Introduction
This article is a general overview about the debate around new paradigm concept of fixed fees in Financial Remedy Cases[1].
High Court Judge Mostyn says in his famous judgement in J v J [2] that ‘something must be done’. Indeed, his starting point was the comment of Munby J in KSO v MJO and JMO (PSO Intervening) [2008] EWHC 3031 (Fam) [3] in a case in which he drew comparison to Charles Dickens’ fictional case of Jarndyce v Jarndyce.
Munby J quoted from Chapter 65 of Bleak House:
‘Something must be done about the problems highlighted by this and by too many similar cases. We simply cannot go on as we are. The expenditure of costs on the scale exemplified by this and by too many other such cases is a scandal which must somehow be brought under control.’
In the recent case of JE (husband) v ZK (wife) [2015] EWHC B87 [4] [5] ‘scandalous‘ divorce costs drove the wife to attempt suicide. In a case where the size of the matrimonial pot was £350,000, between them the couple had incurred fees of £120,000 and of that the wife’s were £80,000. In the report it states that Judge Wildblood said if, “legal costs had been approached sensibly”, it would have been enough for the man and woman “to be housed” and have enough money left to “go round”. Furthermore, condemning the costs run up to date, he was “particularly critical” of the size of the woman’s bill – which he said was unjustified.
Court of Appeal Judge McFarlane’s view
In December 2014 the Court of Appeal heard a case called Chiva v Chiva [2014] EWCA Civ 1558 (03 December 2014)[6] in which Lord Justice McFarlane expressed “astonishment” that costs of £174,000 could be incurred by the wife aswell as £60,000 by the husband. In that case, the capital assets for division amounted to £415,659. The costs prior to the Appeal were therefore more than 50% of the value of the matrimonial pot.
High Court Judge Mostyn’s view on Fixed Fees
As mentioned above in J v J [2014] EWHC 3654 (Fam), 6 November 2014[7] Mr Justice Mostyn has brought the issue of fixed fees into the spotlight. The facts of the case are very succinctly summarised by Mr Justice Mostyn in his Judgment. Briefly, it concerned financial remedy proceedings begun by the Wife aged 44, the husband aged 54. Their relationship and marriage lasted 18 years. They had 2 children, now aged 17 and 16. They separated in May 2011, the Wife remained at the marital home. The Husband was a market gardener but also had other business and property interests. Financial proceedings started on 12 July 2012. Mr Justice Mostyn in his Judgment noted that the value of the marital assets without the impact of any costs amounted to “about £2.9 million”. He then goes on to highlight what he calls the “vast sums” spent by the parties on costs. From the start of the proceedings to the Financial Dispute Resolution (FDR) hearing on 12 March 2014 the parties had spent £226,000. A large proportion of those costs were incurred in forensic analysis, by expert valuers on both sides, the experts incurring a total of £154,000 in fees between them. From the FDR to final hearing a further £700,000 was spent by the parties over an 8 months’ period, a figure Mr Justice Mostyn called “staggering”. The total costs including the expert’s fees came to £920,000, which was nearly a third of everything they built up over the 18-year relationship.
Mr Justice Mostyn said at [13]:
“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. The first thing would be to insist, as Lord Neuberger did in the lecture[8] I have cited, on fixed pricing for cases, whether they are ancillary relief cases or anything else.
He said:
“Hourly billing at best leads to inefficient practices, at worst it rewards and incentivises inefficiency. Moreover, it undermines effective competition in the provision of legal services, as it ‘penalizes . . . well run legal business whose systems and processes enable it to conclude matters rapidly.’ It also penalises the able, those with greater professional knowledge and skill, as they will tend to work at a more efficient rate. In other words, hourly billing fails to reward the diligent, the efficient and the able: its focus on the cost of time, a truly moveable feast, simply does not reflect the value of work.”
And he later stated:
“That no-one has suggested a viable alternative is something which needs to be remedied, and the sooner the better. An approach to litigation costs based on value-pricing rather than hourly-billing is one which urgently needs to be worked out and applied. Rather than treating time as the commodity which is being sold, we should be adopting an approach where skill and experience are the commodities which are sold.”
Later in his judgment Mr Justice Mostyn then sets out how he thinks the costs culture should change. Firstly he sets out a 3 phase fixed price system for cases to (1) First Appointment, (2) FDR and (3) Final Hearing. Secondly, he considers that the Court should able to cap fees for each of the three phases. Mr Justice Mostyn states in his judgment that only if those steps are taken will “the gross leaching of costs….. be arrested”.
