Change is coming – Costs and transparency in financial remedy proceedings

As the recent slew of decisions concerning costs and case management shows, there is a renewed focus on the rehabilitation of the Family Court. At the forefront of this drive are two major issues: costs and transparency.

In this article we examine Mr Justice Mostyn’s recent decision in Xanthopoulos v Rakshina [2022] EWFC 30 and some of the potential pitfalls for practitioners.

Background

A full background to the facts of this case is set out in paragraphs 15 to 34 of Mostyn J’s judgment. The applications concerned proceedings under Part III MCA 1973. Alongside were protracted children proceedings which had concluded, but H was considering appeal.

Mostyn J was dealing with interlocutory issues including H’s application for a further Legal Services Payment Order, W’s application for release from an undertaking and W’s application for anonymity.

From the outset of the judgment Mostyn J made his views about the parties’ litigation conduct and the costs they incurred abundantly clear. He described their conduct of litigation variously as “furious”, “near constant” and “apocalyptic”. Costs incurred were “in the extraordinary sum of £5,401,503”.

The (perhaps unfortunate) parties were facing a court exasperated by their conduct; conduct which typified the judiciaries’ current frustrations. Mostyn J’s judgment reflects this exasperation.

Application for costs

H sought an LSPO to allow him to discharge outstanding costs to his former solicitors (c.£250,000) as well as the following future costs:

• £78,585 for an appeal hearing
• £285,095 for re-hearing (if appeal was successful)
• £233,395 for costs to First Appointment in the Part III proceedings, and
• £75,533 to defend a claim from his former solicitors for unpaid bills.

Future costs

H’s application for future costs was swiftly rejected. H’s application was based on budgets prepared by his former solicitors and Mostyn J was clear that it was “unknowable whether any future solicitors instructed by the husband would estimate their costs to be the same…”. H was informed that the appropriate course would therefore be to instruct new solicitors to make a fresh application.

Mostyn J went on to explain that the four limbs of H’s application for future costs would, in any event, have failed, stating:

• Anticipated costs for an appeal hearing were speculative.
• A request for costs for a re-hearing was speculative and premature.
• For H’s anticipated costs to First Appointment, these were firstly too high. And secondly, H had already received a significant LSPO and Mostyn J would not counter the prospect of H seeking a further order for the same period.
• A request for costs to defend a claim against former solicitors was not within the lawful scope of an LSPO.

This must have left H in some difficulty. A properly prepared LSPO application can be expensive and time-consuming. Without access to funds, it constitutes a potential commercial risk for new solicitors. One can only imagine that the lack of anonymity would only exacerbate that perceived risk by broadcasting H’s outstanding debts.

It is a salutary lesson for litigants who seek to use LSPOs to put pressure on their opponent. Equality of arms and access to justice are not a licence to litigate freely.

Outstanding costs – former solicitors

Mostyn J was clear that an LSPO could not be made in respect of former solicitors. Again, Mostyn J’s logic is unassailable but the fact that H was hugely indebted to former solicitors would surely impact his ability to seek representation in the future.

This question was considered by Cobb J in his first Schedule 1 decision in respect of a child referred to as Zoe (Re Z (Schedule 1: Legal costs funding order; Interim financial provision) [2020] EWFC 80 – referred to here as Re Z1). Cobb J’s second decision (Schedule 1: Further legal costs funding order; Further interim financial provision) [2021] EWFC 72 – Re Z2) was cited in Xanthopoulos.

In Re Z1 M sought as interim relief a lump sum of £72,129 to pay former solicitors. Cobb J concluded that “it is not necessary for the mother’s debts to legal firms other than Hunters [her retained solicitors] to be settled in order for her to maintain her current representation…”.

Perhaps the difference for M in Re Z No 1 was that the debt related to (i) solicitors (at least in part) outside of England & Wales and (ii) matters that were no longer existing. Further, she had already retained appropriate representation. Arguably Mr Xanthopoulos was in a far more precarious situation.

Outstanding costs – overspend

Mostyn J was clear that, even if H’s solicitors remained on the record, it would not be appropriate to make a further LSPO. Mostyn J looked to the comments of Cobb J in Re Z2 where he was clear that LSPOs should be treated as budgets which litigants and their representatives need to stick to (Re Z2 para 32).

For practitioners, perhaps the first and most obvious point is to ensure that cost budgets that accompany LSPOs are robust. It should be clear what assumptions have been considered, not least because, if applications for further funding are required, it will be helpful to show why an original budget is no longer fit for purpose.

Secondly, in both Xanthopoulos and Re Z2 parties were criticised for making retrospective applications for costs already incurred. If a budget is going to be exceeded, advisors should make an application in anticipation of this. This also helps to shield practitioners from being in the unenviable position of having to carry significant debt and incur more fighting to recover costs.

Transparency

In the second half of the judgment, Mostyn J launches into a full-blown tour of the law on anonymity within financial remedy proceedings, condensing 200 years’ worth of statute, guidance and caselaw into 68 paragraphs.

