Why open offers matter
In this blog, Senior Associate Hannah Greene and Director David Allison discuss why open offers matter so much in family law proceedings. Hannah and David share an example of the use of open offers following their involvement in the recent leading case of Xanthopoulos v Rakshina.
There has been a clear shift over the past few years in the family court adding more weight to open offers, particularly open offers made in the earlier stages of proceedings.
There are two ways that settlement negotiations happen; Without Prejudice negotiations and Open negotiations. Without prejudice (WP) means that proposals and/or concessions cannot be later used in open court unless the proposal is accepted. This means that any judge making a determination at a later stage will not have the benefit of seeing what each party would have settled for. The benefit of this style of negotiation is that each person may feel more able to put forward a proposal and not face being penalised at a later stage for not pursuing a specific legal argument or for making a concession. A spouse may therefore choose to be more generous than their legal position requires within a without prejudice offer than they would otherwise if the proposal was made openly when they may be more focused on protecting their legal position. The rationale behind without prejudice negotiations often given is it allows a couple to be more settlement focused.
Much of the family law process is based around WP negotiations; mediation is a WP process and we have the court endorsed financial dispute resolution hearing (FDR) where the court hears both parties’ proposals on a WP basis and gives an indication of what a final hearing tribunal may order. The judge will then invite the parties to continue negotiations to reach a settlement. Most cases which are in court settle in or around the FDR.
There is a question however of whether the WP negotiation process is prone to abuse. Is it right that a person should be able to put forward a WP position which is entirely at odds with their open position and yet the court, at the end of contested proceedings would be none the wiser? Does this ability to put forward opposing WP and open positions mean that people are not being held accountable to their own proposals? This is perhaps the reason there has been a move towards open proposals for settlement.
Open proposals (Open Offers)
In contrast to WP negotiations, open proposals will be shared with and considered by the court at any final hearing.
The court requires open offers toward the end of proceedings. The parties are now directed to make open offers 14 days after an FDR hearing. This is an earlier directed open negotiation than in previous iterations of the Family Procedure Rules where the parties did not have to file open offers until a few weeks prior to a final hearing.
Much can be said for setting out open offers early in proceedings before significant costs are incurred. There may be consequences if a party only sets out their open position after several hearings and perhaps months down the line from when each party had first considered each other’s financial disclosure. An open proposal sets out a clear and confident statement which should make the other party think seriously; “will I do better than this in court?”
An Example of the Use of Open Offers: Xanthopoulos v Rakshina
In the case of Xanthopoulos v Rakshina the respondent wife, Ms Rakshina as represented by Family Law in Partnership, made an open offer in May 2021 to which the applicant husband, Mr Xanthopoulos, never responded. This offer was made in an effort to stem the flow of costs which had resulted from litigation after proceedings had been issued by Mr Xanthopoulos in September 2020. In this instance Mr Xanthopoulos was being funded by way of Legal Services Payment Orders paid for by Ms Rakshina as he had no assets in his name. All the funding for the litigation was therefore paid by Ms Rakshina.
The case was concerned with a Russian family where Ms Rakshina is Russian and Mr Xanthopoulos is Russian and Greek. There were two properties in London – one of which the family had occupied worth approximately £5m and one which the court found was beneficially owned by Ms Rakshina’s brother. There was a bank account in England which Mr Xanthopoulos had applied to freeze at the start of proceedings, the funds of which had been untouched for years. All other assets within the case were in Russia – including a family home and apartment in Siberia and an apartment in Moscow, and Ms Rakshina’s shareholding in the family companies.
In May 2021, Ms Rakshina made an offer that the London property should be transferred to Mr Xanthopoulos. Initially this offer was made in full and final settlement of Mr Xanthopoulos’ claims, but Ms Rakshina later clarified that this offer was made on account of Mr Xanthopoulos’ claims. At the point this offer was made, the parties had filed a plethora of witness statements which had set out their financial resources, but had not exchanged Form E financial disclosure. Mr Xanthopoulos did not respond at all to the open offer. Form E disclosure was later exchanged in December 2021. The final hearing in this case was initially listed in December 2022 but that was adjourned and finally took place in March 2023-almost two years after the open offer had been made. At no point within that period did Mr Xanthopoulos respond to the open offer or make an open offer of his own.
Sir Jonathon Cohen, the judge in this matter found that:
“it is obvious that H should have accepted the offer. At the very least he should have responded constructively to it. What could never have been the right course was for him to do nothing. But, no offer in reply was ever made.”
By the time the final hearing concluded, the parties had jointly incurred legal fees approaching £9m (including the costs of litigation about jurisdiction, children and money) with a vast amount of this sum having been incurred after the open offer was made in May 2021. This was a feature in the determination of the case, with the Judge saying of the two offers made by Ms Rakshina:
“Both of them would have provided H with far more than he will receive under my order. The offers were sensibly judged by W, no doubt anticipating the horrendous haemorrhage of costs that has followed. H has never made a single offer. Both parties filed their Forms E in December 2021. He should then, at the latest, have made an offer in reply.”
The court found that Mr Xanthopoulos’ litigation conduct was relevant to the award, as he was largely responsible for the costs incurred in the case. A large part of this conduct was the failure to respond to the open offer. In the end, the court awarded Mr Xanthopoulos a modest housing fund for a property in Greece that he could occupy until he no longer needs it, and limited maintenance for 4 years. This award leaves Mr Xanthopoulos with no outright capital entitlement- contrary to the open offer made two years previously which would have given him a property worth c.£5m.
What do we learn from the case of Xanthopoulous v Rakshina about open offers?
- Always respond to an open offer even if it is to set out why it is not possible to respond yet or that it is unsuitable. It is up to all litigants to engage responsibly and constructively. Although it may be reasonable to wait until there has been an exchange of full financial disclosure via Form E, after this point the onus is on the recipient of the offer to respond and make their counter proposal.
- Not only may there be cost consequences from not engaging with open offers, but in this extreme example the lack of engagement had a significant consequence on the assessment of the husband’s needs. It is likely that, had the husband had engaged constructively and responded with a counter proposal, his needs for housing would have been assessed at a higher figure.
- The court is becoming far more interested in accountability and how that impacts on assessments of needs. This is the pattern we can expect will only continue with the court taking a more punitive approach to those that abuse its processes.
- It would be wrong to assume that the lowest award the court will make will be that of the lowest open offer.
- Think carefully about any open offers you receive. Will you realistically achieve better results in court than this offer? Continuing to litigate against the certainty of the value of an open offer can mean that you are at risk of receiving less than the offer.
- Make open offers and make them early. The open offer is an important and useful strategic tool to make someone think “do I really want to continue to go through litigation when the costs could now be at my own risk?”