Civil practitioners may benefit from reading the observations of Mostyn J in J -v- J  EWHC 3654 (Fam). It suggests that family lawyers may soon be subject to much more rigorous costs budgeting. There are also important observations about trial bundles which are of general interest.
The judge was considering an ancillary relief case where the total assets of the husband and wife were £2,885,000. A third of that sum had been spent in legal costs by the time the matter reached trial.
THE JUDGE’S OBSERVATIONS
- However, the parties have spent vast sums on costs. By the time of the FDR on 12 March 2014 the parties had already spent £226,000 on costs. This was a totally disproportionate sum given the scale of the assets. That said, costs of this scale – about 8% of the assets – are not uncommon, disproportionate though they are. One reason why so much forensic acrimony was generated, with the consequential burgeoning of costs, was that the Deputy District Judge at the first appointment on 9 November 2012 permitted each party to have their own expert to value the husband’s business interests, notwithstanding the terms of Part 25 FPR which clearly stated then (and even more strongly states now – see PD 25D para 2.1) that a SJE should be used “wherever possible”. Not “ideally” or “generally” but “wherever possible”. In this case the forensic accountants have filed a total of no fewer than six expert reports and have prepared a joint statement setting out their extensive disagreements. They have charged a total of £154,000 in fees. The husband has been permitted during the course of the case to ditch his expert and to instruct a new one.
- In this case since the failure of the FDR a mere eight months ago the parties have between them spent on costs the staggering sum of just under £700,000. I must confess to have been almost lost for words when the scale of this madness was revealed to me. They have spent a total of £920,000 in costs. Of this they have spent, as I have said, £154,000 on forensic accountants valuing the Husband’s business interests. They have spent on costs nearly a third of everything they built up over 18 years; most of it over the last eight months. The result has been to make a case that was surely so easily settleable almost impossible to compromise, and to impose on the High Court a seven day trial where the principal focus has been a bitter war of recrimination and denunciation about who was more at fault for this appalling state of affairs. This is well illustrated by the fact that of the 18 pages of Miss Harrison’s final written submissions nine were devoted to costs and her argument that the husband was responsible for them.
- The impact of the costs expenditure is not as calamitous as it was in the infamous case of KSO v MJO & Ors  EWHC 3031 (Fam)  1 FLR 1036. There the parties spent £553,000 out of a the marital pot of £771,000 (or 71.7%), leading Munby J, as he then was, to compare the case to Jarndyce v Jarndyce, he quoting from Chapter 65 of Bleak House in his Appendix. Here the proportion of the estate wasted is a little under half as much but the costs themselves are nearly twice as much. In his judgment Munby J stated at para 81:
“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.”
- Although the mantra “something must be done” is repeated time and again, nothing ever is. In the ancillary relief field the mantra has been incanted over and over ever since the iconic judgment of Booth J in Evans v Evans  1 FLR 319. The procedural reforms of 1996 and 2000 tried to address the problem, but with only limited success, as this and many other egregious cases show only too clearly. In the civil sphere the Jackson reforms of 2013 were intended to curb excessive litigation costs. In his lecture to the Association of Costs Lawyers on 11 May 2012 Lord Neuberger of Abbotsbury, then Master of the Rolls, said this:
“Excess litigation cost has for too long been an endemic and unwelcome feature of our civil justice system. In his 1986 Hamlyn lectures, Sir Jack Jacob rightly described it as having long been ‘the most baneful feature of English Civil Justice.’, and he was by no means the first person to do so. In the quarter century that has passed since those lectures things have got worse.”
- Yet the Jackson reforms in the civil sphere limit merely the costs recoverable by the winner from the losing party by confining them to a pre-approved costs budget. They do not seek to limit the amount of costs that a lawyer may charge his own client, even though this had been mooted during the process of the review. I suppose that to do so was regarded as an impermissible interference with the right to form whatever commercial contracts you want and to spend your money on whatever you like. Yet that argument simply does not wash when those very costs come out of a finite pot over which the other party has a valid claim.
- 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 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.”
Two and a half years later nothing has happened and these wasteful and inefficient practices persist. Perhaps the culture is just too ingrained to be reformed. In my opinion a litigant should be able to demand a fixed price for each of the three phases of an ancillary relief case namely (1) Form A to First Appointment, (2) First Appointment to FDR and (3) FDR to trial.
- The second measure that needs to be taken is for the court in ancillary relief proceedings to be able to 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. Naturally this cap would be variable if circumstances change but the change of circumstances would have to be a big one for a variation to be allowed.
- At the present time the power of the court to control the costs charged by lawyers to their own clients is very limited, and can only be done after the conclusion of the procedure in hand. A vexed client can seek what used to be called a solicitor and own client taxation. The court can disallow fees under CPR 44.11(1)(b) and/or section 51(6) Senior Courts Act 1981 but in each instance negligence or misconduct would have to be shown. There is no procedure whereby costs can be controlled proleptically.
