In her article originally published in the December 2021/January 2022 edition of the Family Law Journal, family solicitor Amy Baugh suggests that the family courts may be subverting the strict considerations applicable to costs orders when dealing with debts arising from legal costs.
There is no rule requiring an analysis of a needs-based award of unpaid legal fees against the principles applicable to an actual costs order and such a comparison would serve to undermine the wide discretion afforded by s25, MCA 1973.
In Azarmi-Movafagh v Bassiri-Dezfouli , the Court of Appeal clarified how judges should treat outstanding legal costs incurred by the recipient of a needs award. The decision serves as a warning to practitioners that even where the circumstances of a case do not justify a costs order, a party may still be ordered to meet the legal fees of their financially weaker spouse under a different guise.
Described by King LJ in her leading judgment as a case in which ‘the parties embarked on a course of litigation which became an exercise in self-destruction’, the proceedings stemmed from the breakdown of an 11-year marriage, during which the wife was a barrister and fulfilled the breadwinning role. The husband did not work for the duration of the marriage and cared for the parties’ child. Upon separation the husband rented a one- bedroom flat and his sole income was universal credit. In contrast, the wife owned a number of pre-marriage rental properties, which comprised the majority of her income, as well as the former family home worth £727,000.
The total value of the assets (not accounting for the parties’ combined debts of £565,611) was £2,347,000. The wife’s initial position was that the husband was not entitled to any award whatsoever. However, by the second appeal she had eventually accepted the appropriateness of a needs-based award in the husband’s favour, following a scathing rejection of her position by the judge on the first appeal.
The husband had accrued significant unpaid legal costs, relating not only to the financial remedy proceedings but also to Children Act 1989 (ChA 1989) proceedings and criminal proceedings regarding two incidents of violence towards the wife.
It is worth noting that the husband had chosen to instruct leading counsel in all proceedings and those fees had been met by his sister, after she raised funds to assist him through a remortgage of her property, and the debt to her remained unpaid.
At first instance, the circuit judge concluded this was a needs case and ordered the wife to pay the husband £620,000. This award encompassed £400,000 to re-house the husband in a modest property, £25,000 to purchase a vehicle and £200,000 towards his debts of £257,000. This sum did not include debts arising from the criminal proceedings, on the basis the husband would have been entitled to legal aid and therefore had chosen to incur those legal fees unnecessarily.
The judge stated that the unpaid legal costs did not require a mathematical approach and felt it unnecessary to consider the appropriateness of a costs order in the circumstances. Neither did he consider the quantum of the award against the proportion of assets or the net effect of it (which incidentally resulted in the wife retaining assets worth £1,410,000 and the husband retaining £568,000 upon subtracting his residual debt). Instead, the judge accepted the husband’s needs could not be met without making a provision for his debts, as his housing fund would otherwise be largely subsumed by their repayment (see para 16 of the second appeal judgment). Additionally, it was observed that the wife could easily meet these sums by utilising her rental properties.
On appeal, Judd J decided that the husband had chosen to spend a substantial amount on legal fees and therefore found no proper grounds for a costs order in the financial remedy proceedings. She also noted that no costs had been awarded in the ChA 1989 proceedings either and she did not intend to deviate from that decision through an award within the financial remedy proceedings. Judd J was further swayed by findings as to the husband’s violence to the wife within the ChA 1989 proceedings (see para 25 of the second appeal judgment), in consideration of which she could not justify the wife meeting the husband’s legal costs.
However, despite indicating that provision for the repayment of the husband’s litigation debts should be excluded from any award, Judd J noted that it ‘took two to litigate’ and, throwing a curveball into the case, made provision for the husband’s debts and made an order for an ‘inevitable’ charge in the wife’s favour over any property the husband bought in the sum of £200,000, payable on death, remarriage or permanent cohabitation. She also ordered the husband to pay the wife’s costs of the appeal.
The parties cross-appealed, with both arguing that Judd J was wrong to impose a charge that neither party had sought. The husband also argued the judge was wrong to interfere with the decision at first instance, as there had been no error, and that she was incorrect to justify her decision with reference to the findings of violence in the ChA 1989 proceedings. The wife argued that the order providing for a charge contravened the clean break principle and that no costs should be awarded to the husband, as Judd J had herself indicated.
King LJ’s leading judgment was clear that Judd J had overstepped her remit, both by interfering with the decision at first instance, which was within the parameters of fairness and without error, and by ordering a charge without even inviting submissions on the issue. Incidentally, King LJ remarked that such charges are falling further out of favour with the judiciary (particularly in relation to older couples, where a sudden capital need is more likely to arise) and are to be avoided wherever possible (paras 33 to 44).
Additionally, King LJ held that attaching any weight to the husband’s violence was plainly wrong, considering the high bar set by s25(2)(g), Matrimonial Causes Act 1973 (MCA 1973), ie as to the requirement for the court to consider ‘the conduct of each of the parties, if that conduct is such that it would in the opinion of the court be inequitable to disregard it’. In any event, the wife had not attempted to run such an argument, despite being invited to do so by way of a statement following the financial dispute resolution appointment.
