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Feeing and time

by Rosalyn O’Donnell-Teelan

5 January 2022

Appearing in The Review, issue 214, September/October 2021. 

Seven years have passed since Mostyn J said it was time to “actually do something” about disproportionate costs…

As you will all no doubt recall, I wrote an article in 2015 for The Review following the decisions in J v J [2014] EWHC 3654 (Fam) and Seagrove v Sullivan [2014] EWHC 4110 (Fam). In both cases the lawyers were told off by the judges for being a tad naughty in charging the fees which they did.

By way of recap, J v J involved financial proceedings brought by a wife on divorce and the joint litigation costs ran to £920,000 or 31.9% of the total assets.

The judge said that “I must confess to have been almost lost for words when the scale of this madness was revealed to me”. Eek… though the judge was in fact not lost for words. Mostyn J continued: “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”. He supported Lord Neuberger’s view that there should be fixed pricing for cases. The latter stated in May 2012 that “hourly billing at best leads to inefficient practices, at worst it rewards and incentivises inefficiency… its focus on the cost of time, a truly moveable feast, simply does not reflect the value of work”.

He also suggested that the court should be able to impose a costs cap on what may be charged by the lawyer for each part of the phases of litigation. He said that this cap would be variable if circumstances changed, but the change would have to be a big one for a variation to be allowed. He said “only if these two steps are taken will the grotesque leeching of costs, such as has occurred in this case, be arrested”.

The lawyers received another scolding in Seagrove v Sullivan. Disproportionate costs were again the index offence.

So has there been change in the seven years in the “grotesque leeching of costs”, I hear you ponder? There have of course still been a run of cases which address the issue of disproportionate legal costs. However, there was a considerable change in May 2019 when paragraph 4.4 of the FPR Practice Direction 28A was amended to say:

“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.”

Well indeed that is change is it not?  Or maybe just a change back to the principles of the good old Calderbank days. Being penalised by a costs order for refusing to negotiate reasonably and responsibly is like the sound of unicorns dancing on clouds… how sensible and refreshing. It must surely be right for the parties to be held accountable for their decisions and actions during the litigation process.

There have been numerous recent cases which have touched on the point of costs.

Prior to the above-mentioned amendments to FPR 28A Francis J in WG v HG [2018] EWFC 84 dealt with a needs case and considered the wife’s submission that a costs liability was a “need” in respect of which she should be indemnified. The judge stated:

“… 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”.

In MB v EB (No 2) [2019] EWHC 3676 (Fam) Cohen J made specific reference to FPR 2010, PD 28A, para 4.4: he described the parties’ costs as “grossly disproportionate to what was in issue” (costs of aprrox £1m). The wife had significant wealth and the husband had modest assets. The wife had made proposals to settle and the husband responded shortly before the final hearing with an offer which the judge viewed as unrealistic. Cohen J made reference to the husband’s lack of response to an offer of settlement made by the wife, saying:

“I find that the wife’s offer was light, but I am in no doubt that, if there had been a sensible (or any) response, there would have been a quick resolution of this case. This case has been conducted by the husband in a manner that I find to be irresponsible and unreasonable. The wife does not seek her costs from the husband. However, I see no reason why he should expect the wife to pay his costs unreasonably incurred.”

The judge did make an order for costs against the wife, although capped. It was accepted by the judge that as a result of the judgment the husband would be left owing significant amounts to his solicitors in unpaid costs but considered that was “a matter between him and them” and that “it was not for the wife to bankroll the litigation”.

In RM v TM  [2020] EWFC 41 Robert Peel QC (sitting as a deputy High Court judge) said that the parties had conducted “ruinous and recriminatory financial remedy proceedings”. The only liquid asset of significance was the proceeds of the former matrimonial home, which amounted to £630,000. The parties’ total legal costs amounted to £594,000. The judge commented that “it is hard to express what a calamitous waste of resources this has been”Having found the husband to be more at fault 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.

