Spinning the roulette wheel: fixed fees and Calderbank

Divorce|December 16th 2015

I’ve been hearing some pretty lurid stories recently about solicitors who charge fixed fees for divorce. In one case it seems a solicitor agreed a fixed fee of £20,000 for a financial case following a divorce, payable in advance.

The case unexpectedly settled shortly afterwards but the solicitor still pocketed the full fee as he was entitled to do: it was a fixed fee. Had the case continued to court, as it could easily have done, and the amount of work done exceeded the amount charged for, the solicitor would have ended up out of pocket. On this occasion it cost a client who thought he was being financially acute about £18k more than if he had agreed to the usual arrangement with a fee estimate. Under that arrangement, the solicitor can then only charge for the work actually done.

I am no advocate of fixed fees. I believe it is clearly a risky approach for solicitors who have to decide in advance without the benefit of a glass ball what is going to happen on a case and choose an amount to charge which is then fixed. But it of course also risky for clients who may end up facing higher bills or a disgruntled solicitor who has substantially underpriced the fixed fee. Clearly fixed fees are risky for all involved.

There are too many “what ifs”. Who can accurately foresee and cost,  hidden assets turning up, a difficult client never off the phone, a difficult opponent determined not to settle on the other side? A solicitor can in reality only give a reasonable estimate, and then find him- or herself in front of the Legal Ombudsman or even a court, if the final bill doesn’t at least approximately match the estimate without a clear explanation why not.

Yet siren calls to introduce fixed fees are increasingly heard across the judicial establishment. Frustrated by the high costs in a number of spectacular cases (mostly in the South East), a number of learned judges seem to have reached the conclusion that fixing fees would in some way end high litigation costs. Such simple-seeming solutions can be very seductive. But we all know what happened to those ancient sailors who were unable to resist the call of the sirens and crashed onto the reef.

Consider this. If fixed fees were introduced, what incentive would a solicitor have to litigate at all? Wouldn’t it be easier and far more lucrative to advise clients to settle come what may and trouser the balance? Which solicitor would want to litigate over the fixed fee and lose money?

Yet well-meaning judges – and I fully accept they are indeed well meaning -do make such comments because they feel they must somehow control the costs of those litigating parties who refuse to settle and end up incurring very high costs indeed.

So what used to happen? What came to be known to lawyers as ‘Calderbank’ offers were made in financial cases on divorce. Put simply, these were offers to the other side in a case which were made ‘without prejudice’ – ie, they could not be shown to the court, and thereby commit the party making the offer, except on the issue of costs.

From a practitioners perspective, these represented a real costs risk and in big cases particularly, they worked as a major deterrent. Parties on both sides knew full well that if their offer was beaten, they could end up paying the other side’s costs. And if the other side’s own offer to settle was beaten, the opposing party could even end up paying full indemnity costs on both sides.

The impetus to settle was substantial. But Calderbank offers were abolished because Judges felt costs following the event were unbalancing their awards to both parties. Instead  “no order for costs” was made the general rule.

But what are we seeing now that Calderbank offers have gone in favour of this “no order for costs” principle? We are seeing the stronger party fighting ruthlessly on. He or she is safe in the knowledge that all he or she has to pay is their own lawyers, and provided there has been no misconduct in the litigation, that is how it will stay.

So in that case, why settle on terms that you could potentially beat? Why not chance your arm? The same applies to the weaker party too in those big money cases. Why settle for a low offer when you could do better in court? What’s your risk apart from your own lawyer’s increased fees? In ‘big money’ cases particularly, this is all so blindingly obvious. There is no risk that you need to worry about. You may as well take your chance in court.

But that’s not all. Some people know that their ex is playing this game, and in cases involving lesser amounts, they can’t afford to do the same. They don’t have the same income, the same ability to play with precious capital. So using the threat of ever increasing costs can force the weaker party to settle on disadvantageous terms.

Now that costs are taken off the top slice in all but the fewest cases, this issue just doesn’t matter for the wealthy or the bully. And my, how these hotly litigated Big Money cases have grown out of all proportion!

In smaller cases, where the costs do have a disproportionate impact, no order might still be appropriate, such as in those cases where there is nothing to go round once reasonable needs are met. With discretion there is no reason why a court could not make such an order.

So how do you control those cases that have got out of line in terms of costs?.

Most practitioners I know oppose the introduction of fixed fees for all the reasons set out above. They look to older and wiser conveyancers who report how fixed fees decimated the profession, encouraged a slippage in standards, increased claims, fraud and cost to the entire profession. Furthermore, if given a fixed fee, why not include the cost of a contested hearing and make sure the lawyers take the case all the way into court? They’ve paid for it after all.

Instead, most practitioners call for the reintroduction of Calderbank. In one recent survey lawyers, particularly those in the South East did so, and lawyers commenting here regularly make similar calls.

I sincerely hope that when costs issues are debated again, those judges who think fixed fees will put an end to high bills will realise that when playing roulette, the wheel is invariably stacked against the punter. It’s time to reintroduce Calderbank

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  1. Andrew says:

    Calderbank worked on both parties and worked very well. In p.i. litigation it is available to the Defendant who is in fact an insurance company and stronger than the Claimant in a way which no matrimonial litigant can match!
    It is interesting that it is still available in Family Provision cases which are not family business – and it works there too.

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