The Scandal of Costs in Financial Remedy Proceedings in English Family Law

Published: 13/10/2022 12:38

Executive summary

Over the past few years and increasing in intensity, High Court and Court of Appeal judges have strongly condemned very high and/or disproportionate legal costs in financial remedy claims. This is troubling and not good for the reputation of English family law and family lawyers, including with their clients. This persistent judicial criticism has seen a flow of shocking court judgments being handed down with stark judicial language. So changes of some form seem necessary and inevitable. But it is wider and has a potential significance for the English common law process of highly discretionary resolution of financial claims. Unless costs can quickly become proportionate and reasonable, the call for wholesale reform seems impossible to oppose. Therefore, what practical and realistic changes are now needed to bring proportionality between costs and claims?

The problem of proportionality

As long ago as the late 1990s, the Supreme Court, as it now is, in the case of Piglowska v Piglowski [1999] UKHL 27, [1999] 2 FLR 763 criticised the disproportionality of the amount of the costs compared to the amount in issue, albeit the amounts were incredibly mild compared to recent instances, barely into six figures.1 But the warning was given. It was hoped it was, and indeed was then, a moderately rare occurrence. However, in more recent years, the problem has escalated and with it the frequency of judicial complaint, wringing of hands and criticism. Moderate changes such as recording at each hearing the level of costs to date and thereafter2 seem to have had little effect. As judges have become increasingly busier, there has been insufficient time given at first appointments for appropriate and strong directions and indications to be given about the case.3

There is generally the high level of fees in bringing some cases to trial, irrespective of the amount in issue. More crucially and obviously there are the fees proportionate – in reality, disproportionate and unreasonable – to the amount in issue. Into this equation is the perceived failure to negotiate in order to settle without a final hearing with those, end of case, significant costs.

The level of fees goes directly to the law and its application. Why are such high levels of fees being incurred by one or both parties in the resolution of financial claims? Is this a criticism of the law and/or the process or of lawyers and/or the parties?

By and large, there are two distinctive aspects in bringing a claim to adjudication or settlement – obtaining and giving disclosure and then settling. I suggest that there can be no proper consideration of necessary, substantial changes to overcome disproportionate costs without a careful analysis of whether they arise in the former or the latter or both.

In the cases in which there has been distinctive judicial criticism, if the significant part of the costs has been in the disclosure process, as many lawyers might anecdotally perceive to be the case, then reform must be directed to a better, quicker, more efficient, perhaps more judicially inquisitorial process of getting to satisfactory disclosure. Because outside the high conflict dispute cases, once there was satisfactory and sufficient disclosure it is believed many solicitors have a fairly high expectation of settling, particularly with the assistance of specialist in court or private financial dispute resolution (FDR).

If, nevertheless, the analysis is that the greater part of the very high, disproportionate costs is being incurred in reaching a settlement irrespective of the disclosure process then this asks dramatic questions either of the process of settlement or of the uncertainty, unpredictability and unsatisfactory nature of our judge-made law. Whilst there are colossal benefits in the judicial discretionary approach, if it nevertheless leads to such uncertainty of the law and, consequently, directly to greater difficulty in settling with corresponding very high legal costs, then it might well be that the time has finally come for statutory reform. If it is the process of settlement, notwithstanding England being one of the most settlement-orientated family law jurisdictions in the world, then measures must be directed to that process and costs orders made where the pre-final hearing settlement process does not occur, including failure to negotiate appropriately.

Accordingly, there should now be careful analysis of the reported decisions and reflection within the professions about whether these costs issues are issues caused by the disclosure or settlement process itself or settlement difficulties due to uncertainty of the law.

Case-law

Set out in the Schedule to this article are just some of the primary cases, specifically elements of the criticism in the judgments, of the costs.

What can and cannot be achieved?

