Most readers of this publication will be familiar with the expressions of horror over costs in financial remedy proceedings from the High Court bench in recent years, culminating in a few memorable adjectives (‘nihilistic’,1 ‘apocalyptic’2). In Xanthopoulos, Mostyn J described ‘exploding with indignation’ at the rate and scale of costs incurred in the 2014 case of J v J [2014] EWHC 3654 (Fam) and proclaiming that ‘something must be done’. It is now 2024 and nothing has been done. Mostyn J concluded at [14] of Xanthopoulos:

‘In my opinion the Lord Chancellor should consider whether statutory measures could be introduced which limit the scale and rate of costs run up in these cases. Alternatively, the matter should be considered further by the Family Procedure Rule Committee. Either way, steps must be taken.’

This article contains my suggestion. I say now and repeat at the end of this piece: I am not for a moment suggesting this is a perfect solution. It is a starting point written to get the ball rolling. I strongly recommend pre-reading Henry Hood and Amy Scollan’s excellent article ‘Living under an LSPO’ in the Summer 2023 edition of this publication.3 Some of the ideas discussed in their piece are referenced below.

What are the problems?

(1) Excessive legal fee expenditure in financial remedy cases: an issue appearing across the board but especially in the big money sphere. Many seem to think this problem has gotten worse over the years,4 although I haven’t seen any independent evidence to corroborate that. If this is an increasing problem, it would be difficult to apportion its causation between cultural factors (billing rates and practices at specialist law firms and barristers’ chambers) and systemic factors (inefficiencies and externalities in financial remedy law and procedure that contribute towards increased spending).

(2) The inconsistency in the way that legal costs are dealt with at the end of proceedings. This is encapsulated by the tension between the general no order as to costs position stipulated at FPR 28.3 and the court’s tendency to make awards that have the direct or indirect effect of making one party contribute towards the other’s legal fees without an explicit costs order being made. Two commonplace examples are the practice of slicing outstanding legal fees ‘off the top’ of assets before division (which has the effect of the party whose costs were lower paying one half of the difference between the parties’ respective costs if it is an equal sharing case), and the practice of making needs-based awards that cover outstanding legal fee indebtedness.

(3) Inconsistency and occasional unfairness in the way that legal costs are dealt with during proceedings, primarily the meeting of ongoing legal fee expenditure. This is the realm of the current statutory LSPO regime. Problems with the current LSPO regime are explored in detail by Henry Hood and Amy Scollan in ‘Living under an LSPO’.

(4) Closely allied to issue (1), the problem of legal fee expenditure blossoming on contested interim issues in a way that is often quantitatively disproportionate to the amounts in dispute.

The new approach I propose below would aim to tackle problems (1) and (4) and mitigate the impact of problems (2) and (3).

The proposed new approach

My proposed new approach is as follows:

(1) There to be a requirement for both parties to file costs projections (CPs) quantifying the sum predicted to take the case to an effective FDR. These to be filed prior to First Appointment at the same time as the other required documents (questionnaires, etc). These CPs are to be in a simplified standard format, like the projections typically prepared for LSPO applications.

(2) After the issue of Form A, the standard gatekeeping order in Form C containing the proforma preparatory directions in advance of the First Appointment should be amended to direct that if either party seeks an LSPO, they must: (a) notify the court within a week of receipt of the other party’s Form E; and (b) file and serve the following documents:

(a) With their First Appointment documents (questionnaire, statement of issues, etc), a concise statement dealing with the issues outlined by Mostyn J at [13] (xiv) of Rubin, save for the costs projection, which will be required from both parties in any event as described above and below. The statement should be limited to four sides by default, with perhaps ten sides permitted for exhibits. There should be no need for extensive corroborating documents given that the parties will only just have lodged Forms E. Provision of these documents would have the effect of deeming the LSPO application as properly made.

(b) The respondent can then file a page limited statement in response (again, four sides, ten sides of exhibits) within a suitably compact timeframe.

(3) At the First Appointment:

(a) The court is to summarily assess the CPs and determine an appropriate sum for each party to prepare the case for an FDR (or private FDR). The court shall be under an independent quasi-inquisitorial obligation to conduct this assessment even if no objections are raised by the parties, and even where reviewing a directions order submitted by consent. The court may hear concise submissions on CPs if required.

