Within protracted financial remedy proceedings the wife alleged that the husband had conspired with a third party to fraudulently misrepresent the true beneficial ownership of several commercial vessels operated by the husband and wife’s shipping company. The husband, supported by contemporaneous documents, asserted that the disposal of the legal and beneficial ownership of the vessels to the third party, and his umbrella of companies, had been for entirely legitimate commercial purposes when their own shipping company had experienced severe cash flow and liquidity problems. The wife stated however that she and the husband retained the beneficial rights of ownership over the vessels and that the documentation suggesting otherwise was a sham to avoid tax. The third party, through his companies, initiated proceedings in the Admiralty Division of the High Court asserting ownership of the vessels and for related relief. After significant expense was incurred by all, the matter was ultimately transferred for determination as a preliminary issue within the financial remedy proceedings and listed for trial. A week before the hearing the wife wrote to the court stating that she had reached a full settlement with the third party with terms to be contained in a Tomlin order and signed forthwith. Where (i) the third party and his companies were not pursuing claims against the husband personally and (ii) the wife accepted that all claims of beneficial interest against the husband were also to be discontinued, together with any allegations of sham, fraud or conspiracy, the husband applied for his costs of and occasioned by the preliminary issues on an indemnity basis. The wife resisted the application on the grounds, inter alia, that (i) although the determination of such preliminary issues were not “financial remedy proceedings” for the purposes of FPR r 28.3, the general proposition found in other Divisions of the High Court and in CPR r 38.6, that where proceedings were discontinued the claimant was liable for the costs relating to the discontinued part, ought not to apply since FPR r 28.2 specifically applied certain parts of CPR r 44 but not rule 38.6; and (ii) the issue of costs ought to be considered differently in the Family Division in any event and therefore reserved to the end of the financial remedy proceedings so as to ultimately achieve a fair distribution of marital assets.
On the husband’s application for costs—
Held, application granted. Under FPR r 28.1 the court was entitled to make such orders as to costs as it thought just. FPR r 28.3 did not apply because the trial of the preliminary issue was not financial remedy proceedings for the purpose of the FPR, and therefore costs would normally follow the event. Under CPR r 38.6 the presumption was that the party who discontinued was liable for costs but that rule did not apply because it was not referred to in FPR r 28.2. However, the principle in CPR r 38.6 was highly relevant to the court’s determination in the present case. A party who decided to discontinue an action or part of an action would generally be expected to pay the costs. It was also a basic principle, in any Division of the High Court, that fraud ought not to be pleaded without sufficient evidence. Therefore, where a party pleaded fraud and then withdrew that claim, the argument that they ought to pay the other party's costs was even stronger than in the withdrawal of other types of claim. The basic principles of proper litigation conduct ought to apply, and be enforced, in the financial remedies jurisdiction as in any other and it ought not to be allowed to develop into a discrete world where normal principles of disclosure, pleading and discontinuance no longer applied. A party who chose to plead fraud, and then withdrew that allegation at the eleventh hour, ought to expect to pay for the consequences of those decisions. Further, the relevant authorities made it very clear that a party who pleaded fraud unsuccessfully could expect to pay indemnity costs and there was no reason why that principle was not to apply here. Therefore, the principle that fraud ought only to be pleaded with considerable reticence, and if the allegation was withdrawn the alleging party should pay costs on an indemnity basis, applied as much in financial remedies as in any other area of law and, accordingly, the wife was to pay the husband’s costs of, and occasioned by, the preliminary issues on an indemnity basis (paras 48–51, 58, 60).
Philip Marshall QC and Alex Tatton-Bennett (instructed by Hughes Fowler Carruthers Ltd) for the wife.
Justin Kitson and Alice Hawker (instructed by Trainer Shepherd Phillips Melin Haynes LLP) for the husband.
Robert-Jan Temmink QC (instructed by Preston Turnbull LLP) for the third party and his interested companies.
The husband and wife’s shipping company did not appear and was not represented.