  1. There cannot be any proscription, capping, of solicitors’ rates; this has been suggested in recent cases.4 Rates derive mostly from commercial market forces: rental, salaries, IT, insurances, etc. Moreover, although much family law is undertaken in either specialist family law practices or in general practitioner firms where there is some degree of control in respect of the family law rates, some family law work – including some of the bigger money cases which genuinely need substantial resources to bring appropriately to trial – is undertaken in larger corporate firms where family lawyers are on the same charging rates as their corporate colleagues. Certainly, there must be judicial comment in a summary assessment of costs where a party has instructed a law firm at rates inappropriate for that particular case, but there should be no limitation between the solicitor and the client in private matters.
  2. One of the best elements of the English family law system is legal services orders, rarely found abroad – the opportunity to level up and give equal representation. Yet, these orders are not made often. Parties struggle on, unable to instruct lawyers fully and comprehensively, sometimes acting in person or taking out litigation loans at very high rates. Cases either do not then settle as they should; alternatively, inappropriate courses of action are pursued. Any review of the processes should encourage the making of more arrangements for legal services orders, for the sharing out of available resources for proper legal funding and a specific court power for interim sales of assets to enable funding. In a few cases it may mean more costs are thereby incurred. In fact, quite probably in the greater number of cases, the matter should settle more quickly.
  3. The Leadbeater jurisprudence5 of adding back paid costs needs review, especially deriving from the previous era of costs regimes. Although it has been narrowed and circumscribed, it is in its basic form still frequently trotted out in relation to costs claims. It is specifically inappropriate across-the-board of both needs and sharing cases, see ‘Needs and sharing’ below.
  4. Too often, in the perception of many family lawyers, what happens in a few high conflict and/or big money cases changes the way of working for everyone else in the profession in an unnecessary, sometimes quite burdensome, fashion. On any review, it must be very clearly understood that the significant majority of family law solicitors and barristers in the vast number of cases going through the Family Court are conducting them with proportionality of costs to the amount in issue and, indeed, with staggeringly modest levels of costs as seen from the perception of a few colossal costs cases. Such lawyers look on with amazement at the costs in some of the reported decisions, acknowledging this is a wholly different world of professional practice. Any reform must make sure it does not increase the burdens on the majority of practitioners for whom these disproportionate and/or very high costs issues are rarely relevant.
  5. Alongside the shocking costs decisions are other cases with equally strongly worded judgments criticising one party for gross failures in giving disclosure, conducting their personal affairs to make disclosure immensely difficult or, in many other ways, thwarting opportunity to understand the overall finances and then to settle. These cases rightly require work from the highest paid professionals with many lawyers in the team to follow many leads, often here and abroad. These cases have inevitably high costs because it is hard and long work to get to the truth and proper understanding. England rightly has a reputation for quite often finding out the financial background in cases when multitude of obstacles are put in the way. Review of reforms must take account of the immensely difficult balance for lawyers of knowing which are the cases justifiably requiring high costs in this sort of process, receiving praise and vindication in the ultimate judgment, and which cases may result in high costs being disproportionate. This balance can be one of the hardest aspects of the work of lawyers in this area.
  6. We must recognise there is absolutely no public sympathy with the legal profession on this issue. Even the party incurring substantial costs in pursuing necessary disclosure for sharing or appropriate needs resents paying them and some are dissatisfied after the conclusion. Each party naturally blames the lawyers of the other party but, in reality, some are often unhappy themselves at their own level of costs, even though content with the representation. Neither Parliament nor public opinion will have sympathy or support.
  7. The profession has perhaps not helped itself. When the initial costs criticism reported decisions were coming through, it might have been expected that the profession would have made it clear that there was no support for excessive or disproportionate costs. For the public looking in, it is far too easy to consider the profession is simply looking after itself and has a vested interest in not being too self-critical or self-reforming. Indeed, it might be thought the profession has so far been lucky in that there has not been public attention to any extent on this issue. It can surely only be a matter of time before it does appear in public debate, in the more populist media, and to the detriment of the reputation of all those working hard to resolve cases with reasonable, modest levels of costs.
  8. The costs criticisms are also so misrepresentative of the profession; the theme for many lawyers is settling at the earliest appropriate opportunity, including referring matters to alternative dispute resolution. Most lawyers settle most cases at or well before the FDR stage. The reputational risk is great compared to what is really happening.
  9. The relatively recent amendment in May 2019 to the Family Procedure Rules 2010 (SI 2010/2955) (FPR)6 requires consideration of refusal openly to negotiate reasonably and responsibly to amount to litigation conduct. This is specifically not a revival of Calderbank, a discussion not yet fully settled. It has been seen in some reported decisions where patently one party has refused to entertain any discussion of settlement. Yet this provision is very hard in practice. Of course, the court can look at open offers and will,7 but what can it do about discussions behind privilege? There are some lawyers who insist that even the making of a privileged offer or the holding of a privileged meeting cannot be disclosed openly, the equivalent of the family law super-injunction. The reference in the FPR is to negotiating openly. Thus lawyers have seen a significant increase in the number of tactical open offers being put, sometimes at pointless stages such as just before an FDR hearing, all with the intention of gearing up for a costs claim later. If the court is genuinely and realistically going to look at what has happened about the process of endeavouring to resolve the case, it needs far more opportunity and power than presently set out in the FPR.
  10. Too often, costs can be an adjunct in the closing submissions. It is not yet known at that stage which way the judge will go on the arguments and therefore pressing costs too much may seem counter-productive. Producing detailed costs statements after a long case can be very expensive, and a cost to the client completely wasted if the judgment goes against and no costs application is possible. Of course, judges need an approximation of the costs incurred, but there should be a review of how costs can best be dealt with in the final judgment and outcome. Yet the discussions about Calderbank showed how difficult it is for judges coming to a view on appropriate sharing and needs then to have to factor in the analysis of costs. I suggest this is still an area where we do not yet have wholly satisfactory practice.

