earlier, have shortened the trial.

The husband was ordered to pay 85% of her costs.

His appeal was dismissed.

In Norris, the parties both had substantial fortunes.

The difference between them was 720,000 and the judge ordered the husband to pay the wife 360,000, which comfortably beat his Calderbank offer.

She was awarded 80% of her costs on the ground that she had lost on a major issue.

However, it should be noted that he was considerably out of time in his appeal for no good reason and the court refused him leave to appeal out of time.

Even so, it was implied that the order of the judge below had caused no injustice.

District Judge Roger Bird sits at Bristol Combined Court Centre