Peel J. Cost judgment from Peel J in ‘highly unusual’ financial remedy proceedings, in which a litigation loan provider successfully applied to be joined and to set aside a consent order which prevented them recovering a loan to W.

Issues

The issue for the court was which orders to make in respect of legal costs arising from the intervention of Integro Funding (‘Level’). Level is a litigation loan provider who provided a litigation loan to W.

The costs in respect of Level dated back to February 2021. During that time, there had been unclear costs orders made, multiple applications – some which had not been formally disposed of by the court – and at least nine hearings.

Level sought all their costs of intervention from H, amounting to £687,170. Approximately £260,000 of this figure was a sum claimed by Level under two cost orders which had already been made in their favour during proceedings. H sought no order as to costs, save that Level should pay the costs of their unsuccessful application for disclosure of privileged FDR material.

Background

Full details of the extensive background to proceedings are set out fully at [6]–[62] of Peel J’s judgment, but are summarised.

Financial remedies proceedings commenced in February 2016, with a final hearing in July 2018 where Parker J found that H was guilty of misrepresentation, obfuscation and distraction and made an order for payment of £3m to W on a needs basis. H appealed this decision, asserting that Parker J was wrong to determine H’s trust asserts were available for distribution and that W’s payment was essentially all of the available assets. Permission to appeal was granted.

In advance of the appeal, W applied to Level for a litigation loan to clear her outstanding costs to her former solicitors under a Sears Tooth agreement and to allow her to be represented at appeal. Level loaned W a total of £630,000. The figure with interest at the time of this judgment exceeded £1m.

During the FDR in front of Mr Cusworth QC, as he then was, an agreement was reached, which was for W to receive a life interest in a property to be purchased for £1m by H’s trust. W would receive no free capital or income and would therefore have no funds to repay Level’s loan. A draft consent order reflecting this agreement was signed by H and W.

Upon being told W would not be repaying the loan, Level wrote to the court asking urgently to be joined a party to proceedings prior to approval of any order, copying in both W and H’s representatives. Two days later, without informing Level, H’s representatives sent the draft FDR consent order to the clerks at Mr Cusworth QC’s chambers for approval. The court was not sent a copy of the order, and no fee was paid.

Unaware of this, Level applied to the court in the proper form seeking joinder, which was granted on the papers and W and H were informed of the decision. H’s representatives sought liberty to apply and a return date, failing to inform the court that the draft order had been sent to Mr Cusworth QC. H’s representatives further sent a polite chaser to Mr Cusworth QC’s chambers in relation to approval of the draft order. Mr Cusworth QC, who had not been informed of the developments, made no enquiries and approved the FDR consent order.

Despite repeated requests, H’s representatives did not provide Level with their correspondence with the court, requiring Level to make an application for disclosure. H’s representatives at this point confirmed to Level that the ‘matter had now concluded’ and proceedings had reduced to a consent order. H made an application to discharge the order that had allowed Level to intervene.

Holman J ordered a stay of the consent order and granted a freezing order in respect of the former family matrimonial home and a property in Israel. This freezing order would be discharged if H made a payment of £950k into the court.

Level applied for disclosure of privileged material relating to FDR, which Robert J refused. H applied for an order that Level pay their costs of this application. Robert J reserved costs.

In February 2022, H conceded in correspondence that the consent order should be set aside. W said she wanted no part in proceedings.

A three-day trial was listed for March 2022. While H had agreed that the consent order should be set aside, he then applied for the consent order to be re-made, which was refused. The order joining Level as an intervener was upheld. H appealed both orders. Permission to appeal was granted by the Court of Appeal and the further hearings were adjourned. H’s appeal was refused and H was ordered to pay costs of the appeal. H was also ordered to pay Level’s costs in application to set aside the consent order. The wider costs of intervention were not determined at this stage.

Before the final hearing, H produced a document stating he was not inviting court to re-make the previous consent order or any other order in financial remedies proceedings. No order was made on the financial remedies and costs were adjourned.

