Costs! Barrister, Tom Carter, and Solicitor, Robert Williams, share some thoughts on the pressing need to regulate the costs incurred in financial remedy proceedings

Tom: Robert, as you know, over a year ago I hung up my barrister’s wig and decided to focus exclusively on my role as an IFLA arbitrator and “sitting” as a private FDR tribunal. There have been many eye-opening features of this change of perspective but perhaps the thing I have noticed the most is a shift in my own views on the issue of costs. Far more often than not I find myself reeling at the scale of costs parties are incurring. Now, I accept that sitting in the privileged role of “tribunal” generally means that I only get to see the neatly packaged, oven-ready case, distilled into a bundle of 350 pages or less, some colourful schedules and counsels’ notes. I don’t normally get to see that part of the litigation costs-iceberg that sits below the water line: the inter-partes correspondence, the to-ing and fro-ing about experts, the painful iterations of position as the parties move towards an agreement on interim issues. But even recalibrating my perception to take account of that, my sense is that the majority of couples end up spending far, far too much on legal costs.

Is this your experience? Is the problem with the existing costs rules, or how they are applied (or ignored)? I don’t immediately relish the idea of reintroducing Calderbanks. Maybe the “general rule” of no order for costs under FPR 2010 r. 28.3(5) is partly to blame, and we should jettison that in favour of a “clean sheet” approach? What do you think?

Robert: First, let me congratulate you Tom for the – dare I say bold – decision you have made. 

It seems to me to be a very angry world out there. I do not know what your experience is, but our experience is that people are being more unreasonable, there is more litigation, and there is less willingness to compromise.  I have no doubt that the last two years of us living under the cloud of the pandemic has had a negative impact and only served to raise the temperature post separation. Furthermore, if clients are angry then it is likely to follow that lawyers may also harbour feelings – perhaps unconsciously – which will influence the way in which matters are dealt with.

I have read some really angry correspondence from other firms (and listened to some equally angry messages). I am sorry to say, things do not appear to be improving. There is inevitably a correlation between the temperature in the case and the costs incurred.  My colleague, Alan Larkin, did some work a few years ago with IBM’s “Watson”.  This showed there was a link between costs being reduced where at least one of the lawyers had a DR qualification, regardless of the fact it may be a high conflict case.  It might be interesting to run that analysis again (and we have the data to do so if time permitted). 

I have dealt with a number of trials in the last few months (sitting as a DDJ and as an Arbitrator) and costs seem to have been completely out of kilter with the issues.

In my view, there is far too often a real lack of focus on outcome and, it appears, even less of a willingness to focus on the substantive issues. I accept that different personalities will deal with matters in different ways.  Those personalities who are interested in the granular detail are likely to incur greater costs: the trouble is the detail can often be about the wrong things. I have thought for some time – and I see from the recent comments in A v M 2021 EWFC 89 that Mr Justice Mostyn is on the costs war path again – that costs in family cases are out of control. I suppose his approach should come as no surprise to everyone, bearing in mind his forthright comments in the case of OG v AG [2020] EWFC 52 and his view of the application of

PD 28A para 4.4.  As a reminder, he says:

 “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, or whether it is being decided by reference to needs or sharing.”

We – the family law community – have been warned! And I see the cases are coming thick and fast where cost orders are being made.

In A v M there were, somewhat remarkably, cross applications for costs. I suspect that probably tells you something about the personalities where they both feel they had succeeded. In that case, the wife’s analysis of success was clearly not one accepted.  The judge made it clear PD 28A para 4.4 requires the parties “… to negotiate openly, reasonably and responsibly throughout the progress of the case to try and settle it”.

Both parties were berated for early offers which were described as being unreasonable. You know you have missed the “outcome target” when the judgment includes reference to the fact that “the claim was exorbitant in all its main aspects”. The wife was further criticised for making no counterproposal to the revised proposal the husband had made.  Interestingly, although aspects of the husband’s offer were less than awarded, Mostyn J made reference to the fact that he was “certainly firing at the right part of the target”. There must have been a collective groan on the wife’s side when reading the words “this misconduct must be marked by significant cost penalty”. There had already been an adjustment in relation to expert’s cost the wife had incurred, but which had not appeared on the wife’s Form H1. Significantly, Mostyn J makes it crystal clear that “litigants have to understand that they must negotiate openly, reasonably and responsibly. This means they must pitch their claims in the right area the court might award, and they must engage with bonafide open attempts to settle – especially in the run-up to trial. If they do not, they will suffer a penalty in costs”.

