The past weeks have brought two more High Court judgments considering the practice of deducting a percentage from an LSPO applicant’s costs provision by way of a ‘notional standard assessment’. The first, JK v LM [2024] EWHC 1442 (Fam), was a judgment of Cobb J doubling down on the practice. The second, KV v KV [2024] EWFC 165, was a judgment of Peel J, taking a more ambivalent approach, suggesting it be used as a ‘cross check’ and highlighting that it may operate unfairly in some cases. Cobb J’s elevation to the Court of Appeal may see his approach becoming dominant.

The unfairness caused by the ‘notional assessments’ in LSPO applications has been explored by us previously. Here we argue that it is also conceptually flawed.

The standard basis of assessment

The notional assessment approach imports into the law on LSPOs one element of the law on costs orders. It is worth recalling the element’s wider context and purpose. The rules on assessment apply following the making of a costs order. The rationale behind the longstanding principle in civil proceedings that ‘costs follow the event’ is that those who have had to litigate to secure their rights are prima facie entitled to their costs, as are those who have had to defend unmeritorious proceedings. However, the amount of costs successful litigants can recover has also long been regulated to protect the unsuccessful party from having to pay excessive costs, so as to achieve overall fairness.

Today, these limits are set out in CPR Rule 44.3 which provides that (unless indemnity costs have been ordered) a successful litigant can only recover costs which have been reasonably incurred, are reasonable in amount, and are proportionate, with any doubt being resolved in favour of the paying party. Unless agreed, costs are assessed to determine which of them fall within these limits, but traditional wisdom holds that a successful party will typically recover 65% – 85% of their costs on a standard basis. This approximation of the costs which may be recoverable on such a basis is the percentage discount imported by Cobb J to LSPO applications.

Cobb J’s ‘notional assessment’ in LSPO applications

Section 22ZA Matrimonial Causes Act 1973 does not explicitly set out the approach which should be taken to quantification when ‘requiring one party to the marriage to pay to the other … an amount for the purpose of enabling the applicant to obtain legal services for the purposes of the proceedings’. Nor do Mostyn J’s principles in Rubin v Rubin address the point. Judges have taken a variety of approaches – referencing reasonableness, proportionality, and the other party’s costs. However, Cobb J, and in a couple of cases Peel J, have adopted the ‘notional assessment’ approach.

The first reported instance was Cobb J’s judgment in BC v DE (Rev 1) [2016] EWHC 1806 (Fam) in which he set out:

‘From the costs claimed (whether prospective or outstanding), I propose to make a deduction of 15% to reflect a notional standard basis of assessment; in doing this, I have taken a broad view about whether the costs are reasonably incurred, reasonable in amount and proportionate to the matters in issue, recognising that any costs which are disproportionate in amount may be disallowed or reduced, even if they were reasonably or necessarily incurred (CPR 44.3(2)(a) and PD 44.6.2), and on the basis that the court would resolve any doubt in favour of the paying party (CPR 44.3(2)(b)).’

No explanation as to why the principles of standard assessment were appropriate when considering an LSPO application was provided. The next instance was some years later in Re Z (Schedule 1: Legal Costs Funding Order; Interim Financial Provision) [2020] EWFC 80, where Cobb J stated:

‘I have made a deduction of 30% from the incurred legal costs… to reflect a notional standard basis of assessment. In this case, I have taken a broad view about whether the costs are reasonably incurred, reasonable in amount and proportionate to the matters in issue, recognising that any costs which are disproportionate in amount may be disallowed or reduced, even if they were reasonably or necessarily incurred (CPR 44.3(2)(a) and PD 44.6.2), and on the basis that the court would resolve any doubt in favour of the paying party (CPR 44.3(2)(b)).’ (Emphasis in original).

Again, no explanation of why it was appropriate to adopt a notional standard assessment is provided, nor was one given in Re Z (No.2) (Schedule 1: Further Legal Costs Funding Order; Further Interim Financial Provision) [2021] EWFC 72 where Cobb J once again adopted this approach.

On the other hand, Francis J in DR v ES [2022] EWFC 62 explained why it was not appropriate:

‘Mr Hale, on behalf of the husband, made the very valid point that when one goes through an assessment of costs, you get about 30 per cent knocked off. Well, that may be true in civil litigation, it may be true where one party is ordered to pay the other's costs in some family litigation, but my job at the moment is not assessing costs in that sense of somebody being made to pay an order for costs, it is dealing with debt.’

That Francis J did not, as Cobb J pointed out in JK v LM, ‘appear to consider directly the contrary case law’, does not undermine Francis J’s logic (particularly given that the contrary caselaw did not provide an explanation for the approach).