Needs and sharing

There is an important difference between these respective outcomes when the court looks at costs.

In a sharing case, where shared assets meet needs, whether 50% or according to provenance, each party is, as a matter of present law, liable for their own costs. They have no basis in law for asking for any other provision for their costs to be met as a matter of needs. If one party has substantially greater costs, perhaps through lawyers with a substantially higher charging rate, then that is a matter for them. Nevertheless, dissatisfaction with this apparent simplicity prompts inter partes costs claims. This is found within the arena of failures either to give early, open and transparent disclosure or excessive demands on disclosure. A party asserts that they would have had more by way of sharing if they had not had to incur unnecessary and excessive costs, hence a costs claim. I suggest this is a legitimate argument and should result in appropriate costs orders. But this does not require wholesale changes in procedure and can largely be dealt with under existing law or with some modifications.

Into this arena comes the apparent unwillingness of one party to engage in negotiation, making and responding to reasonable offers and similar, as referred to above. Again, this will quite probably lead to discrete costs orders. Any change to the FPR should make this more explicit. The culture has to change to that of even far greater settlement orientation and this requires costs orders where there has been clear culpability and failure. There have recently been several cases where parties have been criticised for a failure to negotiate reasonably and responsibly, within the terms of paragraph 4.4 of FPR PD 28A; some of these cases are included in the Schedule to this article.

It is in needs-based cases where major problems arise, in my assessment. Pursuing extensive disclosure to show a level of assets that can meet, justify, what the disclosing party might regard as a possibly artificially inflated needs-based claim. Resisting disproportionate or excessive lines of enquiry which will add little or nothing to the ultimate needs analysis and provision. Both give rise to significant costs in the disclosure process.