King LJ therefore upheld the decision at first instance as, without provision for the husband’s litigation debts, his needs simply would not be met. King LJ also set out the correct approach to litigation debts in a needs case, bearing in mind that the no order principle should be at the forefront of any decision.
She confirmed that there is no rule requiring an analysis of a needs-based award of unpaid legal fees against the principles applicable to an actual costs order and that the judge at first instance had not therefore erred on this point. She felt such a comparison would serve to undermine the wide discretion afforded by s25, MCA 1973 and that there would be difficulties in ‘pigeonholing’ debt in this way.
However, King LJ also confirmed (at para 63) that best practice is to:
At the first appeal, counsel for the wife submitted that the award at first instance of
£200,000 to the husband was ‘tantamount to an order that [the wife] pay most of [the husband’s] unassessed costs’ (para 22), a theme which has cropped up in a number of recent cases. After all, if the presumption is that no costs order should be made, should judges so readily deal with unscrutinised litigation debt in the main proceedings, possibly without submissions as to the reasonableness of those costs?
Holman J thought they should not and in Daga v Bangur  commented that to pay off the litigation debts of the husband in that case would be ‘tantamount to making an order for costs in his favour, which could not be justifiable’ (para 67). This was despite the husband being age 66 and unable to re-house himself without the debts being satisfied, although Holman J may have been influenced by the parties having always chosen to rent throughout their marriage.
Similarly, in LR v DF  the judge at first instance had refused to make an award to account for the wife’s debts where her housing fund would be diminished, as this would amount to an order for costs ‘by the backdoor’. However, on appeal the court found that the wife’s unpaid legal fees amounted to an obligation to repay a debt and as this was clearly capable of inclusion in an asset schedule, it fell under the remit of s25(2)(b), MCA 1973 as to the financial needs, obligations and responsibilities of each of the parties to the marriage. Additionally, the fact that a needs-based award was akin to a costs order did not prohibit its use in this manner (paras 52 to 56).
This approach was also taken in WG v HG , in which the wife’s Duxbury fund would have been wiped out without consideration being afforded to her litigation debts within the award to her (para 94). Moylan LJ further justified this approach in TT v CDS , explaining that a costs order cannot undo the depletion of assets by legal fees, but such debts are clearly relevant to an assessment of needs and therefore should be dealt with through any award in the main proceedings (paras 63 to 78).
In the above cases, significant sums were included in the respective needs-based awards, to partially satisfy the recipients’ litigation debts. However, they differ from Azarmi- Movafagh, in that the recipient’s security of accommodation was not at risk and there had also been some element of litigation misconduct, reducing what would otherwise have comprised a higher award. There is therefore an undeniable precedent for making such an award, upon which King LJ relied in Azarmi-Movafagh.
Despite advocating a cross-check for fairness, King LJ was comfortable with the first instance order essentially amounting to an indemnity order. This was in the absence of any litigation misconduct severe enough to usually warrant the same in the context of a costs order and she said that such an assessment should not be a cap when assessing needs (para 64). It therefore seems that the argument that the wife would have been ordered to pay less under a costs order, while seemingly correct, was irrelevant. King LJ also does not appear to have attached much weight to the husband’s expensive choice of legal representation or lack of effort to mitigate his poor financial circumstances either.
Do these cases therefore set a precedent for individuals, who could otherwise instruct a more modest lawyer within their means, to instead instruct an extravagant lawyer and accrue debt that they could largely recoup through a needs-based award? This appears to open the door for some individuals to be bankrolled through litigation by their former partners and it is therefore important to bear these decisions in mind when representing the financially stronger party.
Notwithstanding a pocket of judicial opposition to this approach to needs-based awards, the message from the Court of Appeal is clear: the court can incorporate the payment of outstanding legal fees into its award where it is necessary to meet the recipient’s needs. The court’s wide discretion is not therefore limited to dealing with liabilities in a particular way, as long as the outcome is ultimately fair. King LJ compared this approach to the court’s readiness to make use of non-matrimonial assets, which might otherwise be excluded from consideration, to produce a fair outcome.
Azarmi-Movafagh also serves as a reminder of the limits of the appeal court, as well as demonstrating the need to ‘tread very carefully’ (WG v HG), when it comes to litigation debts arising from concurrent ChA 1989 proceedings. This should again act as a warning to those representing the financially stronger party. While r28.3, FPR 2010 cannot be used to deal with the dissipation of assets though proceedings outside of financial remedy, it seems s25, MCA 1973 can, as confirmed by Moylan LJ in TT v CDS (para 76).
Any judicial confusion or doubt relating to the court’s discretion to make provision for the payment of outstanding legal fees within a needs-based award has now been resolved in Azarmi-Movafagh. The unshakeable aim of fairness and prioritisation of needs under s25, MCA 1973 enables judges to deal with liabilities in this way, where necessary, to ensure needs are met. Whether the outcome is less advantageous or mathematically considered than that under a costs order presents no barrier, although judges should not ignore this altogether when making their decision.
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