- In my opinion only if these two steps are taken will the grotesque leaching of costs, such as has occurred in this case, be arrested. It might also have the beneficial consequence that the present volume of self-representation deriving from the wholesale withdrawal of legal aid from private family law cases is reduced. If a litigant on the cusp of self-representation knew at the start of the case how much it was going to cost for each phase then he may well opt for representation. The benefits of representation are too obvious to spell out extensively. Far more cases with the benefit of representation settle, with the resultant avoidance of the legacy of heartache that contested litigation engenders. Those cases that do fight will be on rational and properly pleaded justiciable issues. The lengthy delays in the court system caused by the explosion in self-representation may be reduced.
- It by no means follows that fixed pricing will lead to a reduction in revenue for the lawyers. In his speech Lord Neuberger stated:
“The drive for lower legal costs should represent an opportunity for forward thinking lawyers. If litigation is cheaper, elementary economics suggests that there will be more of it. Rather than charging high in a few cases, and driving away those with valid claims from the courts, lawyers should be able to charge realistic fees, and encourage many more clients to instruct them to fight their case. So, significantly lower legal costs should not lead to less money for lawyers, but it should lead to better value for money, and should give to our citizens what so many are currently denied, namely access to justice.”
And he concluded:
“Excess legal cost has for too long disfigured our civil justice system. The Jackson reforms, now enacted in large part by LASPO, and rules of court which are to be introduced in April 2013 seek to rein in such costs. Like the Woolf reforms before them, it is unlikely that they will be the end of the story. Unlike the Woolf reforms, they are not going to be adversely effected by the introduction of unconnected reforms to CFAs, although the reforms to legal aid may well play the part which CFAs played for the Woolf reforms. But we cannot be certain. What can be said with certainty is that by building on the Woolf reforms, and undoing the negative effects of the current CFA system, the Jackson reforms represent the boldest attempt to cure our costs problem yet attempted. Should they fail to reduce costs, it seems to me that we will face a stark choice: the rejection of the English costs rule and the adoption of either a US-style costs rule or a German-style fixed costs regime.”
- In the field of ancillary relief we have already rejected the traditional English rule of costs following the event. FPR rule 28.3(5) prescribes no order as to costs as the normal order following a final hearing; this rule has been in effect since 2006. That was our Jackson reform, seven years ahead of its time. Yet, as this case shows only too clearly, that reform has done nothing to curb the disfiguring impact of excessive costs. This is why we must now look to fixed pricing and judicial costs capping, in my opinion. I would also add that the merit of arbitration in a proceeding such as this would in my opinion take off if that service offered fixed pricing as a standard feature.
- I intend to bring this judgment to the attention of the President with a view to him raising this pressing matter as a matter of urgency with the Family Procedure Rules Committee.
The judge made observations about the length, and usefulness, of the trial bundles in the case.
- The final hearing on 1 October 2014 was again adjourned, this time to me, and this time on the ground that five days was not enough time (even though it had been twice listed for five days beforehand). Judge Bancroft made an order on 3 October 2014 that:
“The court grants permission for the parties to rely on the court core bundle currently filed comprising of four lever arch files and the additional documents bundles. The court expressing the view that it would be disproportionate to prepare new bundles for the purposes of an adjourned final hearing. The applicant’s solicitors will however file an essential reading bundle”.
- I do not know for whom compliance with PD27A para 5.1 would be “disproportionate”. Certainly not for the court and, in view of the waste caused by the deployment of so many files, not for the parties. Ultimately I think that what this language meant was that it would be just too much bother for busy barristers and solicitors to have to sit down and actually work out what were the relevant documents to be inserted in the single bundle.
- For this case I was presented with an essential reading bundle, four further “court” bundles, four “additional documents” bundles, a bundle produced by the husband’s team, and two further ring files which came into existence during the course of the case. 12 bundles in all. Many of them were so full that they could hardly be opened. I placed yellow stickers on all the pages outside the essential reading bundle. There cannot have been more than 50. Yet to look at them (sometimes many times) it was necessary in each instance for a file to be taken up, opened, put away (and so on) by me, the lawyers and the witness. The waste of time was simply prodigious. The entire archive had to be taken to and fro. It was all totally unnecessary where all of the documents used in this case could have comfortably fitted in one file in compliance with the one bundle rule. I do not accept that the demands of a busy practice are a justifiable excuse for a contemptuous disregard of the rule. Nor do I accept the argument, which I have heard, that it is unfair for an applicant to have to identify her “killer” documents by placing them in the single bundle in circumstances where non-disclosure is rife and where confrontation with a document buried deep in (say) File 19 will expose dishonesty. This is, with respect, an absurd argument. If the killer document exposes fraud let it be shown at the earliest opportunity so that a settlement might be achieved. This argument smacks of playing games. I also deprecate a practice of circumvention of which I have become aware. That is for the lawyers for both sides to agree a single “core” bundle and, in addition, an archive of many volumes of expensively prepared secondary or background material. This archive is then brought to trial in the confident belief and expectation that the trial judge will grant permission pursuant to PD27A para 5.1 at the final hearing itself to use documents from the archive. This is no better than the old regime which the new prescription was designed to stamp out. Para 5.1 expects that a direction for permission to use more than one bundle is obtained before, not at, the final hearing. It is possible, of course, that, unexpectedly, further documents may be need to be deployed at the final hearing; but the starting point, and the usual finishing point must be that all the relevant documents should be in the single bundle. To describe the single bundle as the “core” bundle suggests that there will inevitably be other documents in further bundles outlying the core. That is the wrong approach. There should only be one single bundle unless prior permission to use more than one has been obtained.