(b) In assessing these CPs, the court is to apply a similar approach to those applied in a summary assessment of costs. The lodestar principles shall be reasonableness and proportionality. The basis for such an assessment is discussed further below, but the court should not automatically apply a discount to the CPs to reflect a notional standard basis of assessment.5

(c) The court shall record the outcome of its CP assessment on the face of the First Appointment order (i.e. ‘the court has determined that an appropriate figure for the applicant to spend on legal fees up to and including the FDR is £X’).

(d) If a party has applied for a LSPO in the manner and timeframe set out at paragraph (2) above, the court shall determine this application at the First Appointment based on submissions unless exceptional circumstances require the hearing of evidence, which may require a separate listing. This determination should be a fast and summary evaluative exercise. The key question will be ‘whether’ – i.e. the test at s 22ZA(3) and (4). The question of ‘how much’ will be easier to decide, because: (i) the court will be considering quantum in any event when scrutinising the parties’ respective CPs; and (ii) the court will have the other party’s CP as a comparative reference point, which it would not have in a LSPO application under the current procedural regime. This approach has already been adopted in a few cases, albeit by reference to the other party’s Form H.6 Parties should expect brief ex tempore judgments.

(e) This process will become smoother and more efficient as courts get used to the exercise of assessing CPs. These additional features should not extend the time estimates of standard First Appointments, and First Appointments also considering LSPOs should not take more than 3 hours. As lawyers become more familiar with the process, more LSPOs should be settled by consent. This prediction may be optimistic.

(f) At the conclusion of the First Appointment, the court should warn the parties that if their actual legal spend outstrips the appropriate CP figures assessed by the court, then that overspend will probably be reflected in the final division of assets. This could even be recorded explicitly in the CP recital.

(4) If a case does not settle at an FDR, the exercise shall be repeated at the post-FDR directions hearing, with CPs filed containing estimates to prepare a case for final hearing or such other time period as the court may direct.

(5) At the end of a case, when deciding how to treat: (a) legal fees incurred and paid; and (b) outstanding legal fees:

(a) It is well established that where there is an unjustified and striking disparity in the costs each party has incurred, the court might add back costs already paid in computing the relevant assets.7 If CPs have been assessed rigorously throughout the proceedings, striking and unjustified costs disparities should not arise at all. If a disparity does arise because one party has overspent beyond their CP, then they will have been warned throughout that this might lead to a costs ‘addback’8 in respect of over-incurred fees already paid from the undivided asset base.

(b) The same goes for outstanding legal fees. In a sharing case, the court will have regard to whether there has been overspend above CPs when taking outstanding costs debts ‘off the top’ before division of the residual assets. In needs cases, when considering whether a needs award should stretch to discharge outstanding legal fee indebtedness, alongside the guidance of the Court of Appeal in Azarmi-Movafagh v Bassiri-Dezfouli [2021] EWCA Civ 1184, the court will also pay heed to whether the applicant has overspent beyond their CP.

(c) None of this will put the court in a straitjacket. The court may think overspend has been justified. It may also find it unfair in all the circumstances to penalise a party for overspend. This new framework does not import post-Jackson era civil law procedural rigidity to the Family Court. The court’s evaluative and discretionary process is unfettered. However, an overspend above CPs at least gives the court a concrete evidential foundation to make direct/indirect adjustments at the conclusion of proceedings to reflect costs extravagance and imprudence. It is also procedurally fair, because the parties will have been warned throughout that such an outcome was possible, and even probable.

Why might this approach help?

I direct this section to each of the four problems highlighted at the outset.

Problem 1 – excessive legal fee expenditure

• Theoretically, it will be far more difficult for parties to overspend if CPs are being assessed at each major step in proceedings. It is well established that parties may have to bear their own unpaid costs referable to overspending beyond the bounds of an LSPO.9 All this new framework does is to extend that principle more generally to apply to overspend beyond the bounds of assessed CPs.
• It will force parties to confront the actual potential costs of proceedings far earlier and thus (at least theoretically) pay more heed to proportionality. In my anecdotal experience, parties are not particularly concerned by Form H costs estimates – they are too often seen as a box-ticking exercise. I have never been asked by a client ‘what happens if we spend more than that?’ The foregrounding of costs estimates through the preparation and assessment of CPs may bring this into sharper focus.
• It may encourage lawyers to keep a closer eye on proportionality, in the knowledge that the court (and the other side) will be hawkishly reviewing CPs. That said, I recognise there is a major downside to this – the potential for conflict between lawyers and lay clients as to the level of fees incurred. I discuss this further below.