In his judgment on 2 July 2024, Peel J had commented that this case had a troubling history. H now sought to distance himself from his previous solicitors and counsel, having changed representation, and his submissions attempted to deflect blame onto them. This submission was rejected and considered unsustainable unless H waived his privilege.

Relevant law on costs

FPR 28.2 applies CPR Part 44 to family proceedings, save for rule 44.2(2)(a), which provides the general rule is that the unsuccessful party will be ordered to pay costs of the successful party.

FPR 28.3(2) expressly excludes CPR 44.2(4) and (5) which set out relevant considerations under the CPR for making a costs order.

FPR 28.3(5) states that the general rule in financial remedy proceedings is that the court will not make an order requiring one party to pay costs of another party.

FPR 28.3(6) states that, notwithstanding the general rule, the court may make an order requiring one party to pay the costs of another party at any stage of proceedings where it considers it appropriate to do so because of the conduct of a party in relation to the proceedings (whether before or during them).

FPR 28.3(7) states the factors the court must have regard to when deciding what order (if any) to make.

Baker v Rowe [2010] 1 FLR 761 provides the common ground that the costs incurred by the intervention of a third party are not in financial remedy proceedings, where the starting point is no order as to costs. Such cases are family proceedings, such that the CPR general rule of costs following event does not apply. Thus, the court starts with a ‘clean sheet’. However, as Wilson J said in Baker:

‘the fact that one party has been unsuccessful and must therefore usually be regarded as responsible for the generation of the successful party’s costs, will often properly count as the decisive factor in the exercise of the judge’s discretion.’

Because these are family proceedings, not financial remedy proceedings, CPR 44.2(4) and (5) apply, rather than FPR 28.3(7). CPR 44.3 is retained, allowing the court to order costs on the standard or indemnity basis. CPR 44.6(1) is also retained, which allows the court to order summary assessment or detailed assessment.

As to principles on which the court should make an order for indemnity costs, in Excelsior Commercial and Industrial Holdings Ltd [2002] EWCA Civ 879 the Court of Appeal held that where something takes a case ‘out of the norm’ indemnity costs may be justified. Ensure Services Ltd v Quarcoo [2009] EWCA Civ 595 held that ‘out of the norm’ means ‘something outside the ordinary and reasonable conduct of proceedings’.

Determination

Dealing first with the costs from the period of 16 February 2021 until 18 October 2023.

Peel J was satisfied all costs sought by Level were in connection with financial remedies proceedings and not ‘for’ financial remedies. Therefore, as per Baker, there is no starting point, so the court starts with a ‘clean sheet’.

H’s conduct in relation to the consent order up until at least the Court of Appeal order of 18 October 2023 was deplorable and unreasonable. Costs arising out of the intervention arise within an overarching context: (1) many efforts by H to ensure the consent order was made before steps could be taken by Level to prevent such action; (2) H’s determination to resist setting aside of the consent order and to oppose joinder; (3) H’s attempts to have the order remade. Level plainly succeeded in their case in the period to 18 October 2023 – they were joined, obtained set aside of the consent order, and resisted further attempts for the consent order to be made.

Peel J considered that H’s unreasonable conduct justified an order for costs in Level’s favour on the indemnity basis from 16 February 2021 to 18 October 2023, save for there shall be no order for costs for Level’s application for disclosure of private FDR material. Level did not succeed on this application.

Dealing secondly with the costs from 18 October 2023 to date, Peel J considered that the position after the Court of Appeal judgment appeared different. Level’s aims of setting aside the consent order and being joined were already achieved. Neither W or H were seeking that the consent order be remade. Peel J was unconvinced that H could be criticised for his conduct during this period; likewise Level cannot be said to have behaved unreasonably. No order as to costs was made in this period.

Peel J’s judgment did not affect costs orders already made by previous tribunals. No order was made against W.