Legal Services Orders – funding a financial remedies application.

Added in Divorce & Matrimonial Finance by Louisa Adamson

“A grave and widespread problem….” is how Wilson J (as he then was) referred to the question of how can a spouse, usually the wife, who is ineligible for legal aid but has negligible capital, secure legal advice and representation in order to pursue her rights against her husband. [Sears Tooth (A Firm) v Payne Hicks Beach (A Firm) 1997 2 FLR 116].

Pre April 2013 a body of case law [referred to in Duckworth as “A v A Orders”] built up to try and counter this problem. On 1st April 2013 sections 22ZA and 22ZB were introduced into the Matrimonial Causes Act 19731. and have governed applications from that date.

Whilst Mostyn J in the case of Rubin v Rubin [2014] EWHC 611, [2014] 2 FLR 1018 stated “I have recently had to deal with a flurry of such applications and there is no reason to suppose that courts up and down the country are not doing likewise” it has not been my experience that such applications are routinely made in this part of the country.  In fact my perception is that generally speaking both parties take, and are encouraged to take (by both their solicitors and by local judges), a fairly pragmatic and robust view towards costs from the outset on the basis that these costs are, after all, being met from the very pot of funds which otherwise is available for them to divide.

The court is required to have regard to the list of s 25-type considerations set out in s 22ZB namely; the income, earning capacity, property and other financial resources of each party; their respective needs and responsibilities; the subject matter of the proceedings including the matters at issue in them; whether the paying party is legally represented in the proceedings; any steps taken by the applicant to the proceedings, for instance by proposing mediation; the applicant’s “conduct” in relation to the proceedings; any amount owed by the applicant to the paying party in respect of costs in the proceedings or other proceedings to which both the applicant and the paying party are or were party and the effect of the order or variation on the paying party; in particular whether it would cause him undue hardship

The principles set out by Mostyn J in Rubin v Rubin remain the guidance that is to be applied when considering an application for a Legal Services Order.  The guidance is set out at paragraph 13 of the Judgment and reads as follows:

  1. When considering the overall merits of the application for a LSPO, the court is required to have regard to all the matters mentioned in s22ZB(1)-(3)
  2. Without derogating from that requirement, the ability of the respondent to pay should be judged by reference to the principles summarised in TL v ML (Ancillary Relief: Claim Against Assets of Extended Family) [2005] EWHC 2860 (Fam), [2006] 1 FLR 1263, at para [124](iv) and (v), where it was stated:(v) Where the paying party has historically been supported through the bounty of an outsider, and where the payer is asserting that the bounty had been curtailed but where the position of the outsider is ambiguous or unclear, then the court is justified in assuming that the third party will continue to supply the bounty, at least until final trial.”
  3. “(iv) Where the affidavit or Form E disclosure by the payer is obviously deficient the court should not hesitate to make robust assumptions about his ability to pay. The court is not confined to the mere say-so of the payer as to the extent of his income or resources. In such a situation the court should err in favour of the payee.
  4. Where the claim for substantive relief appears doubtful, whether by virtue of a challenge to the jurisdiction, or otherwise having regard to its subject matter, the court should judge the application with caution. The more doubtful it is, the more cautious it should be.
  5. The court cannot make an order unless it is satisfied that without the payment the applicant would not reasonably be able to obtain appropriate legal services for the proceedings. Therefore the exercise essentially looks to the future. It is important that the jurisdiction is not used to outflank or supplant the powers and principles governing an award of costs in CPR Part 44. It is not a surrogate inter partes costs jurisdiction. Thus a LSPO should only be awarded to cover historic unpaid costs where the court is satisfied that without such a payment the applicant will not reasonably be able to receive future legal services in connection with the proceedings;
  6. In determining whether the applicant can reasonably obtain funding from another source the court would be unlikely to expect her to sell or charge her home or to deplete a modest fund of savings. This aspect is however highly fact-specific. If the home is of such a value that it appears likely that it will be sold at the conclusion of the proceedings then it may well be reasonable to expect the applicant to charge her interest in it.
  7. Evidence of refusals by two commercial lenders of repute will normally dispose of any issue under s 22ZA(4)(a) whether a litigation loan is available
  8. In determining under s 22ZA(4)(b) whether a Sears Tooth arrangement can be entered into, a statement of refusal by the applicant’s solicitors is normally a sufficient answer;
  9. If a litigation loan is offered at a very high rate of interest it would be unlikely to be reasonable to expect the applicant to take it unless the respondent offered an undertaking to meet that interest, if the court later considered it just so to order.
  10. The Order should normally contain an undertaking by the applicant that she will repay the respondent such part of the amount ordered if, and to the extent that, the court is of the opinion, when considering costs at the conclusion of the proceedings, that she ought to do so. If such an undertaking is refused the court will want to think twice before making the order.
  11. The court should make clear in its ruling or judgment which of the legal services mentioned in s 22ZA(1) the payment is for; it is not however necessary to spell this out in the order. A LSPO may be made for the purposes, in particular, of advice and assistance in the form of representation and any form of dispute resolution, including mediation. Thus the power may be exercised before any financial remedy proceedings have been commenced in order to finance any form of alternative dispute resolution, which plainly would include arbitration proceedings.
  12. Generally speaking, the court should not fund the applicant beyond the family dispute resolution (FDR) but the court should readily grant a hearing date for further funding to be fixed shortly after the FDR. This is a better course than ordering a sum for the whole proceedings of which part is deferred under s 22ZA(7). The court will be better placed to assess accurately the true costs of taking the matter to trial after a failed FDR when the final hearing is relatively imminent and the issues to be tried are more clearly defined.
  13. When ordering costs funding for a specified period, monthly instalments are to be preferred to a single lump sum payment. It is true that a single payment avoids anxiety on the part of the applicant as to whether the monthly sums will actually be paid as well as the annoyance inflicted on the respondent in having to make monthly payments. However, monthly payments more accurately reflects what would happen if the applicant were paying her lawyers from her own resources, and very likely will mirror the position of the respondent. If both sets of lawyers are having their fees met monthly this puts them on an equal footing both in the conduct of the case and in any dialogue about settlement. Further monthly payments are more readily susceptible to variation under s 22ZA(8) of the MCA 1973 should circumstances change.
  14. If the application for a LSPO seeks an award including the costs of that very application, the court should bear in mind s 22ZA(9), whereby a party’s bill of costs in assessment proceedings is treated as reduced by the amount of any LSPO made in his or her favour. Thus, if a LSPO is made in an amount which includes the anticipated costs of that very application for the LSPO, then an order for the costs of that application will not bite save to the extent that the actual costs of the application may exceed such part of the LSPO as is referable thereto.
  15. A LSPO is designated as an interim order and is to be made under the Part 18 procedure (see r9.7(1)(da) and (2) of the Family Procedure Rules 2010 (FPR 2010)). 14 days’ notice must be given (see FPR 2010, r18.8(b)(i) and PD 9A, para 12.1). The application must be supported by written evidence (see FPR 2010 r18.8(2) and PD 9A para 12.2). That evidence must not only address the matters in s 22ZB(1)-(3) but must include a detailed estimate of the costs both incurred and to be incurred. If the application seeks a hearing sooner than 14 days from the date of issue of the application pursuant to FPR 2010, r18.8(4), then the written evidence in support must explain why it is fair and just that the time should be abridged.

Any suggestion that the applicant use solicitors other than the firm of their choice (for instance one that is prepared to enter into a Sears Tooth agreement) is likely to be met with short shrift as the Courts have generally recognised the right of every citizen to be represented by solicitors of his or her choice.

In those circumstances are there any practical measures you can take to counter an application for what you believe to be excessive costs? I would suggest that consideration is given to the following:

  • Whether the evidence in relation to the non-availability of a loan can be undermined on the basis that it has been obtained using an unrealistic/inflated cost estimate and there is no adequate evidence of what the response to a request for a “reasonable” loan might be?
  • Checking whether the applicant has offered an undertaking re repayment
  • Asking for an assurance that the costs incurred will be met from that spouses’ share of the assets ?
  • Trying to obtain an assurance from the party seeking funds to meet their costs about a “cap” on such expenditure and then record this assurance on the face of an order or in open correspondence
  • Reserving your position to raise with the court those cases where excessive spending on costs has been penalised such as J v J [2014] EWHC 3654 (Fam) where a H’s share was marked down by the amount that his costs exceeded those of the W where large bills had been run up in a small asset case.

The most cost-effective way of approaching such applications however must, for both parties, be to vigorously explore ways to resolve the issue before all the available funds are lining the pockets of their legal representatives.

  1. Note.

Corresponding amendments were made to Sch 5 to the Civil Partnership Act 2004. These statutory provisions do not extend to proceedings under Sch 1 to the CA 1989, the Inheritance (Provision for Family and Dependants) Act 1975 (the 1975 Act) or Part III of the Matrimonial and Family Proceedings Act 1984.  In such proceedings the application will continue to be for an interim order for this purpose and the principles set out in Currey v Currey (No 2) [2006] EWCA Civ 1338, [2007] 1 FLR 946 will continue to apply.