The New Cost Rules – What clients need to know

Recent amendments to the Family Procedure Rules 2010 (FPR) have brought in changes to the way costs are dealt with in financial litigation in divorce.

The changes relate to the timing of when settlement proposals are made during the case and the provision or more specific and detailed costs information (including projected costs) at every hearing.  It is hoped this will encourage the parties and their lawyers to focus on the costs consequences of continuing with court proceedings.

The primary changes introduced by FPR 9.27A are as follows:-

Open Proposals to be made at an early stage

• An “open” settlement offer (i.e. a proposal which is not without prejudice so can be referred to in Court) must be made by each party within 21 days of the Financial Dispute Resolution appointment (FDR) or within whatever timeframe the Court orders.
• If no FDR takes place the open offer must be made at least 42 days before the final hearing.

There is still a duty, as before, on the applicant to make an open offer 14 days before the final hearing and for the respondent 7 days before the final hearing.

Provision of New Costs Estimates (including Future Costs) at each hearing

• At least 1 day before the First Directions Appointment (FDA) or FDR the parties must file and serve:

i) An estimate of the costs incurred to the date of that hearing

ii) An estimate of the costs they expect to incur up to the next hearing

• “Costs Particulars” for the final hearing i.e. full details of costs incurred and future costs must be served and filed with the Court by each party 14 days ahead of the final hearing so that the Court can take account of the parties’ liabilities in its determination.
• The estimates must confirm (and be supported by a Statement of Truth) that the figures have been discussed with the party by their solicitor and served on the other party.
• The estimates must be brought to the hearing and the costs estimated must be recorded in the Court Order for that hearing so that everyone is aware of the costs of the litigation.
• Failures to comply with the rules re provision of estimates will also be recorded in the Court Order for the hearing and in the case of non-compliance the Court must also order that the estimate is filed and served within 3 days following the hearing.

It is important to keep in mind that under Practice Direction 28 the Court will take a broad view of the parties’ conduct in financial litigation when considering whether or not to make a Costs Order.  This includes when either party refuses to openly negotiate reasonably and responsibly.  The Court will also consider this in a “needs” based case where a party’s conduct has been so unreasonable that the costs incurred have become disproportionate to the overall financial settlement.

The aim of the changes in the costs rules are to:-

1. produce a greater awareness of the level of legal costs in the litigation and how they are mounting at every stage.

2. impose clearly defined responsibilities/obligations on the parties to make early settlement proposals.

It is as yet unclear what effect the new rules will have on litigation within financial proceedings in divorce but it seems likely there will be serious costs consequences ensuing if there has been unreasonable litigation or a failure to negotiate.