Polly Atkins reviews guidance on applications for security for costs in Family Law Journal

This article was originally published in Family Law Journal, published on 1 April 2022 for the May 2022 Issue of Legalease, and can be found here. 

Security for costs: Balancing factors

With the recent news that Peel J is to take over from Mostyn J as lead judge for the Financial Remedies Court and judge-in-charge of standard family orders, it seems a good moment to review one of Mostyn J’s tour de force judgments, for which he has become so well known.

MG v AR [2021] is the first reported family case on security for costs since the coming into force of the Family Procedure Rules 2010, and Mostyn J took the opportunity to provide comprehensive guidance, drawing on the equivalent provisions in the Civil Procedure Rules 1998. In true Mostyn J style, his judgment covers a lot of ground in concise prose.

Background

The proceedings concerned a child who was a dual British-Canadian citizen and had lived with her mother in Canada since 2019, while the father lived in Dubai. In earlier Canadian proceedings, and for reasons Mostyn J clearly found difficult to understand, the court there took the view that decisions about the child should be taken  in England and Wales, where the child had lived until 2018 and where there had been previous proceedings. The father accordingly applied under the court’s inherent jurisdiction for an order that the child be returned to Dubai (where she had lived in 2018/9). With existing debts owed by the father to the mother arising from unpaid costs and maintenance orders of £127,000, the mother applied for security for costs.

Applicable law

The court’s power to award security for costs is set out in rr 20.6-20.7, Family Procedure Rules 2010 (FPR 2010). Rule 20.6 provides that:

• a respondent to any application may apply for security for costs in relation to the proceedings;
• an application for security for costs must be supported by written evidence; and
• where the court makes an order for security for costs, it will determine the amount of security and direct the manner in which, and the time within which, the security must be given.

The conditions to be satisfied are set out in r20.7, FPR 2010, ie the court may make an order for security for costs under r20.6, FPR 2010 if:

• it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order; and
• either an enactment permits the court to require security for costs, or one or more of the conditions below applies:
• the applicant is resident out of the jurisdiction;
• the applicant has changed address since the application was started, with a view to evading the consequences of the litigation;
• the applicant failed to give an address in the application form, or gave an incorrect address in that form; or
• the applicant has taken steps in relation to their assets that would make it difficult to enforce an order for costs against them.

Note that the court may not make an order for security for costs under r20.6, FPR 2010 in relation to the costs of proceedings under the 1980 Hague Convention (per r20.7(3), FPR 2010).

When and how should the power to award security for costs be exercised?

There is both a factual and a discretionary element to applications for security for costs, ie first, one of the so-called ‘gateway conditions’ in r20.7(2), FPR 2010 must be met and then, if that requirement is satisfied, the court must consider if, in all the circumstances of the case, it is just to make an order. In that event, the court will consider the appropriate quantum. The judgment in MG v AR provides a clear ‘how to’ guide for applications for security for costs and on the approach to be taken in the event of default. Each element is considered in turn below.

Gateway conditions

In relation to the gateway conditions set out in r20.7(2), FPR 2010,  Mostyn J cited Nugee LJ in Infinity Distribution Ltd (In Administration) v Khan Partnership LLP [2021], who described the equivalent conditions in the Civil Procedure Rules  1998 as ‘…not questions for the Court’s discretion: they are matters of fact on which the Court needs to be satisfied’ (para 30). However, Mostyn J recognised that the conditions in relation to whether the applicant had changed address to evade the consequences of the litigation (FPR condition b), or had taken steps in relation to their assets that would make it difficult to enforce an order for costs (FPR condition d), do include an evaluative element which is likely to be also relevant at the discretionary stage, somewhat blurring the distinction between the two phases (see para 19).

In this case, the father was resident in Dubai, satisfying the first of the possible gateway conditions.

Discretion

Once a gateway condition is established, under FPR 20.7(1)(a) the court must then have regard to all the circumstances of the case and be satisfied that it is just to make the order. Mostyn J described this as the ‘formation of a value judgment’ (para 20) and set out the relevant factors as follows:

Merits of the application and the defence and the means of the parties

The merits of the application and the strength of the defence must be ‘carefully considered’ (para 25). This contrasts with the position under civil law, where the merits are only relevant if strongly in favour of one party and reflects that costs are routinely awarded in civil cases but only rarely in family cases. In addition, the applicant’s means must also be considered so as to satisfy concerns about access to justice.