In  OG v AG [2020] EWFC 52 Mostyn J also referred to FPR 2010, PD 28A, para 4.4  and made an order that reflected the wife’s “unreasonable and untenable” position, saying “I hope that this decision will serve as a clear warning to all future litigants: if you do not negotiate reasonably you will be penalised in costs.” The judge stated that:

“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 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.”

In Azarmi-Movafagh v Bassiri-Dezfouli (discussed more fully by Malvina Peci on page CHECK), King LJ, gave the following guidance:

“i) Consider whether the case was one in which consideration should be given as to the making of an order for costs under FPR 28(6) and (7) in particular by reference to FPR PD 28 para 4.4;
ii) Whilst not carrying out a full costs analysis, the judge should have firmly in mind what the order which they propose to make by way of addition of a lump sum to meet a party’s costs would represent if expressed in terms of an order for costs. To do this would act as a cross check of the fairness of the proposed order.”

Further changes came about on 6 July 2020 when r9.27 FPR 2010 was substituted to provide as follows:

  1. “Not less than one day before every hearing (save for the final hearing) or appointment, each party must file with the court and serve on each other party an estimate of the costs incurred by that party up to the date of that hearing or appointment—sections A and B of the amended Form H must be completed.
  2. Not less than one day before the first appointment, each party must file with the court and serve on each other party an estimate of the costs that party expects to incur up to the financial dispute resolution (FDR) appointment if a settlement is not reached—sections A, B and C of the amended Form H must be completed.
  3. Not less than one day before the FDR appointment, each party must file with the court and serve on each other party an estimate of the costs that party expects to incur up to the final hearing if a settlement is not reached—sections A, B, C and D of the amended Form H must be completed.
  4. Not less than 14 days before the date fixed for the final hearing each party must (unless the court directs otherwise) file with the court and serve on each other party a statement giving full particulars of all costs in respect of the proceedings which that party has incurred or expects to incur, to enable the court to take account of the parties’ liabilities for costs when deciding what order (if any) to make for a financial remedy—Form H1 (Statement of costs (financial remedy)) has been amended for this purpose.
  5. The amounts set out in the costs estimate or particulars of costs must be recorded in a recital to the order made at the hearing or appointment before which the estimate or particulars were filed or served, and
  6. If a party fails to comply with these obligations, this fact must be recorded in a recital to the order made at the hearing or appointment and the court must direct that the relevant costs estimate or particulars of costs must be filed with the court and served on each other party within three days of the hearing or appointment or within such other time period as the court directs.”

Secondly, there is a new r9.27A FPR 2010,  providing as follows:

  1. “Where at an FDR appointment the court does not make an appropriate consent order or direct a further FDR appointment, each party must file with the court and serve on each other party an open proposal for settlement by such date as the court directs, or where no direction is given, within 21 days after the date of the FDR appointment, and
  2. Where no FDR appointment takes place, each party must file with the court and serve on each other party an open proposal for settlement by such date as the court directs, or where no direction is given, not less than 42 days before the date fixed for the final hearing.”

In 2014 the judges were getting fed up with unreasonable and disproportionate legal fees being incurred. At the time it felt that the lawyers were being blamed and there was talk of fixing fees etc. A lot of the comments from the profession expressed concern at their hands being tied when one party was being unreasonable and therefore the other party has no option but to engage in lengthy and expensive litigation.

It is acknowledged that there are perhaps solicitors who do not do enough to sway clients from pursuing unreasonable litigation, but I would say that it is more usual for the lawyers to advise their clients about the prospects of success and help them appreciate the costs/benefit analysis.

The amendments/additions to the FPR (and subsequent case law) are a two-pronged attack:

Firstly, parties are going to have to be very careful with the litigation which they are pursuing and will (we would hope) be advised that the consequences of not reasonably and responsibly negotiating may result in a costs order even if it means not receiving an award which meets their needs.

Secondly, with the introduction of cost budgeting the lawyer’s costs will be put under the spotlight at an early stage, which hopefully will mean that everyone will be aware of the costs before they get out of hand and therefore avoid the “grotesque leeching of costs”.

It sounds like a recipe for success. I will be back in 2028, another seven years’ time, to update you as to how it all has played out.

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