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Family analysis: Nicholas Allen QC and Joseph Switalski of 29 Bedford Row set out the implications of amendments to the Family Procedure Rules 2010 (FPR 2010) with effect from 6 July 2020 as to the provision of costs estimates/statements in Forms H and H1 and requirements for the parties to make open offers, and examine both case law and earlier amendments to FPR 2010 leading up to those changes.
What is the background to the costs changes?
In the civil sphere, the courts’ approach to costs management has been fundamentally different to the approach taken by the family courts since 1 April 2013 and the introduction of the Jackson reforms. The Civil Procedure Rules 1998 (CPR), SI 1998/3132, 3.12–3.21 give the court a much tighter grip on parties’ costs, through a combination of budgeting, active management and even going as far as cost capping orders in an appropriate case.
By contrast, in family finance litigation, the use of Form H (Estimate of costs (financial remedy)) has been retrospective in its documenting of costs incurred. This, allied with the usual rule provided by FPR 2010, SI 2010/2955, 28.3(5) (that generally parties will bear their own costs), has meant that in many cases the damage wrought by disproportionate costs have only been visible after the event and have been difficult to redress when applying the general rule.
In KSO v MJO & Others  EWHC 3031 (Fam),  1 FLR 1036, the parties spent £553,000 out of a marital pot of £771,000 (or 71.7%). This led Munby J (as he then was) to compare the case to that of Jarndyce v Jarndyce in Charles Dickins’ Bleak House, quoting from chapter 65 of that novel in his appendix. In his judgment Munby J stated (at para ) that ‘Something must be done…We simply cannot go on as we are.’
In J v J  EWHC 3654 (Fam),  All ER (D) 153 (Nov), Mostyn J stated (at para ) that ‘…although the mantra “something must be done” is repeated time and again, nothing ever is’, and (at para ) that ‘…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’.
And now they have.
The corrosive effect of disproportionate costs, particularly in needs cases where they can risk infecting the entire factual matrix of the substantive case, has gathered increasing levels of attention from the senior judiciary in family cases.
In WG v HG  EWFC 84,  All ER (D) 213 (Jul), Francis J dealt with a needs case (in the sense that the bulk of the wealth had been brought in by the husband prior to the marriage as opposed to accumulated during it) in which the total assets stood at circa £12m. Against that backdrop, the wife had incurred total costs of £625,000, plus litigation loan interest and fees of £80,000, and the husband had incurred total costs of £426,000. At para  of his judgment Francis J considered the wife’s submission that a costs liability was a ‘need’ in respect of which she should effectively be indemnified by the court’s order as ‘remarkable’.
Francis J assessed the wife’s need for housing and capitalised maintenance at £3.65m before dealing with the ‘vexed question’ of her costs, saying (at para ) that:
‘…people cannot litigate on the basis that they are bound to be reimbursed for their costs. The wife has chosen to instruct one of the highest regarded and consequently one of the most expensive firms of solicitors in the country. While I have no doubt that the representation has, at all times, been of the highest quality, no one enters litigation simply expecting a blank cheque. A judge, in a position as I am now in, is facing the invidious position of seeing his or her order undermined by the extent of litigation loan or costs liability. If, here, I make no provision for the wife’s costs or litigation loan, then half of the Duxbury fund will be wiped out and she will be left with insufficient money to manage, according to my assessment. Doing the best that I can to recognise that her costs are excessive, to recognise that she has presented an unreasonable case in financial remedy proceedings but to recognise that her Duxbury fund cannot be completely undermined and that the husband’s offer was too low, I am going to add to the lump sum, already referred to above, an additional £400,000 which is a little bit less than half of the total sum due.’
Francis J similarly wondered whether the return of Calderbank offers would assist these sorts of situations (ie, effectively a without prejudice save as to costs offer having CPR 36 style consequences).
Amendment to the rules followed. In May 2019, FPR 2010, PD 28A, para 4.4 was amended in seeming recognition of the perils identified in WG v HG to provide (emphasis added):
‘In considering the conduct of the parties for the purposes of rule 28.3(6) and (7) (including any open offers to settle), the court will have regard to the obligation of the parties to help the court to further the overriding objective (see rules 1.1 and 1.3) and will take into account the nature, importance and complexity of the issues in the case. This may be of particular significance in applications for variation orders and interim variation orders or other cases where there is a risk of the costs becoming disproportionate to the amounts in dispute. The court will take a broad view of conduct for the purposes of this rule and will generally conclude that to refuse openly to negotiate reasonably and responsibly will amount to conduct in respect of which the court will consider making an order for costs. This includes 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. Where an order for costs is made at an interim stage the court will not usually allow any resulting liability to be reckoned as a debt in the computation of the assets.’