Peel J’s decisions suggest an evolving view. In MG v GM [2022] EWFC 8 he discounted incurred costs by 30% ‘to reflect a notional standard basis of assessment’, noting simply that this approach was ‘frequently (but not invariably) adopted’. In Xanthopoulos v Rakshina [2023] EWFC 158 he discounted both incurred and future costs by around 25%, describing notional assessment as ‘one way of looking at it … by way of a cross check’, but noting that ‘in any event’ the amount sought was excessive. Three days later in HAT v LAT [2023] EWFC 162, Peel J held that a deduction for notional assessment would be ‘the wrong approach… this is not an inter partes costs order where such a deduction is routinely applied. It is a solicitor/client sum sought by W to enable her to litigate’. Peel J went on to hold that the correct approach to quantum was ‘whether the costs sought are reasonable, in the context of the nature of the litigation, the issues, the resources, and how each party is approaching the proceedings’. There is no mention of proportionality.

Yet in JK v LM [2024] EWHC 1442 (Fam) Cobb J doubled down, ostensibly explaining the notional assessment approach by reference to Mostyn J’s statement in Rubin that ‘the LSPO jurisdiction should not be used to “outflank or supplant” the costs’ jurisdiction in CPR Part 44’, and by arguing that ‘the mother’s solicitor’s should not be entitled at this stage to benefit from what would essentially be an indemnity against all their costs incurred which would be an unusual outcome’. Both justifications are analysed below. Cobb J reduced the applicant’s LSPO provision for incurred and future costs by 15% despite considering the amount sought was ‘broadly reasonable’.

A few weeks later in KV v KV [2024] EWFC 165, Peel J largely retreated from his approach in HAT v LAT and reverted to the one taken in Xanthopoulos v Rakshina. He described notional assessment as ‘a useful approach or cross check against the reasonable overall figure in some cases’, whilst saying he did not ‘read any judge in the reported cases as saying that it should be a formula of universal and automatic application’.

However, we argue that the notional standard assessment approach is conceptually wrong and should not be used when assessing LSPO provision, whether as a cross-check or otherwise.

Reasonableness

In HAT v LAT Peel J held that the correct question when quantifying an LSPO is whether the costs sought are ‘reasonable’. However, on a standard basis of assessment, costs must not only be reasonably incurred and reasonable in amount, but also proportionate. Application of a notional standard assessment is therefore a poor-cross check, inappropriately importing a proportionality test to LSPO quantification.

Arguably the indemnity basis assessment provides a more appropriate cross-check, as it does not include a proportionality assessment, and is the basis of assessment for solicitor-client costs (CPR r46.9). Even then, however, what is reasonable to provide for by way of an LSPO is not necessarily the same as what is reasonable to award following the making of a costs order. This is because entirely different rationales underlie the LSPO regime on the one hand, and the costs order regime on the other, and because the circumstances in which the orders are made are very different:

1. The purpose of an LSPO is to enable an applicant to obtain ‘appropriate legal services’ for the proceedings. In BC v DE Cobb J explained ‘my concern is to ensure that the mother and father have equality of arms, and equal access to justice in this case’. In contrast, the purpose of detailed assessment on a standard basis is to uphold the principle of ‘costs follow the event’ whilst offering the losing party a degree of protection to ensure a fair overall outcome. Given these entirely different rationales, it is not obvious that an approximation of the approach which applies on detailed assessment can be appropriately carried across to LSPO applications. Arguably application of the detailed assessment approach in LSPO applications not only fails to promote their purpose but actively undermines it, by making it more difficult for an applicant to obtain appropriate legal services. First, a proportion of the sum the solicitor could, in a non-LSPO case, expect to be paid by their client will be withheld, and secondly the approach undermines ‘equality of arms’ as the respondent’s solicitors are not subject to any such deduction. It is difficult to say that an approach which undermines the purpose of the LSPO jurisdiction is ‘reasonable’.
2. A LSPO applicant will generally be undertaking to ‘repay to the respondent such part of the amount if, and to the extent that, the court is of the opinion, when considering costs at the conclusion of the proceedings, that he/she ought to do so’, and the court can make costs orders at the end of the case. By contrast, when assessing costs following a costs order, it is the court’s final step in determination of the overall outcome of the proceedings.

Thus, what is ‘reasonable’ on an LSPO application should in many cases result in a higher sum than that which would be considered ‘reasonable’ following a costs order, making utilisation of a notional assessment deduction inappropriate.