Sadly, in some needs cases, and the heart of the problem in too many cases, what might initially have been available in the overall assets to meet the needs of both parties, including the applicant if the financially weaker spouse, is simply not then available after the legal costs have been deducted or taken into account. One party then finds their needs cannot now be met because of the costs incurred. In these circumstances, needs then include liabilities which are legal costs, sometimes very high legal costs. It is at this point that the Family Court is in a real dilemma in law. It has a statutory duty to look at needs including liabilities, but if these are primarily or wholly the costs of the needs-claimant party, what should the court do? The liability might be a litigation loan or other commercial debt, soft borrowing from family or monies directly owed to the lawyers. If these costs liabilities are not provided for in the needs provision, thereby leaving the party with that liability, the party will not have their real, judicially assessed needs met, for example, for accommodation. Therefore, the statutory exercise of the court will have been unfulfilled and frustrated. Yet, understandably, the paying party argues that in the court making a needs provision to include costs incurred, they are in effect being ordered to pay the costs of the applicant, without any or any material summary assessment and perhaps at a disproportionate or excessive level. By providing for costs as part of needs and liabilities, the court is in effect ordering payment of inter partes costs without any proper consideration of quantum of the costs incurred by one party with their lawyer. Arguably, this is a costs order by the back door in circumstances where the default is that each party pays their own.

The Court of Appeal recently entered into this area in Azarmi-Movafagh v Bassiri-Dezfouli [2021] EWCA Civ 11848 by saying that needs includes liabilities for family law and other legal costs.9 This was a controversial decision – policy-making at judicial level without, perhaps, considering the wider implications for a significant number of other cases. Not least, by requiring in the financial settlement payment for the other side’s still outstanding costs, incurred in already concluded children proceedings but in which there had been no order as to costs, the Court of Appeal was sanctioning the overturning of the no order as to costs in the children proceedings by ordering one party, the paying party, to pay those costs under the guise of financial needs. Was this interference with a previous order made by a family court intended? The impression given was that needs trump costs however incurred and whatever the amount. It risks going back to the pre-White case-law10 of reasonable requirements of the applicant.

Yet at High Court level, other decisions11 were making it clear that in appropriate cases, costs orders would be made which caused parties to dip below their needs provision. In other words, they had less than their needs because of the liability to meet some of their costs or that of the other party. This remains narrowly used. It cannot be. It must be used far more. It should be embraced in any reform provisions. Otherwise, there is an encouragement to litigate by the needs-claimant, confident that whatever level of costs are incurred, they will be met so that their needs are provided for. Of course, as part of the Matrimonial Causes Act 1973, section 25 exercise, a judge must carry out an analysis of whether the costs incurred by the needs-based claimant are reasonable; in as far as they are not, then liability for those costs would not or should not be included in the needs provision. Yet this is rarely or never part of the final adjudication in the court process. It arises in costs arguments at the conclusion, and sometimes after judgment. It is here that the muddle between unreasonably, excessively incurred costs and the needs-based claim for liability for those costs comes together. I suggest that there cannot be any proper reform and headway in this distinctive set of circumstances without deciding the fair approach and then how that process will work during trial.

Moreover, high legal costs perversely discourage settlement, the primary object for family law dispute resolution. A time arrives in the course of the case where costs reach a certain level when each party must go on to trial to get a costs order against the other side. One obvious reason why some cases, possibly increasingly more cases, are going to trial is that the level of costs of one or both parties makes a fair negotiated settlement extremely hard. One object of any reform must be to find a way for even more matters to settle at the FDR stage at the latest.

A most recent case12 in the long saga of judicial criticism keenly highlighted the problem. Despite outrageous conduct by the applicant spouse, the wife, costing the husband tens of millions of pounds through various lost opportunities in share dealings, she nevertheless received, after an immensely short marital relationship, a generous needs-based provision on top of existing assets. Then, furthermore, was ordered to make a contribution of only £100,000 towards the husband’s costs, which were predictably substantially more. Here was surely, hopefully, the high watermark of needs effectively trumping, overwhelming, substantial judicial criticism, in outcome and in costs, as a warning to other spouses not to interfere in the commercial dealings of the other party. This is one of the primary decisions now compelling the need for a substantial review and reform of practice and procedure. Without this costs reform and without that reform then having significant and early practical change, reform of the entire law itself will become unarguable.