- The failure by both sides to comply with PD27A for the hearing on 1 October was very wrong. It was wrong for them to persuade the plainly embattled Judge Bancroft to allow them to carry on with their default before me. It must never happen again. If this requires a culture change in the way practices are run then so be it. I recall that in his minatory and mordant judgment of Re X and Y (Bundles) EWHC 2058 (Fam)  2 FLR 2053 Munby J threatened practitioners who defied the then practice direction about bundles with dire consequences. Since then the practice direction has been incorporated within the FPR and reissued on 10 April 2014 in its current form incorporating the one bundle rule. But routinely the profession pays no attention to it. Again, it is no use the courts feebly issuing empty threats. I intend to draw this also to the President’s attention with a view to him raising this further pressing matter as a matter of urgency with the Family Procedure Rules Committee. Perhaps it will be necessary for him to set up a special court before which delinquents will be summoned to explain themselves in open court, just as delinquent practitioners in the Administrative Court are summoned before the President of the Queen’s Bench Division pursuant to the decision in R (on the application of Hamid) v Secretary of State for the Home Department  EWHC 3070 (Admin). Perhaps such a court would regularly consider whether to disallow fees pursuant to CPR 44.11(1)(b) and/or section 51(6) Senior Courts Act 1981.
- I would remark that if parties wish to have a trial with numerous bundles then it is open to them to enter into an arbitration agreement which specifically allows for that.
THE OUTCOME: ROUGHLY A THIRD EACH
- So I turn to the costs of £920,000. I first remind myself that in order to equalise the costs differential of £182,000 the husband has already paid £91,000 to the wife. Should he pay an additional amount by reference to his litigation conduct within the terms of FPR 28.3(6) and (7)? These provide:
“(6) The court may make an order requiring one party to pay the costs of another party at any stage of the proceedings where it considers it appropriate to do so because of the conduct of a party in relation to the proceedings (whether before or during them).
(7) In deciding what order (if any) to make under paragraph (6), the court must have regard to –
(a) any failure by a party to comply with these rules, any order of the court or any practice direction which the court considers relevant;
(b) any open offer to settle made by a party;
(c) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;
(d) the manner in which a party has pursued or responded to the application or a particular allegation or issue;
(e) any other aspect of a party’s conduct in relation to proceedings which the court considers relevant; and
(f) the financial effect on the parties of any costs order.”
- Subparagraph (f) is highly important. This requires the court to ensure that its primary disposition, which will usually be strongly influenced by considerations of need, is not undone and subverted by a costs order. It was for this reason that the Calderbank principle was abolished (see rule 28.3(8) where Calderbank offers are made inadmissible). Some quarters are calling for the Calderbank principle to be reintroduced (and it is true that the current rules permit it to be used for certain proceedings other than the final hearing of an ancillary relief claim). For my part I will fight its reintroduction to the last ditch. In my opinion it would be retrograde and unconscionable to allow a carefully crafted disposition to be turned upside down by virtue of a without prejudice letter produced after judgment has been given.
- I am satisfied that in certain respects the husband has been guilty of litigation misconduct which the court should, in principle, take into account under subparagraph (e). I am generally in agreement with the criticisms made of him in the second half of Miss Harrison QC’s written final submissions. It is unnecessary to spell them out here. Some of his misconduct I have already detailed. Most of it happened before the FDR. I remain completely baffled as to how the professionals on each side incurred £700,000 of costs following the FDR. It seems to me to have been an unbridled exercise where the only commodity being charged for was time rather than product.
- In my judgment, having regard to subparagraph (f), I cannot reflect the husband’s misconduct other than symbolically. Miss Harrison seeks an order that he pays 75% of the wife’s costs. Ignoring amounts disallowed on assessment this would require the husband to pay £276,750. It would elevate the wife’s capital position to £1,350,250 and depress the husband to £ 614,750. This would be grossly unfair especially where I regard the wife as having litigated almost as disproportionately as the husband.
- In my judgment the husband’s delinquency should be reflected by a costs order of £50,000 (inclusive of VAT) to be paid from his share of the FF share sale proceeds. The upshot will be that from the pre-costs starting point of £2,885,000 the wife will receive £1,123,500 (38.9% of the assets); the lawyers and experts will receive £920,000 (31.9%); and the husband £841,500 (29.2%). These figures speak for themselves. Such a result should not be allowed to happen again.
POSTS ON TRIAL BUNDLES
Strangely (or maybe not) the posts on preparing trial bundles are the most read posts on this blog.
- Trial Bundles, Contents and Presentation: Do you know Sedley’s laws?
- More about trial bundles: most of the stuff in them is useless (apparently)
- Useless bundles, lengthy skeletons and judicial ire.