Family finance arbitration: where are we now? Mr Justice Mostyn addresses fixed fees

Family Law|November 27th 2014

Yesterday I woke up and reader, I found myself unable to speak! With the benefit of hindsight,  it was bonkers – a five mile run in the cold and rain on the London Embankment the day before had done to me what few people are ever able to do: stop me from speaking!  I was  hoarse and John Bolch, very kindly, in sympathy sent me a picture of the cutest miniature pony, a “little horse”, on Twitter.

So I would have preferred to stay languishing in bed yesterday had I not booked into a joint family/ commercial arbitration seminar which was to be addressed by two distinguished High Court Judges: Sir Bernard Eder and Sir Nicholas Mostyn. I was looking forward to it and I was joined by my son Ben, who is interested in commercial arbitration. He is a trainee at Ince and Co, a predominantly shipping firm in the City.

Sir Bernard’s comments passed by without controversy. But when it came to family law, I had a suspicion that Mr Justice Mostyn’s much discussed J-v-J case might come up, given his references to family arbitration in the judgement and reader, I wasn’t disappointed. He described the case as “nuclear” and clearly loves the attention it has received. He even put up John Bolch’s irreverent cartoon which appeared on his blog, Family Lore. As I suspected, it pretty soon all boiled down to his “hobby horse”:-  fixed fees in family cases.

At the conference last night, Sir Nicholas quoted Lord Neuberger, in support of his argument- exactly as he did in J-v-J. The former Master of the Rolls and now President of the Supreme Court gave a lecture to the Association of Costs Lawyers on 11 May 2012 and said this:

“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.”

In commercial cases, perhaps. I’m far from sure Lord Neuberger was addressing “forward thinking” family solicitors who work in a completely different market. No family solicitor I know ever engages in a drive to encourage more couples to divorce in order to attract more business to the firm!

Keeping costs competitive and attractive is something else. It is simply best business practice as far as I’m concerned, and those who do, and obtain results for their clients, then benefit from increased turnover which pays the (very) substantial running expenses that any good law firm will incur. So respectfully, we don’t need to be ordered to keep costs competitive and attract clients through the door. In an already highly competitive market, we have a recipe that works, we have the confidence of the public and of our bankers. In short: we know.

Nevertheless his Lordship last night waxed lyrical to an audience which politely enough did not respond at all to his call for the introduction of fixed fees. Grant Howell, a fellow Arbitrator and partner in Charles Russell Speechly, hosted the event last night in his offices at Fleet Place. It may well be, as he warned us all –that  “fixed fees are coming. whether we like it or not” – but that doesn’t make them appropriate or necessary.

Both Lord Neuberger and Sir Nicholas, and all the other leading Family Judges, who do not count even one former family solicitor amongst their number (how’s that for judicial diversity?) were used to giving fixed fees in their former lives as barristers, and so now they see no problem.

However, back then, all the hard work to help them give a reasonably accurate fixed fee had already been done by the time a brief reached them. Their clerks took delivery of the brief from their instructing solicitors. They went through the papers, professionally prepared not by the lay client but by the instructing solicitors who had already knocked the case into shape, and on that firm basis they offered a fixed fee. Not difficult with the papers in front of them, setting out the issues involved and the number of days in court the case is set to run. Their clerks quote accordingly, with refresher fees helpfully added in to protect the barristers from a loss of fee income in case the hearing overruns. ‘Simples!’ as the meerkat would say.

How fortunate to have solicitors to hand it to them on a plate. No crystal ball gazing required there.

What those Judges never had to do, is sit with a client for a first interview, take the best instructions the client could give, a client who may be too emotional to focus and have very little knowledge of finances at all,  and then give a fixed fee quote for the whole of the rest of the case – possibly divided into three blocks as His Lordship seems to think is possible. What solicitors know but barristers don’t is that not every case gets dealt with in three neat blocks.

Take the following example. A new client with a medium-term marriage and children instructs the solicitor that the assets in the case are currently worth in the region of £4/5 million. The value of the house, some savings, the standard of living and lifestyle which she describes all fit her assessment. The husband is a “wheeler dealer” – he works in property acquisitions hand-in-glove with his own family. They mingle assets between them. She tells you some more valuable assets are being acquired literally as she speaks – seemingly in another family member’s name but in reality to keep the assets out of her reach.

You need to give a fixed fee quote for the case. What is he worth, what assets are indisputably his, and how much of his wealth can she reasonably claim? She instructs you that she wants an in depth investigation and her fair share.

What fixed fee do you offer her after that first interview? How much work will be involved? What will you need to do? How much forensic work will be necessary? How cooperative will he and his solicitors be? How will his family be involved?

Suppose it’s the husband who consults you. He neglects to tell you about any family-owned assets that might be his. He presents a picture in which he compares himself to as much of a church mouse as he possibly can.

Currently solicitors must give a client a fee estimate immediately on receipt of instructions, in writing. This confirms what has been agreed to be done and the fee estimates are placed within reasonable bands which are agreed by the client. If the estimate needs to alter as the case progresses the client will be informed and an informed explanation given. There is room for reasonable manoeuvre to protect both the client and the solicitor and the estimates will also give charge-out rates for the solicitors involved. These are not calculated finger-in-the-air style but are commercially calculated. It is all above board, agreed in writing and it is signed off by the client.

