England and Wales High Court (Family Division) Decisions

IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		12/03/2013

Mr Justice Mostyn:

1. On 8 May 2012, at the conclusion of a three-day hearing, District Judge Simmonds gave judgment on the cross-applications made by the mother and father of a 17-year-old boy who I will call James (although that is not his real name) to vary a consent order made on 7 February 2005 under Schedule 1 of the Children Act 1989. That 2005 order provided:

i) The father was to pay a lump sum of £40,000.

ii) The father was to pay general child support for James of £21,600 annually, index linked, until the conclusion of secondary education.

iii) The father was to pay all of James's school fees until the conclusion of secondary education.

iv) The father was to pay the mother's costs in the sum of £7,500.

2. By 2012 the indexed value of the general child support award had increased to about £28,000. The mother sought an increase, and a further lump sum; the father sought a decrease. District Judge Simmonds ordered that:

i) The father was to pay general child support for James in the annual sum of £18,000, index-linked, to continue until the conclusion of his tertiary education (but excluding any gap year). Given that James was about to enter the sixth form at a well-known public school this meant that the father would have to pay for two years of his secondary education there, followed by three years at university, or possibly four if he read modern languages.

ii) In addition the father was to pay to the mother for James 20% (net of taxes) of any bonus awarded to him.

iii) Of the school fees of around £31,500 per annum the father was to pay £24,000 and the mother the balance.

iv) There would be no further lump sum award.

v) There would be no order as to costs.

3. An appraisal of the respective scale of success and failure of the parents shows that the father succeeded in capping his liability for school fees at a figure lower than their actual amount. He also succeeded in his resistance to the mother's claim for a further lump sum. He succeeded in resisting the mother's claim for costs. The mother succeeded in extending the general child support to the conclusion of tertiary education. Who succeeded or failed in relation to general child support would depend on the size of the father's bonuses. The father would need to receive bonuses of about £110,000 gross or £50,000 net, in order for the mother to receive pursuant to the 20% sharing provision the sum of £10,000 – the amount by which the fixed maintenance was reduced.
4. The mother sought permission to appeal. On 2 October 2012 Baron J granted permission only in relation to the school fees award and the costs decision. She considered that it was arguable that the District Judge had erred in requiring the mother to pick up the balance of the school fees and in not making any award of costs in her favour. She pleaded with the parties to settle the case pointing out that the appeal costs would likely outweigh the sums in issue. But no agreement was reached and the appeal was fought out over a full day. Thus, the parties have spent in total 4 days in court and have expended about £125,000 arguing about the cost of keeping and educating James in sixth form and at university.
5. Until September 2012 the father was a practising QC at the Bar. He had enjoyed great success although in the latter years his fee income was in sharp decline. In September 2012 he semi-retired and took a part-time consultancy position with a firm of solicitors. That pays a base salary of £170,000 gross; £102,000 net. In addition the father will receive a bonus of £30,000 gross (£16,500 net) if he generates £600,000 fee income annually (and a lesser bonus if he generates between £450,000 and £600,000). Further, if he passes the £600,000 threshold he may be awarded an additional discretionary bonus on top.
6. The only other potential source of income available to the father is from his private pension funds accumulated while in practice at the Bar. These are worth about £600,000 in total. Of this the father put into payment about £400,000 worth in mid-2006. He needed to take the tax free lump sum in order to pay a tax bill. At the time he was advised, and believed, that he was obliged to take the annuity as well - about £22,000 gross annually. It is obvious however that he reinvested this payment (as well as other sums) in significantly increased personal pension contributions. The table in the papers at 2/E/29 shows that his pension contributions shot up at exactly the same time that he started receiving this annuity. Later, he was advised that he did not have to take the annuity. Therefore he stopped taking it in March 2011, just at the time when anxious discussions were taking place between the parents concerning the father's level of support for James.
7. The District Judge was not prepared to find that the father's bonus was sufficiently predictable for him to be able to conclude, on the balance of probabilities, that his base net income should be augmented for the purposes of his calculations by £16,500. Rather, he preferred to deal with the vicissitudes of the future by a percentage sharing approach. The District Judge was not prepared, either, to treat the father's income as including the pension annuity which he had now stopped taking. He concluded that the father needed to preserve his pension funds to meet his needs when he fully retired.
8. The mother works as an assistant for two Members of Parliament earning £42,000 annually net from all sources, or £3,500 monthly. There was no suggestion that she has any scope for augmenting her income. She produced a monthly budget for herself and James with her Form E, and revised it to a significant extent in a schedule produced shortly before the hearing. It was on the basis of this schedule that the District Judge assessed the reasonable budget for herself and James in combination so as to enable him to calculate what sum the father should reasonably be expected to contribute towards James's fair share. The District Judge gave a full extempore judgment immediately following the conclusion of submissions and he did not analyse the budget in tabular form; he did so, rather, in a discursive narration in which not all items were addressed and some were addressed a little turbidly. There is nothing objectionable about that but it does make my review a little more difficult than might otherwise have been the case. Doing the best I can I now set out the budget and the District Judge's findings in the following table:

	claimed	found by DJ
Mortgage Interest	1,500.00	1,500.00
Service charges	320.00	320.00
Electricity	130.00	130.00
Council tax	74.00	74.00
maintenance and repairs	150.00	100.00
servicing domestic appliances	125.00	125.00
BT and broadband	18.00	18.00
TV licence	12.50	12.50
Groceries laundry and cleaning	900.00	500.00
Clothes treatment and hairdressing		400.00
Insurances	245.00	245.00
back charges and loan repayments	1,108.00	not the father's obligation
Subscriptions	80.00	80.00
expenses for James	973.20	686.20
car expenses	270.00	270.00
public transport	80.00	80.00
family holidays	500.00	300.00
	6,485.70	4,840.70

9. There are a number of observations to be made about this exercise. First, it is a generous (but not impermissible) approach to look at the combined budget of the mother and James when the exercise under Schedule 1 is from first to last only to assess what is reasonable maintenance for James and not the mother (save to the extent that she can claim what has come to be called a "carer's allowance"). Second, the District Judge was plainly entitled to disregard the repayments in respect of two loans taken out by the mother, one of which was, as the District judge found, for cosmetic surgery, at a time when the father was making payments in excess of his liability under the 2005 court order. The District Judge found that such loans should not have been required, and he was perfectly entitled to make that decision. Third, I have tried to replicate the arithmetical exercise undertaken by the District Judge and set out in paragraphs 80 to 83 of his judgment. I have arrived at a figure of £4,840.70 which is my best attempt to follow the course of his reasoning and arithmetic. However, his finding was that the mother's reasonable budget for herself and James was "just over £4,500". There must have been further adjustments made to arrive at this figure, which have not found expression in the judgment, and it is clear from the District Judge's language that he expected the mother to make further economies. Fourth, it is perfectly clear that the District Judge did not disregard the mother's obligation to pay mortgage interest. Lord Marks QC began his submissions to me with the statement that "the District Judge forgot about the mortgage interest". This is quite wrong.
10. The District Judge therefore concluded that the mother was £1,000 a month short. However, he recognised that there would always be other needs and that a cushion of £500 per month was reasonable. Therefore there was an overall budgetary shortfall of £1,500 per month or £18,000 annually. That was the figure which he set as general child support. He held that it was "a sum that will allow her, with her income, to fully maintain James and provide a home for him and to meet his needs". That was a figure which he was perfectly entitled to reach, and, of course, the mother was refused permission by Baron J to appeal it.
11. So far as the father was concerned, he had claimed a budget for himself of £9,585 per month. He was married, although his wife had some means of her own. He also was supporting his adult, albeit still dependent, daughter. The District Judge scaled down the father's budget very considerably to £5,000 a month or £60,000 annually. This left from his basic net income of £102,000 a surplus of £42,000. After subtraction of the £18,000 general child support this left £24,000 as the amount which he could contribute to the school fees, and the District Judge so ordered.
12. This left a shortfall in the school fees of £7,500 annually. The District Judge was not explicit as to how the mother would meet this although easy inferences can be drawn. First, in the face of the mother's very strong insistence that the bonus of £30,000 gross – £16,500 net – was a near certainty, it was not unreasonable to hoist her with that petard and to have in mind that on her case 20% of £16,500 (i.e. £3,300) would almost certainly be paid to her. Lord Marks argues that this money should not be reckoned in this way because it will not be paid for some time, but that is a bad point given that the school has agreed that the arrears of fees can be rolled up and paid when James leaves. Further, as I have mentioned above, the District Judge allowed the mother a cushion of £500 monthly or £6,000 annually. These two sums in combination exceed the shortfall of £7,500. Therefore it is plain that Lord Marks's primary submission that by his order "the District Judge left the mother with an unfunded requirement of £8,000 (sic)" is not made out.
13. Lord Marks spent much time seeking to persuade me that the District Judge's findings in relation to the bonus (namely that he could not predict on the balance of probabilities that it would be paid in the sum stated and therefore had to be dealt with by a sharing order), and the pension, were untenable. Essentially they are factual determinations and, as has been stated in very many cases, an appeal against a finding of fact is extremely difficult given that the fact-finder has the benefit of seeing the witnesses and judging their demeanour in the witness box. I am of the view that the findings made by the District Judge in relation to the bonus and the pension were not merely tenable but were correct on the evidence before him. But I do not in fact need to go that far because I have demonstrated that this father has been required by this order to pay £42,000 out of £102,000 basic income for his son, together with 20% of all his bonuses. That is a very high proportion and could only seriously be criticised if it could be convincingly shown that the mother genuinely could not meet her reasonable budget and pay the school fees shortfall from her resources as augmented by the child maintenance. And, as I have demonstrated, the mother will be well able to do so on the figures before the District Judge which I have set out above.
14. The first ground of appeal is therefore dismissed.
15. I now turn to the question of costs. At first instance the mother incurred costs of £37,500 (all of which was borrowed from friends and other lenders) and the father nearly £58,000 of which he had paid £21,000. In the appellate proceedings they have run up costs of about £15,000 each. It can therefore be seen that the sums paid in costs completely dwarf the sums they were arguing about. Time and again judges point out the madness of litigating in this way; and time and again their admonitions fall on deaf ears. At the end of the day all we can do is to express concern about such extreme folly, and if it is ignored then the parties will have to live with, and take responsibility for, the consequences of their decisions.
16. Lord Marks argues that the District Judge was wrong not to make an award of costs in the mother's favour having regard to 3 factors:

i) she was the effective winner;

ii) the father was guilty of litigation misconduct; and

iii) the economic impact on her is such that she must have all or part of the costs met.

17. Schedule 1 Children Act 1989 proceedings have, since 6 April 2011, been excepted - along with certain other proceedings (of which the most prominent is maintenance pending suit) - from the "general rule of no order as to costs principle" introduced for almost all family financial proceedings with effect from 3 April 2006 by the insertion of rule 2.71 into the then Family Proceedings Rules 1991 (and which now is found in FPR 2010 rule 28.3).
18. These, and the other specified proceedings, have thus been restored to the position in which all family financial proceedings were before 3 April 2006. Then, the position was that the general rule in RSC Ord 62 rule 3(5) of costs following the event was formally disapplied, but by virtue of the decision of the Court of Appeal in Gojkovic v Gojkovic (No. 2) [1991] 2 FLR 233, [1992] 1 All ER 267 an equivalent, but perhaps less unbending, principle should prima facie apply, at least to ancillary relief proceedings between husband and wife.
19. An open question since the promulgation of Part 28 of the FPR 2010 on 6 April 2011 has been whether this principle of costs prima facie following the event has now been resurrected following the exception of these, and the other specified proceedings, from the general rule of no order as to costs now found in rule 28.3. I consider it is certainly arguable that this principle should now apply in such proceedings when they are between husband and wife or between civil partners. However I am doubtful whether it should apply in Schedule 1 proceedings where the mother in effect makes her application in a representative capacity for the child. In Schedule 1 proceedings the court should in my opinion start with a "clean sheet", as Wilson LJ (as he than was) put it in Baker v Rowe [2010] 1 FLR 761.
20. Even if the rule in Gojkovic once again does apply it is by no means clear that this mother can be said to have "won" this case. In fact, objective analysis would suggest that overall the father was rather more successful than the mother. A consequence of FPR 2010 rule 28.2(1) and its incorporation of CPR 44.3(4)(c) is that in relation to those proceedings excepted from rule 28.3, protection in respect of costs can be achieved by making a Calderbank offer. Yet no such offer was made in this case by either party. Only open offers were made and the result was much closer to the father's position than the mother's.
21. It is certainly correct that by virtue of CPR 44.3(4) (which is applied to these proceedings by FPR 2010 rule 28.2(1)) the court has to consider the conduct of the parties; whether a party has been successful in whole or in part; and any admissible offers made by the parties (which, as I have pointed out, include Calderbank offers). These would be the first things to write on the clean sheet. I have dealt with the latter two aspects. Lord Marks made extensive submissions concerning what he described as the father's litigation misconduct. He demonstrated that in the period prior to the issue of proceedings the father had made representations about his means which were, to put it charitably, economical with the truth. Further, much complaint was made of the father's reticence to give a prompt disclosure of his consultancy negotiations in April 2012.
22. Lord Marks accepts that the father's conduct prior to the issue of proceedings does not sound directly in the generation of costs. It is relied on by him rather to demonstrate that it raised the index of suspicion so high in the mother's mind that when proceedings were issued it meant that a trial was an inevitability because the mother would be unlikely to accept the father's representations as to his means without having it tested before a judge. Equally, although the mother accepts that the father did make a full disclosure eventually of his negotiations for the consultancy, his reticence meant that her index of suspicion was pushed to the sky. Certainly on reading the transcripts it is apparent to me that the view of the mother and Lord Marks was that the father was highly untrustworthy. The cross-examination came very close to accusing him of forgery of documents concerning the negotiations.
23. I do not accept that the father's pre-proceedings conduct is relevant to the issue of costs in this case. In my opinion pre-proceedings conduct can only be relevant where it has a direct causal connection to the later generation of costs. To allow the mother's psychological argument risks opening a can of worms both in principle and evidentially.
24. Nor do I accept that any serious criticism can be levelled against the father in relation to disclosure of the negotiations about his consultancy.
25. So far as economic impact is concerned the cost consequences of this case are calamitous for both parties. The mother has mortgage debt on her two properties of around £1 million, but her investment property washes its face, and her mortgage interest on her home is covered, as I have shown, by her earnings and the general child support. The source of the mother's borrowings for the cost was not revealed to me and I gained the impression that it was largely from friends and family and therefore is likely to be soft rather than hard. But even if there were pressing commercial creditors then that is a sad consequence of litigating so intransigently. If she has to sell her investment property with an equity of a little over £100,000 then that will be a sad consequence of this litigation, but one which could so easily have been avoided had reason prevailed.
26. The father's position is if anything worse. Although his home is co-owned with his wife, and is mortgage free, he has pressing debts exceeding £100,000. His overdrafts are at their very limit, and his credit cards are, to use the vernacular, "maxed out". So disastrous is his position that he has only been able to pay £5,000 out of the income tax due on 31 January 2013 of £24,000, and it must be anticipated that soon the Collector of Taxes will come demanding payment. It is not clear to me at all from where the father will find the money to pay unpaid costs of over £50,000. He too must bear the consequences of his intransigence, and this may well involve the sale of his home and the purchase of a rather cheaper one.
27. I do not therefore conclude that the mother's argument on economic impact has merit since the parties find themselves in a comparably disastrous position.
28. The mother's appeal on costs is dismissed.