Costs orders are not routinely made in family proceedings

Assessment only becomes relevant under the CPR once a costs order has been made. That does not routinely happen in family proceedings, whether under the MCA 1973 where the general rule in relation to financial remedy proceedings (save for some exceptions) is that the court will not make a costs order, or under Schedule 1 Children Act 1989, where the court starts with a (so-called) clean sheet. Generally (although not of course always), in matrimonial cases, costs will generally come out of the pot before division in a sharing case and be treated as a need to be met by the stronger financial party in a needs case, whilst in Schedule 1 cases costs will typically be considered a liability of the applicant which the respondent should meet to enable the applicant to move forward debt-free.1 Therefore, the notional assessment approach not only imports rules that do not apply in an LSPO situation, but which are never likely to apply at any point in the proceedings.

In matrimonial and Schedule 1 cases not involving LSPOs the figure for each party’s costs is generally taken to be the amount actually incurred, without an assessment of reasonableness or proportionality absent a particular cause for concern (an example of concern being the decision of HHJ Hess in YC v ZC [2022] EWFC 137). Certainly, we would not expect in a typical matrimonial case that the parties’ costs would be routinely discounted by 15%-30%, with the parties to have to fund the balance from their awards – still less where a judge has reviewed the costs and found them to be ‘broadly reasonable’.

Essentially, in non-LSPO cases, applicants in matrimonial and Schedule 1 proceedings who have not litigated unreasonably are generally likely to have all their costs covered, whether from joint resources or by the respondent. Cobb J’s assertion in JK v LM that it would be ‘an unusual outcome’ for the applicant’s solicitors ‘to benefit from what would essentially be an indemnity against all their costs incurred’ may be right in civil proceedings where a costs order is made but is not well-founded in respect of financial remedy or Schedule 1 proceedings.

Supplanting the costs jurisdiction?

The jurisprudence on legal costs funding orders, dating back to the pre-statutory days before it was put on a statutory footing in matrimonial finance cases, has always been clear on the distinction between interim costs provision and costs orders. In TL v ML [2005] EWHC 2860 (Fam), Nicholas Mostyn QC (as he then was) stated ‘It is clear that a costs allowance is not a costs order. It is a maintenance order that enables a party to fund the costs of her case’.

In Currey v Currey [2006] EWCA Civ 1338 Wilson LJ set out:

‘it may be helpful to state that I entirely agree with Mr Mostyn in [TL v ML] that a costs allowance within a maintenance order is not an order for costs and so would not fall foul of the new general rule [that in financial remedy proceedings the court will not make a costs order]; and perhaps helpful also to observe that, insofar as the objection in principle to a costs allowance has previously been cast in part upon an argument that it pre-empts the normal despatch of issues as to costs at the conclusion of the proceedings, such an argument will largely fall away by virtue of the new rules. The proper treatment of liabilities for costs thereunder will generally be that they are debts to which the judge should have regard in making his substantive award…’

Plainly, provision of costs by way of an LSPO is therefore separate from, and consistent with, the costs rules applicable in financial remedy claims. This undermines the application of the principles applicable to detailed assessment to LSPOs.

In JK v LM, Cobb J, in justification of his approach, quoted Mostyn J’s guidance at paragraph 13(iv) of Rubin that ‘the LSPO jurisdiction should not be used to ‘outflank or supplant’ the costs’ jurisdiction in CPR Part 44’. It is important to consider the context in which this was said. In Rubin the financial remedy proceedings had been stayed as it was considered that California was the more appropriate forum, but the lower court judge had excepted from this stay the wife’s LSPO application in which she sought to recover costs incurred in the divorce proceedings and concluded Hague Convention proceedings. She was not seeking any orders in respect of ongoing costs. It is in this context that Mostyn J warned that the LSPO jurisdiction should not be used to supplant the costs jurisdiction: he was clarifying that LSPOs should not be used to order one party to pay the other’s costs in respect of concluded proceedings in which any costs orders would already have been made (save where without such payment the applicant would be unable to secure future representation). That would, indeed, be supplanting the costs jurisdiction of the judges in those previous proceedings.

It is, however, hard to see how this warning justifies docking 15% from an LSPO applicant’s debt to their solicitors for past costs, or from their future costs budget. Moreover, Cobb J recognised and explored this distinction between past costs in concluded proceedings and incurred costs in the current proceedings in BC v DE, the first reported case in which the notional assessment approach was adopted. Cobb J (rightly, in our view) concluded ‘I therefore do not consider that paragraph [13(iv)] of Rubin directly applies to these facts’ – i.e. to an applicant seeking an LSPO in respect of costs incurred and to be incurred within the proceedings. It is therefore difficult to see how paragraph 13(iv) can now be put forward as a basis for applying a notional assessment to costs in the current proceedings.

Conclusion

Notional standard assessment has no place in LSPO applications, whether as a cross-check or otherwise. If the test is, as Peel J has clarified, simply whether the costs claimed are reasonable in the context of the case, that is a broad evaluation which needs no analogies or importations, and should be made bearing in mind the purpose of the LSPO jurisdiction – to provide access to justice and a level playing field as between the parties.