High Court Judge Holman’s critique on legal expenditure
Also in December 2014 Mr Justice Holman decided the case of Seagrove v Sullivan [2014] EWHC 4110 (Fam) (03 December 2014),[9] in which the High Court Judge expressed his exasperation at the disproportionate costs that had been incurred relative to the value of the available assets referring to the “appalling profligacy of their legal expenditure”. Between them, the couple had incurred £1.3 million in costs. They were arguing about an asset worth £1 million, and therefore over £500,000 each. That meant the costs incurred by the couple were roughly three times the value of the assets in dispute.
The Paradigm Shift in Fixed Fees / Calderbank debate and emotions
One Solicitor firm in York, Paradigm Family Law created a fixed fee formula.[10] They were struck by the “apparent dichotomy” between working effectively for a client and charging hourly, saying that efficient and expert work is “entirely at odds with the profit driven nature of billing on the basis of time spent on a case”. They use a “a secret formula they have devised, which “values the matrimonial assets and applies multipliers relevant to the issues in the case”.
Sir Peter Singer in his critical article “Fixed Fees and windmills “[11] believes that “…a wind of change does seem to be stirring the sails as more and more practitioners offer fixed fee arrangements as an option in these cases. It may be that in regard to this the judge’s blast that ‘although the mantra “something must be done” is repeated time and again, nothing ever is’ will be blown off course by market forces rather than by judicial gusts”.
Others want to bring back the abolished Calderbank proposals[12].
Financial Remedies Working Group
The final report of the Financial Remedies Working Group has been published and on 31st July 2014 an interim report was produced. The report[13] is the product of the Working Group established in June 2014 by the President of the Family Division and chaired by Nicholas Mostyn J and Stephen Cobb J.
The remit of the Group was to look at 4 areas, namely:
- Procedure
- Litigants in Person
- Standard Order in Financial Remedy Proceedings
- Arbitration in Family Proceedings.
In addition to these areas the Report’s authors felt it appropriate to comment on the question of legal costs in financial proceedings. One of the Group’s members Nicholas Mostyn J having presided over the case of J v J [2014] EWHC 3654 (Fam) since the Group started its work on the Report.
Legal costs
The Working Group specifically commented on legal costs as follows:
…..22. It is clear that many people feel that the method by which most family lawyers charge (on a time charge basis) is unpredictable and that the overall levels of costs are high. The group believes that this in part drives some litigants to act in person rather than to instruct solicitors.
- The group has received representations regarding the re-introduction of the Calderbank system. The group is opposed to its reintroduction but does recognise that litigation misconduct needs to be addressed. Rule 28.3 of the Family Procedure Rules 2010 enables the Court to make orders for costs where there is litigation misconduct. This rule needs to be applied more generally. The group would wish to emphasise that litigants-in-person are not immune from its consequences.
- Mostyn J in J v J [2014] EWHC 3654 (Fam) expressly raised the possibility of fixed price costing and judicial costs capping. The group noted this development, but also noted that these are complex and difficult issues for practitioners and that it would not be appropriate to take the issues further until professional bodies such as Resolution, the Law Society and the FLBA have been given the opportunity to engage in a discussion on the subject.
- The group suggests that the costs working party of the Family Procedure Rule Committee should be invited to give consideration to costs issues, including the issues of fixed price costing and judicial costs capping…….”
It will now be interesting to see what further discussion takes place. Since the decision in J v J many legal commentators have already made comment, on both sides of the argument for and against fixed fees.
Resolution’s view
Resolution has responded[14] to the findings of the Working Group. They are broadly supportive, but feel the report focusses on high net worth clients rather than the ‘average’ family court user.
Lord Dyson, Master of the Rolls
Last week Lord Dyson, the Master of the Rolls also opted for an indefinite freeze in the current guideline of hourly rates of litigation costs. In a statement, he said the rates, which have been frozen since 2010, will
‘remain in force for the foreseeable future, and will remain a component in the assessment of costs’. He also said with the new advance in technology and business practices businesses will make “greater use of fixed costs in litigation”.
With regard to fixed costs, Dyson said:
‘I have long advocated their wider application, and will continue to press this point to ministers and others in the hope that this important element of the Jackson reforms is implemented.’
Dyson goes on to say that despite the reduced ‘relevance’ of the rates, they remain the accepted default figures for costs calculations, partly because they save firms the time and effort involved in calculating a figure for specific jobs. Relying on rates that are widely accepted by the other side and by the judiciary also provides some certainty.
Contact
Paradigm Family Law have a team of experienced and highly recommended divorce lawyers to help guide you through the process of divorce, just waiting to hear from you.
If you would like more details on this or want to discuss your family law matter, please do not hesitate to contact James, Frank, or Evelyn. Paradigm Family Law offers a free initial consultation with a top rated divorce lawyer and our fixed fee solutions cover financial proceedings from start to finish. You can call us on 01904 217225 or email us to [email protected].
