Time for a costs revolution?

Posted: 26/01/2015

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Mostyn J’s recent judgement of J v J (2014) EWHC 3654 (Fam) seems expressly aimed to provoke discussion amongst the family law profession. His comments on the failures of the lawyers involved to follow the new rules on both the instruction of Single Joint Experts (PD25D) and Hearing Bundles (PD27A) are a stand-alone matter worth serious consideration. However the more controversial discussion of comments on disproportionate legal costs and how solicitors charge for their services is the focus of this article. 

For those who have not read the case, in essence £920,000 or 31.9% of the matrimonial assets (£2,885,000) were spent on legal costs and expert fees. Mostyn J’s outrage that a seemingly straight forward case incurred such breathtakingly high fees is patent. However, Mostyn J does not limit his concern to the parties involved in J v J itself, but to the family law profession as a whole. He declares: “although the mantra ‘something must be done’ is repeated time and again, nothing ever is… In my judgement 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.” 

So, what does Mostyn J propose should be done to stop “the grotesque leaching of costs”?  

His answer is to revolutionise the way in which litigants are charged by their solicitors in two steps: 

Fixed costs

Mostyn J first proposes that all clients should be able to “demand a fixed price for each of the three phases of ancillary relief case namely (1) Form A to First Appointment (2) First Appointment to FDR and (3) FDR to trial.” 

The concept of fixed costs launches an immediate number of interesting issues. For example: 

If fixed costs were introduced into the family law sector it could only work with the ability to revise those fixed costs throughout the proceedings. Say a fixed fee for each stage is agreed with a client but it then transpires that an application for interim maintenance is required or for third party disclosure – would this have to qualify for a separate fixed fee? Further the reality is that in such cases time overlaps – what would the administrative burden on the solicitor be to ensure that the time is recorded separately or split accurately, and could it ultimately end up being more expensive for the client? 

Family law is also notoriously hard to predict. It is guided not only by a court with a wide discretion but also by highly charged emotions and the personality of the litigants. A case with straight forward legal issues can, not withstanding, still incur very high fees. If fixed fees were introduced, a possible outcome is that the solicitors at the top end of the market will set their fixed fees very high as a contingency and so the client may end up paying more. At the other end of the scale, high street firms who will inevitably be forced to set low competitive rates could quickly drive themselves into the ground. When the family law market has already been severely hit by the cull of legal aid, mandatory fixed fees could push many already struggling high street practices into freefall.  

Further, it is widely perceived that there has been a decline in the quality of the conveyancing sector following the introduction of fixed fees, and the corresponding increase in professional indemnity insurance speaks volumes. Is family law likely to follow?

In any event, Mostyn J’s proposal suggests he is not familiar with the SRA rules solicitors are already subject to regarding clients’ fees. Clients have to be provided with a fee estimate at the outset of their matter that is reviewed continually throughout. Those clients not receiving such guidance already have recourse through the firm’s own complaints process or ultimately via the Legal Ombudsman. 

Are fixed fees therefore even needed and is this where the problem really lies? 

A judicially imposed costs cap

Mostyn J’s second proposal is that the court should “impose at the very beginning of the case a costs cap on what may be charged by the lawyers to their client for each of the three phases of the case.” 

The concern amongst practitioners is that this proposal would put more pressure on the already overloaded court system. 

Mostyn J accepts that these costs caps may have to be extended in some circumstances, which means yet another application that has to be made, more time that has to be spent by the court, and what if urgent injunctive action is required? 

Moreover why should the client, with the benefit of legal advice, not be able to make such decisions for themselves? Mostyn J admits himself that the Jackson reforms which are of a similar nature still “do not seek to limit the amount of costs that a lawyer may charge his own client” on the ground that it is not for the court to interfere “with the right to form whatever commercial contracts you want and to spend your money on whatever you like”. However, he claims that in the remit of family law, where the very pot that is being argued over is also being used to meet the legal fees, this principle “does not wash”. 

So if clients are not to be responsible for the disproportionate scale of their costs, does Mostyn J believe that solicitors should be penalised by continuing to act for litigants who chose to waste their money? 

