Costs in Needs Cases: Persistent Reluctance

Introduction

Costs in needs cases comprise two main scenarios: (1) when a party has unpaid costs (or debts referrable to costs) and seeks an additional lump sum to cover these on a needs basis; and (2) when, as a result of litigation misconduct, a costs order is sought against the recipient of a needs-based award. In both scenarios, courts should apply the legal framework contained within FPR 28.3 and the revised PD 28A, para 4.4.[[1]] Significant reform has taken place in this area in recent years; however, notwithstanding this reform, and notwithstanding strong rhetoric at High Court Judge level, judges in the Financial Remedies Court seem to remain reluctant to penalise litigation misconduct in needs cases. This article argues that this gap – between the revised costs framework and reality – can and should be closed, even in cases where resources are more limited.

The current legal framework

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 (FPR 28.3(5)). This general rule is subject to an important conduct exception, namely that the court ‘may make an order requiring one party to pay the costs of another party at any stage of the 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(6)). The factors the court must have regard to when considering whether to make a costs order because of a party’s conduct are set out in FPR 28.3(7):

‘(aa) any failure by a party, without good reason, to –

(i) attend a MIAM (as defined in rule 3.1); or

(ii) attend non-court dispute resolution;

(a) any failure by a party to comply with these rules, any order of the court or any practice direction which the court considers relevant;

(b) any open offer to settle made by a party;

(c) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(d) the manner in which a party has pursued or responded to the application or a particular allegation or issue;

(e) any other aspect of a party’s conduct in relation to proceedings which the court considers relevant; and

(f) the financial effect on the parties of any costs order.’

This list provides both a sword (subparagraphs (aa)–(e)) and a shield (subparagraph (f)). It also highlights a tension, analysed below, between appropriately penalising litigation misconduct and ensuring parties can meet their needs at the level assessed by the court.

PD 28A deals specifically with costs and was revised in April 2019 following a consultation by the Family Procedure Rule Committee’s (FPRC’s) Costs Working Group. As revised, PD 28A, para 4.4 provides:

‘In considering the conduct of the parties for the purposes of rule 28.3(6) and (7) (including any open offers to settle), the court will have regard to the obligation of the parties to help the court to further the overriding objective (see rules 1.1 and 1.3) and will take into account the nature, importance and complexity of the issues in the case. This may be of particular significance in applications for variation orders and interim variation orders or other cases where there is a risk of the costs becoming disproportionate to the amounts in dispute. The court will take a broad view of conduct for the purposes of this rule and will generally conclude that to refuse openly to negotiate reasonably and responsibly will amount to conduct in respect of which the court will consider making an order for costs. This includes in a “needs” case where the applicant litigates unreasonably resulting in the costs incurred by each party becoming disproportionate to the award made by the court. Where an order for costs is made at an interim stage the court will not usually allow any resulting liability to be reckoned as a debt in the computation of the assets.’[[2]]

Subsequently, rule changes were made (in July 2020) to require the provision of costs estimates before hearings in Form H or Form H1 (FPR 9.27) and for open offers to be made 21 days after an FDR (FPR 9.27A). Furthermore, the above-mentioned FPR 27.3(7)(aa) was introduced (in April 2024), the Pre-Application Protocol annexed to PD 9A was amended (in May 2024) to emphasise the importance of open negotiation and engagement with non-court dispute resolution and the new 2026 FRC Guide (published in March 2026)[[3]] confirmed open offers must also be made 21 days after a private FDR.

The reasons for reform

The general rule in financial remedy proceedings (that there will be no order as to costs) was introduced in 2006 at the same time that Calderbank offers became inadmissible in financial remedy proceedings.[[4]] In advance of this reform, it was considered that Calderbank offers – and the costs orders that followed – were having a destabilising effect on financial settlements that had been carefully constructed by the court, and it was hoped that the introduction of the general rule would ‘stress to the parties, and to their legal advisers, that running up costs in litigation will serve only to reduce the resources that the parties will have left to support them in their new lives apart’.[[5]]

In the years that followed, disproportionate costs continued to be an issue. Famously, in KSO v MJO & Ors [2008] EWHC 3031 (Fam), the parties spent £553,000 out of a marital pot of £771,000. That prompted Munby J, as he then was, to append an extract of Dickens’ Bleak House to his judgment and to state ‘Something must be done … We simply cannot go on as we are’. Similar sentiments were expressed in J v J [2014] EWHC 3654 (Fam) by Mostyn J, who urged the FPRC to consider reform.[[6]]

The issue, in the context of needs cases, is illustrated by HG v WG [2018] EWFC 84. The wife (having belatedly abandoned her sharing claim) sought c. £7.715m out of total net assets of c. £12.258m to meet her needs. She was awarded a Duxbury fund of £2m and £1.65m for housing. Francis J, in a judgment that presaged the subsequent reforms to PD 28A, then had to consider what to do with the wife’s outstanding costs (and debts referrable to costs), which totalled c. £900,000 including interest. The wife’s counsel argued she was entitled to a full indemnity in respect of all of her costs because costs are a debt that needs to be paid and, in a needs case, needs must be met. Francis J rejected this submission:

‘91 … Doing the best that I can to recognise that her costs are excessive, to recognise that she has presented an unreasonable case in financial remedy proceedings but to recognise that her Duxbury fund cannot be completely undermined and that the husband’s offer was too low, I am going to add to the lump sum, already referred to above, an additional £400,000 which is a little bit less than half of the total sum due.