Reform of substantive law

The necessity of substantial and effective changes to avoid the ongoing scandal of excessive and disproportionate costs is key in the face of increasing demands for reform through statute of the law of financial remedies on divorce. White in 2000 was brilliant in changing the entire direction of financial remedy law, to one which was in keeping with the expectation of married couples, was not gender discriminatory and which maintained the English priority of provision for needs based on marital commitment. Subsequent decisions have reinforced the flexibility of the English common-law approach to reflect societal expectations. However, in so doing, case reports have also increased uncertainty, unpredictability and thereby the risk and/or benefit of litigation. If the discretionary approach, the opportunity for tailor-made justice, upholding fairness and supportive of contributions and sacrifices made to the marital relationship is shipwrecked on the rocks of disproportionate and excessive costs, then it may be time to rebuild the ship and take another course and direction.

Unless there can be a real change in law, practice and culture in the shorter medium-term in respect of these excessive and disproportionate costs issues, then the argument for statutory reform will become unanswerable. If judges by their articulation of the law over the past two decades coupled with several procedural costs provisions (and any forthcoming reforms now necessary) cannot prevent frequent scandals regarding costs, then Parliament must step in, possibly dismantling the many excellent elements in our present law operating fairly in the vast majority of cases. A few high conflict, high profile excessive/

disproportionate costs cases would spoil the good process for the vast majority of parties. This is the challenge presenting the profession.

Schedule of some costs criticism judgments

KSO v MJO [2008] EWHC 3031 (Fam), Munby J – the total marital assets were £818k, the total costs incurred to the financial dispute resolution hearing were £553k, leaving £217,530. Munby J quoted his earlier decision of A v A [2007] EWHC 1810 (Fam) at [270]:

‘Costs in too many so-called “big money” cases – in modern conditions many such cases do not in truth involve “big” money at all – are, as here, grossly disproportionate to either the amounts or the issues at stake. I have had occasion before to deplore the expenditure – one is tempted to say the waste – of money in such cases … A very recent example is provided by Wood v Rost [2007] EWHC 1511 (Fam), where, speaking of a case which had been conducted at “vast expense,” the Deputy Judge lamented that the late Mr Charles Dickens was no longer alive to write a 21st century sequel to Bleak House. The simile, if I may say so, is all too apt. The accusatory finger which in the 19th century was appropriately pointed at the High Court of Chancery is, in the modern world, more appropriately pointed at the Family Division.’ [77]

J v J [2014] EWHC 3654 (Fam), Mostyn J – the total costs were £2.885m, the total costs by the final hearing were £920K. The judge observed:

‘In my judgment the time has come when the law-makers in this country, whether they are legislators or judges, must stop saying something must be done and actually do something.’ [13]

WG v HG [2018] EWFC 84, Francis J – the total assets were circa £12.25m, the needs claim was assessed at £3.65m, the wife’s total costs (including children) were £925k:

‘… people cannot litigate on the basis that they are bound to be reimbursed for their costs … no one enters litigation simply expecting a blank cheque.’ [91]

‘Parties cannot spend £1 million on their representation without being prepared to face the consequences of their decision to incur that level of expenditure.’ [94]

OG v AG [2020] EWFC 52, Mostyn J – the total assets were £16.3m, the total costs were £1m, largely as a result of the husband’s conduct:

‘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, whether it is being decided by reference to needs or sharing’. [31]

‘The message should go out that if you are guilty of deliberate non-disclosure, even if it is relatively minor, you will pay a penalty in costs.’ [89]

LM v DM (Costs Ruling) [2021] EWFC 28, Mostyn J:

‘… the applicant made no serious attempt to negotiate openly and reasonably beyond setting out her in-court forensic position in her witness statements. My impression was that the applicant was determined to fight the application come what may.’ [3]

‘Litigants must learn that they will suffer a cost penalty if they do not negotiate openly and reasonably.’ [4]

WG v HG [2018] EWFC 84, Francis J:

‘People who engage in litigation need to know that it has a cost … She will have to make the sort of decisions about budget managing that other people have to make day in day out … 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.’ [93]

R v B & Ors [2017] EWFC 33, Moor J:

‘Conduct features in section 25(2) without a gloss. The conduct may be so serious that it prevents the court from satisfying both parties’ needs. If so, the court must be entitled to prioritise the party who has not been guilty of such conduct. A court can undoubtedly reduce the award from reasonable requirements generously assessed to something less.’ [85]