In commercial cases, there are certainly some aspects which lend themselves to fixed fees, so a solicitor can give quote accordingly for those. But in a family case, it’s never that easy.  From taking initial instructions right up to a first hearing, the costs are front-loaded because the procedure itself demands it. A great deal of work may actually be necessary to reach the first hearing. Whilst it’s possible to give an informed guide, until it’s actually in progress, an informed guide is all you can realistically give.

Hence the estimate, not a crystal ball.

For some firms currently struggling to make a profit in these difficult times (and there are many out there), the additional imposition of a fixed fee may require proceedings to be issued immediately, with less time available to negotiate, a route which might be less controversial  and  in the client’s ultimate best interests. Or conversely a decision might be taken not to start proceedings at all, to save costs. Sending letters is cheaper than going to court but that may achieve very little for the case. Corners might be cut to make the job more profitable and pay the overheads. Less experienced, cheaper fee earners, could be put onto the case. Eager to accept a cheap quote, the client might end up paying for that decision for the rest of his or her life, even though the solicitors genuinely think they have done their best within the confines of the fixed fee. Such outcomes are very likely I believe if fixed fees are introduced.

So in the real commercial world of family law firms, what right do Judges, who have never run a solicitor’s business, to tell those of us who do (and do so successfully) that we need to change?

‘Turn into fortune tellers’ – that’s what they are saying to us. Look into a crystal ball, and take a guess how much work will be necessary, and how the case will pan out. And then give a fixed fee quote and make it cheaper to boot – though not for sound business reasons such as meeting the outgoings and expenses of the firm. Lower fixed fees they argue, will get more work in.

I’ve seen all this before. It happened with conveyancing when fees and standards were quickly driven down. Would you want it? I wouldn’t.  I suspect the top echelon of the judiciary don’t know much about the practical impact, the fiasco of fixed fees and conveyancing on the domestic market at all. But solicitors certainly do.

So let’s go back to the example above. What if disaster strikes, a recession occurs, various property deals collapse  and the value of the family’s assets tumbles overnight to less than 25 per cent of the clients original instructions? It happens. The fixed fee suddenly becomes completely wrong. And it’s very hard to see how such a situation is any better than the current practice of providing an estimate of the work to be done, all of which is open to scrutiny by the courts in an assessment or by the Legal Ombudsman. And criticism by Judges who don’t run solicitors practices. Still, we have broad backs.

Not every Judge is blinkered to commercial reality. Retired High Court Judge Sir Peter Singer, a champion of family arbitration (and someone who wisely took my advice last night not to come too near me!) has written a response to Sir Nicholas’ comments, entitled Who’ll stand a round of fixed fees all round: reflections on Mostyn J’s judgment in J v J, setting out his concerns for fixed fees in arbitration.

It’s interesting to note that a retired barrister Judge with a new perspective can see commercial reality for what it is in family law, but other former barrister Judges cannot. Or will not.

So after thirty odd years of running my firm through many ups and downs, including two very unpleasant recessions in which we nevertheless managed to grow, I will say this. Crystal balls are for the funfair, and have no place in the running of a solicitor’s family law firm.

The founder of Stowe Family Law, Marilyn Stowe is one of Britain’s best known divorce lawyers. She retired from Stowe Family Law in 2017.

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  1. Nordic says:

    Yes, Justice Monstyn’s proposals are both naive and unworkable. He will join the long parade of judges and law makers moaning that “something must be done”, yet completely fail to do anything. As you note, providing family law legal advice is a business and, as such, its primary purpose is to deliver profits for its owners. It is not a charity and its purpose is not to protect families or children, but to generate fees.
    Family lawyers are no worse than the bankers, auditors, consultants or other professional service industries, but nor are they any better. If you allow auditors to provide consultancy services to audit clients, they will at the cost of loosing their independence as auditors. That is why strong regulations were introduced in the late 90s to deal with such conflicts of interest. If you allow investment bankers to play and leverage retail banking deposits, they will. That is why ring-fencing obligations are being introduced between investment and retail banking operations in the aftermath of the 2008 crisis. If you leave family law devoid of any real law creating an open field for lawyers to create conflicts of interest and litigation, they will create conflicts and litigation. All professional service industries act in accordance with their own financial interest.
    The root of the problem is the totally unnecessary and very harmful discretion afforded the courts in financial relief cases in this jurisdiction. The judicial is insisting on complete freedom to tinker with assets allocation percentages while families implode in acrimony. The answer is law, and most importantly a legally binding regime for matrimonial property division. This would remove most such cases from the courts, freeing up court time, preventing squandering of families wealth in a nil-sum game and, most importantly, eliminating a huge source of parental polarisation and conflict.
    We have allowed vested financial interests to grow around and take over family law, arguably the most important of all public policy areas. This is not the fault of the lawyers. It is the fault of our elected parliamentary law-makers who totally have failed to muster the courage to impose themselves on the money machine that family law has become in this jurisdiction.

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