93 The wife will, therefore, have to find some £500,000 in order to fund that part of the costs which I am not ordering the husband to pay. I recognise that this will deplete her Duxbury fund. I have very carefully considered whether this is fair. It might be said that I have assessed her needs at a given figure. If I have done that, then how can I leave her with a lower sum which, by definition, does not meet her needs? This conundrum happens in so many cases. People who engage in litigation need to know that it has a cost. The wife may choose to sell the property at some point in the future converting part of the value of it into a Duxbury fund. She may decide to use the property to generate some income rather than simply installing her own staff into it. She will have to make the sort of decisions about budget managing that other people have to make day in day out, but I am satisfied that people who adopt unreasonable positions in litigation cannot simply do so confident that there will be an indemnity for the costs of the litigation behaviour, however unreasonable it may have been.’

Consideration of the revised legal framework at High Court Judge level

Since the revision to PD 28A, para 4.4, there have been a significant number of reported decisions at High Court Judge level both: (1) emphasising the importance of the revised para 4.4 and the change in culture it seeks to effect; and (2) demonstrating increased willingness, at High Court Judge level, to make costs orders even if doing so prevents a party from meeting their needs, as assessed by the court.[[7]]

The starkest warnings have been provided by Mostyn J and Peel J.

In OG v AG [2020] EWFC 52, Mostyn J said:

‘30 The revised para 4.4 of FPR PD28A is extremely important. It requires the parties to negotiate openly in a reasonable way. …

31 It is important that I enunciate this principle loud and clear: if, once the financial landscape is clear, you do not openly negotiate reasonably, then you will likely suffer a penalty in costs. This applies whether the case is big or small, or whether it is being decided by reference to needs or sharing.’[[8]]

In HO v TL (Costs) [2023] EWFC 216, Peel J said:

‘10 Parties must understand that to run an untenable case risks adverse costs orders being made.

11 Perhaps more importantly, lawyers must advise their clients accordingly. Of course, they act on instructions, but it is, in my view, incumbent on the legal team to explain clearly that a failure to negotiate reasonably on an open basis carries costs risks. If the party persists in in an unreasonable stance, they can have no complaints if they are on the receiving end of a costs order.

12 Litigation is expensive and personally demanding for lay clients. I see no reason why the court should not visit a costs order if one party makes unreasonable open offers. The authorities make plain that a costs order may be made even if it reduces the needs as found by the court. These comments apply particularly to big money cases, although I take the view that in smaller value cases the court should also be willing, in the right case, to make an award for costs, even if only in a modest amount, to register condemnation of the party whose open proposals are far removed from the eventual outcome. The message must get across that although the starting point is no order as to costs, the courts are increasingly willing to depart from that so as to do justice to the party who has been put to unnecessary costs by the other party’s overstated proposals.’

Reality on the ground and the way forward

Notwithstanding the changes made to PD 28A, para 4.4 and the warnings offered at High Court Judge level, it continues to be relatively rare – both anecdotally and by reference to reported decisions[[9]] – for costs orders to be made against the recipient of needs-based awards in decisions below High Court Judge level. In other words, a gap persists between the rhetoric at High Court Judge level and the reality of most cases in the Financial Remedies Court.

In part, this may be explained by the fact that there are normally significant differences between the resources available to parties in cases at High Court Judge level than those below – and there are undoubtedly cases where making a costs order would prevent a party from acquiring a property suitable for themselves and any children. However, that explanation only goes so far. It is difficult to see why a party who has been found, for instance, to need to purchase a property costing £400,000 could not in fact make do with £375,000, if their litigation conduct justifies it. Fundamentally, needs are elastic.[[10]] As Cusworth J observed in TY v XA (No 3) [2025] EWFC 350:

‘32 Where King LJ speaks of the housing needs of the recipient party, at [59] of her judgment in Azarmi-Movafagh v Bassiri-Dezfouli (above), I am therefore clear that she is not suggesting that a party can never be left with a hard choice as to how to meet their outstanding debt, which may include housing at a lesser level than that assessed by the court, as an alternative to a reduced available income … Leaving a party needing to relocate to a less exclusive neighbourhood is not in my judgment necessarily leaving them “unable to meet their housing need” … In any case where their needs assessed are on the basis of lifestyle, as opposed to “bare” needs, a party would be unwise to assume that their unreasonably incurred costs are bound to be laid at the door of the other party in any circumstances.’