Mostyn J summarised the position (at para 31) as follows:

…the court should first ask whether the substantive application has merit and, second, if so, whether an order for security for costs would likely stifle or inhibit that application, because of the limited means of the applicant.

If the answer to both questions is yes, ie the application is meritorious and an order for security for costs would be likely to stifle it, the application for security for costs should be refused (para 32).

If the answer to either question is no, ie either the application is without merit, or the application has merit but an order for security for costs would not stifle it, then the court should only order security for costs if satisfied that ‘…there is a good chance (but not necessarily a probability of more than 50%) of the respondent obtaining an order for costs at the final hearing’ (para 34).

In assessing this, the court will need to consider not only the merits but also the applicant’s means, as the family court is unlikely to make a costs order against an impecunious litigant. Where the applicant’s disclosure is deficient, the court should make ‘robust assumptions’ about their ability to pay (para 36).

On the facts before the court, given the high bar for invoking the parens patriae doctrine (ie the High Court’s inherent jurisdiction over children who are British citizens), Mostyn J did not considerthat the father had ‘even an arguable case’ to justify invoking that jurisdiction and that at the final hearing the mother would ‘have a solid argument that the father’s stance is outside the spectrum of what is reasonable’ and a ‘good chance’ of obtaining a costs order (para 78). He also concluded that the father had the means to pay a costs order if made, noting that the father had found a ‘phenomenal’ amount of money with which to litigate.

Likelihood of non-payment of an award of costs

Where the judge thinks there is a good chance of the respondent obtaining an order for costs at the final hearing, the court must next consider whether there is a ‘real risk’ of non-payment by the applicant if a costs order were to be made against them. If not, then no order should be made.

In this case, the father owed the mother £127,000 in unpaid costs and maintenance, thus, as Mostyn J put it, the facts ‘speak for themselves’ (para 78).

Whether the application for security for costs has been promptly made

An application for security for costs should be made as soon as the facts justifying it are known, as delay can unfairly prejudice the applicant. Delay in making an application may result in the application being denied, or the court only awarding partial security.

On the facts in this case, this was nearly the mother’s downfall. The father’s application had been made on 28 May 2021 and the mother’s application for a Hadkinson order to prevent the father pursuing the application was rejected on 23 July 2021. The application for security for costs was not made until 25 October 2021 and by the time it was heard in mid-November 2021, the final hearing was only a month away. Mostyn J found that this did not fulfil the requirement for a ‘prompt’ application, and the amount of security ordered was therefore reduced.

Other discretionary factors

Mostyn J noted that in Sir Lindsay Parkinson & Co v Triplan Ltd [1973], Lord Denning MR identified additional factors that might be relevant, including the terms of an open offer, but that this had not been relied on in any subsequent case law.

Quantum of the award

Mostyn J said that the court should ‘…fix the amount in a robust, broad-brush manner, deploying a wide discretion’, and the award may reflect future litigation uncertainties and the possibility of reductions on detailed assessment through a percentage discount (para 53(viii)).

Further, that the court should follow the guidelines for the award of a legal services payment order (LSPO) under s22ZA, Matrimonial Causes Act 1973, as Mostyn J himself set out in Rubin v Rubin [2014], subject to some modifications. In particular:

• that while under Rubin historic costs should only be covered where the applicant would otherwise not reasonably be able to obtain future services, on an application for security for costs it is ‘entirely legitimate’ to include historic costs, although the court may decline to do so, for example where the application is made late;
• that the need for the applicant to give an undertaking to repay all or part of the amount secured if the court so requires is not relevant to this type of application;
• that as with an LSPO, the court should normally grant security for costs only up to the stage of a financial dispute resolution appointment in financial remedy proceedings and to the pre-trial review stage in children proceedings; and
• as with an LSPO, that security should normally be paid in monthly instalments.

In this case, the sum claimed was £87,635, which Mostyn J considered to be properly evidenced and justified. However, he reduced this to £50,000 to reflect ‘the lateness of application; the uncertainties of litigation; and the prospect of a reduction on a detailed assessment’ (para 78(ix)).

How security should be given

Mostyn J said that generally security for costs should be payable in monthly instalments rather than by a lump sum and while in civil proceedings the proceedings are often stayed pending payment of the security, this is not workable where payments are monthly and may in any event be inappropriate in family cases.