LATER

29. Following distribution of the judgment in draft I have received submissions from both counsel concerning the costs of the appeal. I have now been given the precise figures for the appeal costs – the father's were £18,535 and the mother's were £14,400.
30. The father seeks an order for costs. First, he argues that he has won the appeal. Second, he refers to Calderbank letters written by each of the parties. In the letter written on his behalf on 16 October 2012 he offered to pay all of the school fees for the 2013/14 academic year and to make a contribution to the mother's costs of £4,500. The mother's Calderbank offer dated 30 October 2012 sought payment of all of the school fees for the current 2012/13 academic year as well as for the next one, and 65% of her cost at first instance – £23,616; together with 80% of her appeal costs incurred to date – £11,230. The father makes the obvious point that had the mother accepted his offer she would be in a better position financially than she finds herself now. Lord Marks accepts that the mother's offer was "predicated upon her winning the appeal to a significant extent and that she has not done so". I would go further and say that the mother's offer did not in any way seek realistically to reflect the risks of her losing what to my mind was always a very weak appeal.
31. The mother resists the application for costs arguing that:

i) the fact that she lost the appeal does not necessarily mean that an order for costs should be made against her;

ii) although the Calderbank offers favour the father, his offer did not "really represent any real attempt to settle the appeal";

iii) the impact of an adverse order on the mother and on James will be devastating; and

iv) in contrast to her the father will have a far greater opportunity for managing and restructuring his own debt.

32. The mother also argues that the quantum of costs claimed by the father is excessive. She says that his solicitors' costs of £7,200 are unduly high. If there is to be in order against her she argues that she cannot pay it at once or raise the money to do so and that the only realistic way in which an order could be met would be by deduction from future maintenance payments spread over time.
33. The mother produces an up-to-date schedule of her debts excluding mortgages which amounts to £97,747 inclusive of all of her costs liabilities.
34. In my judgment on any financial remedy appeal, including an appeal in Schedule 1 proceedings, costs should prima facie follow the event. Certainly that would be the position on a first appeal to the Court of Appeal and I cannot see why any different rule should apply on a first appeal to the High Court or the County Court. Even if the father had not made a Calderbank offer he would prima facie be entitled to his costs; the existence of his offer strengthens his case considerably. There are no good reasons why, subject to the questions of quantum and timing, he should not have his costs.
35. The parties are agreed that I should summarily assess the costs on paper. There are no factors here which signify an award of indemnity costs. Were the father's costs to be the subject of a detailed assessment inevitably an amount would be disallowed as being not reasonably incurred. The usual rule of thumb is that about 70% of costs are allowed on a standard assessment. That would correspond to £13,000 here, which I consider to be a fair figure. That is the amount (inclusive of VAT) which the mother will pay to the father.
36. I agree that the mother's position is dire and that the father is in a slightly better position than she is to absorb the impact of this reckless and foolhardy litigation. As an act of mercy to her I will order that the sum of £13,000 be paid by her in 26 monthly instalments of £500 commencing on 1 April 2013. For as long as the general child support award is in force this may be met by her father deducting it from the monthly periodical payments.