The learned judge is clearly looking for a bank of case law relating to orders which will provide empirical evidence in relation to the approach where parties do not openly, reasonably and responsibly negotiate. In the recent case of T v T [2021] EWFC B67 HHJ Hess made a substantive costs order, commenting:

“In my view, this is a clear case where the husband has taken an unreasonable view of the case from the outset and has pursued it to the bitter end. I have rejected his case and he has entirely lost. In my view, he has failed to negotiate openly in a reasonable way and, by pursuing the variation application he has placed himself firmly in at least one of the categories identified in FPR 2010 Rule 28.3(7) (whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue)”.

As I say, we have been warned!

The number of times we have taken files over from other firms and it is clear that although the process of disclosure is up and running there appears to be no attempt to not only define what the likely issues are going to be but as importantly, to communicate those to the clients and to focus the attention and efforts on those issues, is remarkable. Again, going back to the point about the individual who is consumed with granular detail, there has to be a cost benefit analysis. I accept if there is, for example, an asset which might be in dispute that there may seem to be a huge injustice if that is not assessed and on the asset schedule to be taken into account, but by the same token, it is the arguments in relation to issues such as this that can create such disproportionate costs. 

I was recently listening to a Resolution Podcast .  The actuary, George Mathieson, made reference to a case he had been involved in where the parties’ lawyers had incurred something like £16,000 in legal costs trying to agree a letter of instruction!  The parties ended up going to him direct.  Of course, had they been in the arbitral process their respective drafts could have been put to the arbitrator and a composite letter produced within a matter of few days and not insignificant costs saved.

I think family lawyers are going to be in for a shock in the not-too-distant future. Civil litigators have been dealing with complex litigation in multi-track cases for a considerable period of time on very tightly managed cost budgets approved by the court. Why should the family arena be any different? There can be contingencies built into cost schedules, but fundamentally you have to set out the time to be spent and the costs to be incurred and stick to it.  Would behaviours change if we worked on that basis?  They would have to.   As Mostyn J said, “there must be a more efficient and a more economic way of doing these cases”. As HHJ Hess said, “That costs should have been incurred at this level on this application is a tragedy for this family and also a shaming indictment for the legal system”.

Watch this space: the senior judiciary are watching, but let’s be clear, we – the family law community – have played a part in creating this problem.

In the civil world, every hearing has a costs element to it. Orders have to be complied with, and there are sanctions for a failure to comply: costs are the staple diet of the civil practitioner. They have been an afterthought for family lawyers and can be uncomfortable territory.  This has to start changing.  Our clients deserve it, don’t they?

Personally, I do not think tribunals are robust enough about costs in the earlier stages, which can set the scene for the case e.g. where a party has failed to properly prepare for a first appointment or FDR etc. Alexander Chandler [1]did an excellent blog on the distinction between proceedings where there were no orders and the clean sheet approach applied, and that’s worth a read.

I think we need to be more costs-focussed and be bolder in seeking orders. 

Tom, are you able to share your experience in arbitration?  How are costs treated in the arbitral process and what is your experience of making orders and – in broad terms – what sort of circumstances have persuaded you to do so?  Is Mostyn J’s message getting through?

Tom: So much of what you say chimes with my own experience. Before looking at arbitration, I just want to pick up on a few things.

Firstly, the link between psychology and costs. There’s no doubt that for many, the financial remedies claim becomes an arena in which all manner of relationship-rooted resentment, acrimony and frustration is played out. Parties are so often psychologically and emotionally unable to compartmentalise the financial claims away from their grief (and guilt) caused by the end of their relationship. That’s perhaps not surprising – we are all human. But that’s why I think firms that can offer (or at least signpost) their client’s counselling are so impressive: it really helps to separate out the emotional repair work from the business of sorting out finances.

Secondly, I really could not agree more about the destructive effect of bad-tempered correspondence. It ratchets up the temperature of a case no end. I think there’s a real misconception that a belligerent and self-righteous letter, condemning the “other side” for all manner of heinous faults, is somehow going to improve the situation. It doesn’t. It might make one of the lay clients feel better for a brief period of time, but usually, it has all the constructive effect of an indiscriminately-lobbed hand grenade. It’s surprising just how many ‘piquant’ letters get despatched last thing on a Friday afternoon – something that I think is especially mischievous. All it takes is one ill-judged letter and the whole mindset of the parties changes. It’s very easy to escalate matters – and very hard to de-escalate them.