In this case, the substantive hearing of the father’s application was less than a month away, making it too late for monthly instalments. Mostyn J therefore ordered a lump sum payable within 14 days to the mother’s solicitors to be held to the order of the court and was satisfied that this was within the means of the applicant father. However, there was to be no stay of the proceedings if payment was not made.

Standing back

Mostyn J stated that having followed the guidelines the court will then need to ‘stand back and satisfy itself that what it is going to do is just’ (para 48). In children proceedings, the court should be satisfied that its order is consistent with, or least not contrary to, the best interests of the child. On the facts, Mostyn J was satisfied that his proposed order was just and in the best interests of the child, referring in particular to the lack of merit of the father’s case, the mother’s solid claim for a costs order and that it was in the child’s interests for her mother to be represented, which might not be possible without security.

Default

Considering what should happen in the event of default, Mostyn J favoured close conformity to the practice in the Commercial Court under which a claim is not struck out automatically, but that this is applied for, which enables the court to give the claimant the option to pay or not, the latter resulting in a dismissal of the claim. He qualified this with a cautionary reminder that before dismissal of a claim, particularly in children proceedings, the court must be satisfied that this sanction is not contrary to the best interests of the child.

Given the proximity of the final hearing in this case, Mostyn J stipulated that, in the event of default, it would be a matter for the judge at the hearing to decide whether or not to summarily dismiss the case if the father defaulted, again paying particular regard to the welfare of the child (see paras 50-52).

Procedure

Mostyn J also set out the appropriate procedure (at para 53), ie that:

• applications should be made in Form D11 (in financial remedy proceedings) or Form C2 (in Children Act 1989 proceedings), under the Pt18, FPR 2010 procedure;
• the application must indicate which gateway condition is relied on and set out all the supporting facts; and
• the amount of security sought must be stated and there should be a breakdown of historic costs and a detailed estimate of future costs.

Commentary

As noted, this was the first reported family judgment on security for costs since FPR 2010 came into effect. This is not surprising, as such orders will not be made unless there is a good chance of a costs order being made and the starting point in the majority of family law applications will be for no costs orders to be made at all. While costs orders have become more common in recent years, particularly in financial remedy cases, such orders tend to reflect the parties’ conduct of their litigation, for example a lack of disclosure or a failure to negotiate reasonably, which will not be apparent at the early stage when an application for security for costs is most likely to be made. Therefore, such applications are likely to remain unusual and probably restricted to cases where, as here, the substantive application is very weak and there are good reasons to think a costs order would not be complied with.

There are some financial remedy cases where the court’s starting point will be that costs follow the event. These include applications for an order preventing a disposition under s37(2)(a) MCA 1973, interim maintenance and LSPO applications, applications for interim orders, applications for permission to make a claim under Part III MFPA 1984, set aside applications, notice to show cause applications and applications under Sch 1,  Children Act 1989. It will be interesting to see whether there is an increase in applications for security for costs in such applications following this judgment.

In his judgement, Mostyn J said ‘it is in [the child’s] interests that her mother should be able to resist what is a dubious claim by her father and that this should be facilitated by her lawyers who should be paid for their services. I apprehend that it is distinctly possible that the mother’s lawyers will not be prepared to act without the security’ (para 78(xi)). This echoes the access-to-justice/equality of arms rationale implicit in the jurisprudence relating to LSPOs, as set out in Rubin. In Rubin, Mostyn J said that ‘[t]he court cannot make an order unless it is satisfied that without the payment the applicant would not reasonably be able to obtain appropriate legal services for the proceedings’ (para 13(iv)). This is despite the two jurisdictions being quite different and serving different purposes, ie while LSPOs are intended to secure access to justice and equality of arms, orders for security for costs are available only to respondents so as to ensure that they actually receive payment if a costs order is ultimately made in their favour.

However rare such applications might be, Mostyn J has (as he has so often) provided a clear step-by-step guide which will greatly assist lawyers consulted about security for costs.

Cases

MG v AR [2021] EWHC 3063 (Fam)

Infinity Distribution Ltd (In Administration) v Khan Partnership LLP [2021] EWCA Civ 565

Sir Lindsay Parkinson & Co v Triplan Ltd [1973] QB 609

Rubin v Rubin [2014] EWHC 611 (Fam)