Problem 2 – inconsistency in the way costs are dealt with at the end of proceedings

• Hopefully, this process will lead to a decrease in costs disparity between parties, which will be more in keeping with the ‘spirit of the no order as to costs starting point’.10
• The practice of costs coverage in needs cases (i.e. making a needs-based award that discharges outstanding costs indebtedness) should become more tightly confined and thus less intellectually problematic. The scenario explicitly addressed at FPR PD 28A, para 4.4 (‘… 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’) is less likely to arise where CPs are being assessed at each stage of the proceedings by reference to the principles of reasonableness and proportionality. Some might argue that such awards are still equivalent to inter partes costs orders,11 but at least quantum will be kept in check.

Problem 3 – inconsistency in the way costs are dealt with during proceedings (LSPO)

• This process seeks to frontload and streamline the LSPO process, with the aim of avoiding multiple hearings. The general proliferation of CPs should simplify the assessment of LSPO quantum, and as already mentioned above, the court will have the other party’s CP as a reference point when assessing an LSPO award.
• What this new process does not do is to change the principles referable to LSPO. I have always struggled to rationalise LSPOs in sharing cases where the assets happen to be mostly/entirely in one party’s name. I have never been able to understand why the happenstance of legal ownership of assets in those cases requires the financially weaker party to jump through the Rubin hoops and approach the court as supplicant. My proposed approach does nothing to address this logical lacuna. That would require a change in the law: either to the wording of s 22ZA(4)(b), or a judicial determination on how the word ‘reasonably’ in that subsection should be construed in this context.12

Problem 4 – disproportionate blossoming of legal fees on interim issues

This process should mitigate this problem for the same reasons as those applicable to problem 1 above.

The elephant in the room – creation of three-way tension between the court, lawyers and lay parties

A problem with my suggested approach is its capacity to create tension (and possibly conflict) between a lay client and their representatives. I can foresee this occurring in two scenarios:

(1) The court being critical of a CP prepared by a parties’ advisor and pruning it substantially.

(2) The court penalising overspend by a party above their CP notwithstanding protestations by the party’s representatives that the overspend was reasonable and justified in the circumstances.

Both scenarios could lead to a lay client perceiving that they have been unreasonably overcharged by their legal advisors.13 An awkward situation analogous to scenario 1 above sometimes arises when the court substantially pares down an N260 costs schedule in a costs application, or criticises a party’s Form H at a hearing. This tension is likely to arise more frequently within my suggested approach because the court will be explicitly scrutinising and approving CPs at every hearing.

Ironically, these tensions are an inevitable by-product of curing the overarching problem of costs spiralling. Any framework that inserts the court as a gatekeeper of legal fee spending has the potential to create tension between the lay client and their representatives.

The problem will be mitigated significantly by the court assessing CPs in a fair and realistic manner. This requires the court to have a good understanding of the range of reasonable costings for the legal services provided, which obviously vary from region to region, and will depend on the complexity of the case. In my experience, courts already have a good grip on this. In the context of standard basis assessment of costs, civil law authorities have held that the touchstone for assessing quantum is the lowest amount which a party could reasonably have been expected to spend in order to have its case conducted and presented proficiently – Kazakhstan Kagazy v PLC v Zhunus [2015] EWHC 404 (Comm). That case was decided by Leggatt J (as he then was), now Lord Leggatt. In my experience, the Family Court tends to apply this principle in a realistic and flexible manner when assessing standard basis costs orders.14 I have no reason to believe that the courts will not adopt a similarly realistic approach to assessing CPs.

I suspect that in practice parties and representatives will indirectly self-regulate: the court would probably be more restrained in curtailing CPs if parties are spending at a roughly equivalent level. Significant spending disparities are likely to draw the court’s attention.

Conclusion

Obviously implementing this proposal, or something like it, would require significant changes to the FPR. I am not for a moment suggesting that this is the best or only solution to the problem(s) of costs in financial remedy proceedings. I wrote this article as a jumping off point for discussion. Nothing I suggest is particularly radical, nor is it bringing a CPR-style system of costs budgeting to financial remedy proceedings. In fact, as intimated above, the court already does something similar in LSPO cases: it effectively sets a forward-facing litigation budget for that party (albeit by way of an order that the other party pay over the determined sum). This approach extends that gatekeeping focus to both parties in all cases. If any readers have any feedback, ideas, corrections or abuse arising from this article, I’d love to hear it: https://twitter.com/JoeRainer_