But I also think we have to recognise that disproportionate costs are not confined to causes where one or other (or both) parties is being unreasonable. I think there’s a fairly wide “grey zone” where although neither party (or their advisors) are deliberately looking to ramp up costs, the case nevertheless slides down that slippery path. I can think of three areas where this unwelcome “grey zone” crops up:

• An unwillingness to zero in on the really key issues and questions at an early stage – instead the forensic net is spread far and wide, “just in case” something proves to be relevant or helpful later on down the track. Of course, there will be instances where the issues are not immediately clear – but generally in my experience the truly “mission critical” moving parts of a case can be identified early on, especially where there is some sensible dialogue with the other party’s representatives.
• A failure to get “basic” disclosure right. The Form E is, in my view, an often woefully underprepared document. It requires real investment in terms of time and effort. That investment will almost always pay dividends in terms of avoiding totally unnecessary follow-up questions. Anyone in any doubt about that should just think about what proportion of questionnaires gets taken up with dealing with forensic issues that should (or more importantly, could) have been readily anticipated and addressed when the Form was initially drafted.
• A pervasive view that case-management timetables are really just there for ‘guidance’ and can be departed from more or less at will. Personally, I think this is a serious problem. Deadlines are missed, clients have to be chased, matters get re-timetabled, and hearings or meetings get adjourned. Disclosure becomes out of date and has to be refreshed. The worst offence has to be failing to identify with experts when their reports are going to be ready. Late experts’ reports cause absolute mayhem in managing a case and very often compromise scheduled milestones. Very often this is caused by failing to identify with the proposed expert a realistic timeframe for delivery of their report, or by wrangling and haggling over the letter of instruction which holds up the commencement of the process, or both. Even if a hearing does not get rescheduled, settlement offers get held back and are only available at the last possible moment, reducing the opportunity for sensible discussion.

I think you are absolutely right to anticipate closer judicial scrutiny and management of costs budgeting. This has to be the right way forward. I just don’t hold with the idea that family litigation is somehow immune from, or ill-suited to, this sort of control. If anything, the mindset that family litigation is fundamentally different from civil litigation is, in terms of costs, part of the problem.

Whilst there are elements of the recently issued “STATEMENT ON THE EFFICIENT CONDUCT OF FINANCIAL REMEDY HEARINGS PROCEEDING IN THE FINANCIAL REMEDIES COURT BELOW HIGH COURT JUDGE LEVEL” that have caused a stir amongst practitioners, there is much in there that is undoubtedly very welcome. Paragraph 31 makes it clear there will be no “hiding place” for the unreasonable litigant:

Duty to negotiate

31. At all hearings the court will require to be informed of the parties’ compliance with the duty to negotiate openly and reasonably pursuant to PD 28A para 4.4. To enable the court to examine the attempts at achieving a negotiated settlement, position statements for each hearing must contain short details of what efforts the parties have made to negotiate openly, reasonably and responsibly. The parties will be warned that whatever the size of the case, a failure to make reasonable attempts to compromise cases in open negotiation will be met by costs penalties. The bundle for each hearing must contain the parties’ Forms H and H1 (where applicable).

Turning to your question about arbitration, the issue of costs is just as prevalent there as in the court system. I have long ago had to abandon the hopeful idea that simply because parties are sensible enough to have agreed to arbitrate their case, they are going to be sensible in how they run their cases! When a case starts off in arbitration, it is easier to impose some controlled case management. On the other hand, many arbitration referrals come in when the parties have already progressed, to a greater or lesser degree, through the family court system, and it can be a real challenge to refocus matters at that late stage. Thankfully, the IFLA Rules do enable the arbitrator to make substantive costs orders where that is warranted. Although there is a “general rule” that there will be no award as to costs, the arbitrator has discretion to award costs on the basis of a party’s conduct during (and significantly, before) the arbitration. This includes having regard to where the parties have pitched their open positions. The expectation on parties to negotiate reasonably and openly is one shared by IFLA arbitrators: arbitration is certainly not a “free pass” to behave unreasonably.

As well as family lawyers needing to reflect upon how and when they communicate, as you say, there are warning signs which signal potential change on the costs front in financial remedy cases.

Tom Carter MCIArb is a barrister specialising in financial remedies. He was called to the bar in 2001 and has spent his career at 1 Hare Court. Since 2020, Tom has focussed exclusively on sitting as an IFLA arbitrator and as an evaluator at “private” FDRs

Robert Williams MCIArb is a solicitor specialising in financial remedies and the Managing Director of multi-award winning firm, Family Law Partners. Robert is an arbitrator, evaluator and he has sat as a Deputy District Judge since 20

[1] With thanks to soon to be QC, Alexander Chandler, for agreeing to include a link to his blog.