LM v DM [2021] EWFC 28, Mostyn J – interim applications ought to be ‘pragmatically settled’ and:

‘the result was much closer to her position than the respondent’s. She also succeeded on issues of principle which divided the parties. I agree that there were aspects of the respondent’s case which were unreasonable’ [2]

‘However, I agree that the applicant made no serious attempt to negotiate openly and reasonably beyond setting out her in-court forensic position in her witness statements. My impression was that the applicant was determined to fight the application come what may.’ [3]

FF v KF [2017] EWHC 1093 (Fam), Mostyn J:

‘Swathes of evidence and time were devoted to an enquiry as to the scale of the marital acquest, which with hindsight seems almost completely irrelevant and unnecessary. The wife’s case was that the acquest amounted to just over £3 million. Given that the husband’s open offer was for more than half of that figure one can see that this was always going to be from first to last a needs case. Indeed, both parties’ open positions were predicated on an assessment of the wife’s needs and so it is very difficult to understand why the court allowed this elaborate enquiry to be played out.’ [7]

E v L (No 2: Costs) [2021] EWFC 63, Mostyn J:

‘As I have said before and will no doubt have cause to say again, if you do not negotiate openly, reasonably and responsibly you will suffer a penalty in costs.’ [7]

Uddin v Uddin & Ors [2022] EWFC 75, HHJ Wildblood QC:

‘These are feral, unprincipled and unnecessarily expensive financial remedy proceedings. It took days for me to read the papers and has taken even more days to write this judgment.’ [1]

‘It is the costs, a significant proportion of which have been driven by the wife’s dogmatic pursuit of the speculative and unprincipled trust claims and by the husband’s dishonest portrayal of his position within the business, that make the discretionary decision under section 25 complex.’ [11]

‘As I have made plain throughout this judgment, I consider that these proceedings are a disgraceful example of how financial remedy proceedings should not be conducted.’ [200]

Xanthopoulos v Rakshina [2022] EWFC 30, Mostyn J:

‘Figures like this are hard to accept even in a conflict between the uber-rich, but in this case the wife’s Form E discloses two properties in London each worth about £5 million and a sum of about £11 million in the Coutts account. There are predictable disputes as to the true beneficial ownership of one of the properties and of the sum in the Coutts account. The wife also discloses properties in Siberia worth a little over £1 million. The husband, who has next to nothing in his name, says that this is an entirely false presentation and that the wife is correctly ranked by Forbes as the 75th richest woman in Russia, with vastly valuable interests in supermarkets in Siberia. Even if this were true (and the suggestion is hotly contested) to run up in domestic litigation costs of between £7 million and £8 million is beyond nihilistic. The only word I can think of to describe it is apocalyptic.’ [12]

Crowther v Crowther & Ors [2021] EWFC 88, Peel J:

‘The parties have argued before me about almost every imaginable issue, no matter how trivial. Unsurprisingly, the legal costs are enormous.’ [1]

‘ … the costs are utterly disproportionate.’ [2]

‘The only beneficiaries of this nihilistic litigation have been the specialist and high-quality lawyers. The main losers are probably the children who, quite apart from the emotional pain of seeing their parents involved in such bitter proceedings, will be deprived of monies which I am sure their parents would otherwise have wanted them to benefit from in due course.’ [87]

Re Z (No 2) (Schedule 1: Further Legal Costs Funding Order; Further Interim Financial Provision) [2021] EWFC 72, Cobb J – the judge criticised the mother’s solicitors for showing insufficient restraint accumulating billable hours since the previous hearing:

‘I set a budget within which I expected the mother’s solicitors to work.’ [34]

‘I am not prepared for my legal funding orders, and the rationale which lies behind them, simply to be disregarded. [36]

‘I am prepared to allow the mother a further sum … Any potential overspend will require prior court authorisation, or will otherwise need to be accepted at the solicitor’s risk.’ [41]

The author is grateful to Georgina Huse, assistant solicitor, of iFLG for her assistance.

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