Undoubtedly the one thing not included in the eight non-compliant Hearing Bundles provided to Mostyn J was the privileged correspondence between solicitor and client. That correspondence may have painted a picture of the solicitors acting on the matter providing regular accurate cost estimates, regular bills, and repeated advice to their clients regarding proportionality. Unfortunately whilst it is our job as solicitors to advise our clients we cannot make their choices for them. Are we to now down tools if we know that our client’s costs are disproportionate but they are adamant on taking a particular course of action despite our clear advice? 

The establishment of a "special court"

Mostyn J suggests that a “special court” should be established with the sole purpose of scrutinising and chastising “delinquent practitioners”. This court could decide whether or not a solicitor’s fees are proportionate and disallow fees where it decided appropriate. 

Once again the concern amongst practitioners is that this would yet again exhaust preciously needed court resources. Particularly when the SRA and Legal Ombudsman already provide clients with protection against negligent solicitors. 

Reduction in litigants in person

Whilst on the one hand Mostyn J heavily criticises the legal profession within his judgement he does highly value the importance of a litigant having legal representation. He states “The benefits of representation are too obvious to spell out extensively”. So much so that he hopes his proposals, if implemented, will in addition reduce the number of litigants in person currently flooding the courts. In particular, he believes that a litigant is more likely to opt for representation if they have an idea of cost. As discussed above, the SRA already requires firms to provide their clients with costs guidance at the outset. Would fixed or capped fees really provide any further incentive? 

In essence Mostyn J seems to want low cost representation that provides the client with a logical case based “on rational and properly pleaded justiciable issues” that settles early where possible. Is this not already what good and respected family law practitioners strive to achieve? 

The reintroduction of the Calderbank principle

Whilst Mostyn J believes that it is only if his above proposals are brought into action that disproportionate legal fees will be curbed, it may be the case that the majority of family law practitioners disagree. 

There is a growing demand amongst the profession, that there should be a reintroduction into ancillary relief proceedings of the “Calderbank principle.” 

Prior to 2006 when the ‘no costs order’ principle was established in ancillary relief proceedings, after Judgement had been given and when considering the issue of costs, the court had the ability to consider without prejudice proposals made by the parties. If it transpired that a party had not beaten an offer made, even by just a few hundred pounds, the ‘offeree’ could be liable to pay all the costs of the ‘offeror’ since the date of the rejected offer (i.e. the ‘Calderbank’ principle). 

However, a reintroduction of the Calderbank principle is the one proposal that Mostyn J is explicitly opposed to. His key concern is that a detailed and considered judgement, premised on the parties’ needs, should not subsequently be undone by the consequences of a hefty costs award being made, and that it would be “retrograde and unconscionable to do so”. Further in his judgement of GW v RW 2003 EWHC 611 (Fam) he compared the tactical nature of Calderbank offers to “a mandatory form of spread betting”. 

Whilst this is an understandable perspective, it is one that only considers a situation where a reasonable without prejudice offer is not accepted, a full trial takes place and a judgement is required. But what about the many cases which only settle because of the threat of the potential costs order? 

It is clear to many Practitioners that since Calderbank offers were abandoned in 2006, there is far less incentive for early without prejudice offers to be made. It is in the context of without prejudice offers that important concessions are generally made and needed explanations of a party’s case are provided. It is an additional concern across the profession that in the absence of prior constructive without prejudice correspondence, FDR hearings have been rendered far less productive than they once were; and that following an unsuccessful FDR, a case may well roll on to a Final Hearing.

It is some Practitioner’s belief that the abolition of the Calderbank rule has made it much easier for those spouses with money to steam roller their way through the litigation process knowing that a costs order against  them is extremely unlikely. This has undoubtedly impacted on the solicitors’ ability to ensure a more level playing field and secure a fair deal for the financially weaker party.

Conclusion 

So what is the solution? The most compelling is that proposed by Resolution. They promote the introduction of a compromise position being “a rule allowing without prejudice save as to costs offers to be taken into account. It should not attempt to be too prescriptive or complex, but should allow the judge discretion to consider ‘Calderbank style’ offers in the light of all the circumstances of the case”. 

In the meantime, and without the reintroduction of compelling incentives to settle, and whilst the criticism and focus remains on the conduct of parties’ legal representatives, not the litigants themselves, it seems inevitable that the courts will continue to see a rise in litigants in person, and excessive fees incurred by those who chose to be represented.  

This article was published in New Law Journal in January 2015.

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