Under r27.10 FPR, hearings held in private mean “the general public have no right to be present”. In Xanthopoulos, Mostyn J considered the meaning of “in private” and determined that it does not mean what we all think it means.

Since the mid-1800s, “in private” was simply another way to say “in chambers”, and anything heard “in chambers” would be treated as if it were open court. These terms said nothing about the “reportabilty” of what was said (Scott v Scott [1913] AC 417). In 1960, the Administration of Justice Act listed situations in which publication would be contempt of court (s12(1)). This included cases which involved minors or in the case of Children Act proceedings, but noticeably it did not refer to financial remedy proceedings.

So, for FR proceedings how did “in private” come to mean “in secrecy”? In Xanthopoulos, Mostyn J traces the misunderstanding back to two key events.

The precedent for judgments

The first was simple – a precedent. In 2002, a template judgment was circulated to the judiciary, applicable to all family matters and automatically generated with a single click. It contained a standard paragraph on the front which stated:

“… in any published version of the judgment the anonymity of the children and members of their family must be strictly preserved. All persons, including representatives of the media, must ensure that this condition is strictly complied with. Failure to do so will be contempt of court.”

As it was printed and circulated as a template, it meant that it was used without question or judgement. Inevitably, those reading the judgment took the warning at face value and did not report on it further in fear of being found to be in contempt. As junior lawyers we learn that you should never take a precedent at face value. It is reassuring to see that even the judiciary fall foul of this.

Clibbery v Alan

The second event is more complicated. In the case of Clibbery v Alan [2002] EWCA Civ 45, obiter judgment suggested that if the public could publish evidence heard within FR proceedings, it would make a nonsense of the implied undertaking of confidentiality. This obiter created a new standard: “in private” meant the content could not be reported on.

Mostyn J argues that this was reversed by amendments to the FPR in 2009. The FPR changed to permit journalists (and later legal bloggers) to attend private hearings. Mostyn J suggests that their attendance means that proceedings are heard in open court and can therefore be reported on.

This leaves an unanswered issue. Parties have an implied duty not to pass on documents or information that they have obtained during the proceedings. Breach of this duty could be contempt and clients have to be advised accordingly. Yet a journalist who attends the hearing can use any piece of information they want from a hearing outside of court.

We tell our clients that the confidentiality is there to protect the honesty and frankness between the parties in proceedings; but this protection is meaningless if the same matters can be reported by a journalist in attendance at a hearing. Is there a risk that the threat of open judgment discourages frank discussions and therefore hampers settlement?

Transparent future

Since Xanthopoulos, Mostyn J has also handed down judgment in Gallagher v Gallagher (No 2) (Financial remedies) [2022] EWFC 53, which he states to be his “last judgment of substance on this subject”. In it he delves into the importance of open justice, restates the guidance set down in Xanthopoulos and ultimately concludes that “the standardised anonymisation of judgments is unlawful”.

Mostyn J’s view is that by default all judgments can be published unless a specific anonymity order has been made. This pushes the burden of proof back onto the party trying to obtain anonymity to establish why their case warrants it. The question is no longer “why should the parties be named?”, but “why should they not be?”. This is a huge area for risk for litigants and advisers.

There are specific provisions under the CPR to deal with anonymity, but no equivalent provisions exist in the FPR. Instead, the Family Courts must rely on their common law powers arising from the Human Rights Act 1998. Where the question is one of anonymity, the following rights may start to conflict: Article 6 right to a fair trial, Article 8 right to private and family life, and Article 10 right to freedom of expression. To resolve the standoff, the court must apply the balancing test as set out in Re S (A child) [2004] UKHL 47. The test itself is outside the remit of this article but Mostyn J is clear that its exercise should not be taken lightly.

Conclusions

Dealing with costs and transparency is easier said than done for practitioners, who are left with some conundrums to consider.

Regarding costs, restraint and strict adherence to budgets are paramount. The court will not go soft on those who do not heed this warning. However, when faced with an opponent who has less constraint on their spending, are practitioners expected to leave correspondence unanswered or positions unchallenged if outside of budget?

In Xanthopoulos Mostyn J says that “statutory measures could be introduced which limit the scale and rate of costs run up in these cases”. One could imagine a scenario akin to the civil costs regime where both parties are required to file and stick to detailed budgets. Requiring both parties (rather than in reality just the economically weaker) to be subject to strict budgeting would at least address some of the potential imbalance.

Similarly, it is clear that Mostyn J considers the present state of reporting on financial remedy proceedings unsatisfactory. Practitioners should advise their clients that the default position will be that there will be no anonymity in FR proceedings and settlement is the only way to stay out of the public eye. If litigants wish to seek anonymity, they will need to set out a clear argument based on the Re S balancing test. How to persuade your client that they cannot say anything themselves about the case under the implied duty of confidentiality is a different matter.

The concepts of open justice and costs control are admirable and necessary. They potentially, however, require more active case management and one cannot help but wonder whether this will (perversely) increase the burden on an already overstretch court system. One thing is clear, however: change is coming.