A better explanation may therefore be a lag in culture. Prior to the revision of para 4.4, the tension between: (1) conduct-based reasons for making a costs order; and (2) the need to consider the financial effect of making a costs order tended to be resolved in favour of protecting needs.[[11]] However, the revised para 4.4 changes this balance: if considering the financial effect of making a costs order meant not making a costs order because it undermines a needs-based award, para 4.4 would be meaningless. Even in smaller money cases, assuming litigation conduct justifies it, practitioners should not shy away from emphasising the sea change augured by cases such as OG v AG and HO v TL (Costs) to seek a costs order, even if it is modest.[[12]]

Further support, in the right case, can be found in TT v CDS [2020] EWCA Civ 1215, where the Court of Appeal considered litigation conduct under s 25(2)(g) Matrimonial Causes Act 1973.

At [80], Moylan LJ said:

‘I agree with Moor J in R v B when he said that, if required to achieve a fair outcome, the court “must be entitled to prioritise the [needs of the] party who has not been guilty of such conduct”. It is clear … that the financial consequences of the litigation misconduct, perhaps combined with other factors, might be such that it is fair that the innocent party is awarded all the matrimonial assets. In this respect, I also agree with Moor J’s observation that an order can be made which does not meet needs because to exclude that option “would be to give a licence … to litigate entirely unreasonably”.’[[13]]

Conclusion

Judicial reluctance to make costs orders that interfere with needs-based awards, even if the recipient’s conduct justifies doing so, is likely to perpetuate a culture in which parties fail to openly negotiate reasonably and costs are disproportionate. The revised legal framework is designed to enable courts to penalise litigation conduct appropriately, even in needs cases with limited assets, and courts should not shy away from doing so.

[[1]]: See Azarmi-Movafagh v Bassiri-Dezfouli [2021] EWCA Civ 1184 at [63].

[[2]]: Note that in advance of the introduction of the revised para 4.4, Moor J repeatedly emphasised the importance of open offers and stressed that he would not hold a party to an early open offer designed to facilitate settlement: SR v RS [2014] EWHC 4305 (Fam), MAP v MFP [2015] EWHC 627 (Fam) and FB v PS [2015] EWHC 2797 (Fam). However, the revision of PD 28A, para 4.4 provided, for the first time, a clear statement of intent from the FPRC that a failure to negotiate openly reasonably and responsibly could (and should) see costs orders made, even in needs cases.

[[3]]: The Financial Remedies Court of England & Wales: Financial Remedies Guide (March 2026), www.judiciary.uk/guidance-and-resources/financial-remedies-guide-2026/

[[4]]: They remain admissible in clean sheet cases.

[[5]]: See the consultation paper issued in October 2004 by the Department for Constitutional Affairs, ‘Costs in Ancillary Relief Proceedings and Appeals in Family Proceedings’, at paragraphs 22 and 27.

[[6]]: The parties spent £920,000 in costs (nearly a third of what they had built up during their 18-year marriage), prompting Mostyn J to bring his judgment to the attention of the President with the aim of raising disproportionate costs as an urgent issue with the FPRC.

[[7]]: For cases where costs orders were made notwithstanding the fact this would cause the paying party to have to dip into their needs-based award, see MB v EB [2019] EWHC 3676 (Fam), Traharne v Limb [2022] EWFC 27, VV v VV (No 2) [2022] EWFC 46, WC v HC [2022] EWFC 40 and HD v WB [2023] EWFC 2.

[[8]]: See also, for example, the decision of Mostyn J in E v L (No 2: Costs) [2021] EWFC 63 at [7].

[[9]]: For examples of (modest) costs order being made in needs cases with limited assets, see AA v AB (Costs) [2021] EWFC B16 and A v R (Financial Remedy: Costs) [2021] EWFC B35.

[[10]]: See, on the discretion afforded to judges, Mostyn J in Cummings v Fawn [2023] EWHC 830 (Fam) at [14]. See also TY v XA (No 3) [2025] EWFC 350 at [31].

[[11]]: See, for instance, J v J [2014] EWHC 3654 (Fam).

[[12]]: Modest costs orders were made in the cases referred to in n 9 (above): in AA v AB (Costs), an order of £10,000 was made by way of a deduction of £1,000 from the series of lump sums payable to the wife from 1 September 2021 to 1 September 2030 inclusive; and in A v R (Financial Remedy: Costs), an order of £9,000 was made. A further creative solution was alighted on by Charles J in V v V [2011] EWHC 3230 (Fam), where a charge against the wife’s property was increased to include the costs of the appeal.

[[13]]: Moylan LJ is referring to R v B & Ors [2017] EWFC 33, particularly at [85].