Though not a formal change to the general rule, this does provide useful context to the court as to when it would be appropriate to exercise its discretion not to apply the general rule.
In MB v EB (No 2)  EWHC 3676 (Fam),  1 FLR 1086, Cohen J similarly confronted these issues. In an earlier judgment (MB v EB (Preliminary Issue in Financial Remedy Proceedings)  EWHC 1649 (Fam),  2 FLR 899), Cohen J had determined that:
At the later hearing the husband was awarded £325,000 in capitalised maintenance (with the husband already having a house worth circa £300,000 following the separation agreement) in circumstances where the wife’s wealth stood at circa £50m.
The husband’s total costs were £650,000, of which £236,000 was charged against his home, pursuant to a legal services funding order made against the wife, and £380,000 was outstanding to the husband’s solicitors.
Cohen J noted the amendments to FPR 2010, PD 28A and scrutinised the wife’s open offer in June 2018 of £300,000, which would have discharged the husband’s costs at that stage with £125,000 spare. The husband did not respond to that offer. A further offer by the wife of £336,000 in September 2019 would have left the husband worse off due to the increase in his costs.
The husband’s only open offer, made shortly before the final hearing, sought £1.3m.
Cohen J made an order for costs against the wife of £150,000, which would effectively leave the husband in debt to his solicitors to the tune of £230,000.
Finally, in RM v TM  EWFC 41,  All ER (D) 43 (Jun), we can do no better than to quote verbatim the pithy summary (at paras –) of Robert Peel QC (sitting as a deputy High Court judge) as to the £594,000 of total costs incurred in that case, when he said:
‘One might be forgiven for assuming that all this energy has been expended over great wealth. This is not so. The only liquid asset of any substance is the proceeds of sale of the [former matrimonial home], some £630,000 currently held on solicitors’ account. That sum is now all but offset by the parties’ debts, not least the legal fees. Thus, the true net liquid wealth is virtually nil. I am left with the task of endeavouring to find a way in which each party can somehow be re-housed. That, in my judgment, is and always has been the real issue in this case.
An equal division of £630,000 would be £315,000 per party from which each would have to meet their indebtedness. [The wife’s] open proposal at the start of trial was broadly for that outcome, but subject to the sum of £52,000 being top sliced to repay her brother who paid the mortgage for a period after separation. Thus, on her case each party would receive £289,000. [The husband] in his open proposal sought £480,000. The difference between the parties’ offers is £191,000. The legal costs are three times that figure. It is hard to express what a calamitous waste of resources this has been.’
Having found the husband to be more blameworthy from a costs perspective, he was ordered to pay £15,000, effectively offsetting a costs order made against the wife at an earlier stage in the litigation. Particular emphasis was placed on FPR 2010, SI 2010/2955, 28.3(7) and the requirement for the court to consider the ‘financial effect upon the parties of any costs order’.
What are the details of the changes that come into effect from 6 July 2020?
The changes from 6 July 2020 are modest, but would seem to herald the commencement of an approach that looks at costs prospectively and seeks to keep oversight of them by the court as the litigation progresses.
First, FPR 2010, SI 2010/2955, 9.27 has been substituted to provide as follows:
Second, there is a new FPR 2010, SI 2010/2955, 9.27A providing as follows:
How will the courts’ approach be different after 6 July 2020? Are there any strategic considerations for practitioners?
There are three key aspects to these changes:
In this context it is also worth noting the observations made in MAP v MFP (Financial Remedies: Add Back)  EWHC 627 (Fam),  1 FLR 70 by Moor J (at para ) where he stated that:
‘Now that we no longer have Calderbank offers, litigants must be encouraged to make open proposals as early as possible that are designed to encourage settlement. If the other party spurns such an offer, the court is entitled to ignore it completely and decide the case entirely on the merits. I will have no hesitation in a suitable case in awarding an applicant more than an open offer he or she has made if that is justified.’
Tactically, there can be a reluctance to make a reasonably pitched open proposal, with parties concerned that it will effectively form the ceiling as to the final order a judge may make. Adopting Moor J’s approach above, and with an eye on how considerably the rules have shifted since, that concern should be dispelled when making open proposals.
It has been observed by some practising in the civil sphere that the Jackson reforms largely came in because the courts had found that the stick was proving more effective than the carrot. While family litigation is inherently different, and perhaps less malleable to the rigour of those levels of reforms, there does appear to be a significant shift taking place to the court exercising tighter control over what parties spend in financial remedy cases.
To be clear as to the types of proceedings these changes effect:
Interviewed by Geraldine Morris, solicitor and head of Lexis®PSL Family.
This News Analysis was first published by LexisPSL Family. Click here to request a free one-week trial.
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