I have had to simplify the facts to present a short article.
W made an application for financial remedy. The parties ran a shipping business. There has already been one reported case between these parties, and there were seven respondents, so you get the flavour.
W made preliminary applications to determine the beneficial ownership of vessels which W accused H of conspiracy to defraud her by reducing the value of vessels. Five days before the trial of the preliminary issue, W settled with one respondent and withdrew her claim of conspiracy against H. H claimed indemnity costs against W in relation to defending the conspiracy claim. All this happened before the fdr.
The trial judge ordered W to pay H's costs of, and occasioned by, the preliminary issues on an indemnity basis, and a payment on account in the sum of £80,000 would be ordered on the basis that when taxed those costs would not be less than that sum.
Giving judgement Lieven J stated the following:-
The general rule in financial remedy proceedings is that the court will not make an order requiring one party to pay the costs of another party save where conduct issues arise (FPR r.28.3(6) and (7)). However, preliminary issue applications, such as in this case, are not financial remedy proceedings for the purposes of FPR r.28.3, see the commentary at FPR 2010 r.28.3, and that therefore the CPR applies to the extent referred to in FPR r.28.2.
At para 22 she said - H argues that when considering the approach to costs, particularly where there are allegations of fraud, there should be a consistent approach across the different Divisions of the High Court. This proposition has been demonstrated in a range of different contexts where each division must apply the same law and principles to the facts of the case before it.
The Supreme Court emphasised the importance of consistency between the Family and the Chancery Divisions in the case of Prest v Petrodel [2013] 2 AC 415. At [37], Lord Sumption stated that: “if a right of property exists, it exists in every division of the High Court and in every jurisdiction of the county courts. If it does not exist, it does not exist anywhere.”
There is a presumption in the CPR (38.6) that the party who has discontinued should pay the other party's costs.
The judge cited Playboy Club London Ltd v. Banca Nazionale Del Lavoro Spa [2018] EWCA Civ 2025, in which Sales LJ said the following (at [46]):
- “The pleading of fraud or deceit is a serious step, with significance and reputational ramifications going well beyond the pleading of a claim in negligence. Courts regard it as improper, and can react very adversely, where speculative claims in fraud are bandied about by a party to litigation without a solid foundation in the evidence. A party risks the loss of its fund of goodwill and confidence on the part of the court if it makes an allegation of fraud which the court regards as unjustified, and this may affect the court's reaction to other parts of its case. Moreover, as Birss J observed in Property Alliance Group v Royal Bank of Scotland [2015] EWHC 3272 (Ch) at [40], allegations of fraud "can cause a major increase in the cost, complexity and temperature of an action." For these reasons parties are well-advised, and indeed enjoined according to usual pleading principles, to be reticent before pleading fraud or deceit.”
At para 48 et seq the judge continued - Under FPR r.28.1 the Court may make such orders as to costs as it thinks just. W argued FPR r.28.3 does not apply because the trial of the preliminary issue is not financial remedy proceedings for the purpose of the Rules, and therefore costs would normally follow the event. Under CPR r.38.6, FPR r.28.2 is not referred to, so the presumption that the party who discontinues is liable for costs, does not apply because it is not referred to.
However, in my view, the principle in CPR r.38.6 is highly relevant. If a party decides to discontinue an action or part of an action, then they should generally be expected to pay the costs. This is merely a reflection of the obvious position that if one party necessitates the other party to incur costs and then does not pursue the point, they would normally expect to be liable for the wasted costs incurred.
As Sales LJ said in Playboy Club v Banca Nazionale Dei Lavori Spa [2018] EWC Civ 2025, pleading fraud has serious reputational consequences and parties should therefore be reticent before pleading it.
This must mean that where a party pleads fraud, and then withdraws that claim, the argument that they should pay the other party's costs must be even stronger than in the withdrawal of other types of claim.
Then at para 58 the judge stated - W argues that financial remedies litigation is different from other litigation because the judge has to be concerned with the fair distribution of matrimonial assets. In my view, that is to try to create an exceptionalism for financial remedies litigation which does not and should not exist. The basic principles of proper litigation conduct should apply, and be enforced, in the financial remedies jurisdiction as in any other. It should not be allowed to develop into a discrete world where normal principles of disclosure, pleading and discontinuance no longer apply. If a party chooses to plead fraud, and then withdraws that allegation at the eleventh hour, then s/he must expect to pay for the consequences of those decisions. The principle that fraud should only be pleaded with considerable reticence, and if the allegation is then withdrawn then the alleging party should pay costs on an indemnity basis, in my view, applies as much in financial remedies as in any other area of law.
