Legal services payment orders

The funding of legal costs can be difficult for some clients, particularly where the assets are held by the other party to the marriage, but for obvious reasons, it is crucial that practitioners take steps to ensure that their costs will be met. Litigation loans can assist in some cases, but if there are no assets in the client’s name to provide security for the loan, this can be an uphill battle.

Fortunately, the court is able to assist and can make an order requiring one party to pay sums to the other so that they can meet their legal fees. Since 1 April 2013, under ss 22ZA and 22ZB of the Matrimonial Causes Act 1973 (MCA 1973), the court has been able to make orders requiring one party to the marriage to pay to the other an amount for the purpose of enabling the applicant to obtain legal services for the purposes of the proceedings. These orders are referred to as legal services payment orders ("LSPOs"). Helpfully, the decision of Mostyn J in Rubin v Rubin [2014] EWHC 611, [2014] 2 FLR 1018 sets out the applicable substantive and procedural principles.

This column highlights some top tips when making such an application.

Procedure

A LSPO is an interim order. It is therefore made under the Part 18 procedure (see r 9.7(1)(da) and (2) of the Family Procedure Rules 2010 ("FPR")). Fourteen days’ notice must be given (see FPR, r 18.8(b)(i) and PD 9A para 12.1).

The application must be supported by written evidence (see FPR r 18.8(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, r 18.8(4) then the written evidence in support must explain why it is fair and just that the time should be abridged.

Costs: the no order principle does not apply

The no order principle does not apply to interim applications (see FPR, r 28.4) and therefore inter partes costs orders may be made. Calderbank offers are admissible and can be considered by the judge when determining whether to make a costs order.

If costs are sought, a statement of costs should be filed at court and on the other side at least 48 hours in advance of the hearing.

Costs: the duty to negotiate

Even if successful, parties can and will be penalised if they refuse to negotiate. In the recent decision of LM v DM [2021] EWFC 28 the wife was successful in her applications (including for a legal services order) and applied for her costs. However, Mostyn J determined the wife had failed to negotiate openly and reasonably. He highlighted that negotiating sensibly was particularly important in interim applications, as these applications do not involve a final determination of the issues. He penalised the wife by reducing the costs order made in her favour by 50 per cent.

The impact of the substantive issues

It is important to take into account that where the claim for substantive relief appears doubtful, the court should judge the application with caution. The more doubtful it is, the more cautious it should be. The court may therefore need to form a preliminary view in relation to the substantive issues. For example, in CC v NC (Maintenance Pending Suit) [2014] EWHC 703, [2015] 1 FLR 404, there was a substantive issue regarding jurisdiction. Mostyn J considered the wife’s case to be arguable, possibly even strongly arguable, and therefore declined to apply a discount to her LSPO.

In contrast, in BN v MA (maintenance pending suit: prenuptial agreement) [2013] EWHC 4250, in circumstances where the wife had signed a pre-nuptial agreement 15 months earlier, Mostyn J referred to the wife’s claim as extremely speculative and dismissed the wife’s application for a legal services payment order.

The applicant’s ability to secure funding elsewhere

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. The applicant must therefore show that he or she is not reasonably able to secure a loan to pay for the services. As suggested in Rubin, it is therefore usual to show evidence of refusal by at least two commercial lenders.

In determining whether the applicant can reasonably obtain funding from another source the court would be unlikely to expect him or her to sell or charge their home or to deplete a modest fund of savings. Therefore, in FRB v DCA (No 3) [2020] EWHC 3696 the judge decided it would be inappropriate to expect the wife to charge what little she had when the husband was wealthy, and had been found to be deceitful.

Solicitors acting for the applicant will also need to provide a statement that the firm is unwilling to enter into a Sears Tooth arrangement (which assigns the client’s settlement (or part of it) to the solicitors in order that the costs can be met at the end of the case) to deal with s 22ZA (4)(b) of the MCA 1973.

Is the application for future or historic costs?

In Rubin, Mostyn J made clear that 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 and a LSPO will 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 obtain in the future appropriate legal services for the proceedings.

This was relied upon by Holman J in LKH v TQA AL Z (Interim Maintenance and Costs Funding) [2018] EWHC 1214 where he limited the wife’s award to a monthly payment in respect of future costs alone.

The issue was considered by Cobb J in the recent decision of Re Z (a child) (Schedule 1: legal costs funding order; interim financial provision) X v Y [2020] EWFC 80. He concluded that the firm acting for the applicant was not a charity or credit agent, and it was neither fair nor reasonable to expect the firm, and chosen counsel, to offer unsecured interest free credit in order to undertake their work.

In doing so he relied on a letter from the partner acting in the case, stating that the firm would not be able to do any further work unless she was able to raise money to fund their fees and that if the funding application was successful, the firm would only be able to represent her and carry out work on her behalf to the extent that the ordered costs funding met their fees. The judge found that this provided a sufficiently clear case that the firm had reached its tolerance and ordered a LSPO.

It is therefore highly recommended that applicant firms ensure that there is evidence before the court to show that the firm has reached its tolerance.

This does not necessarily mean that the entirety of the historic costs will be met. There is a balance to be struck in each case. The availability of future legal provision may be affected by the degree to which bills outstanding to the existing firm are able to be reduced and in the recent case of R v R [2021] EWHC 195, a distinction was made between costs incurred before the application was made and those incurred afterwards. The judge determined that there was less room to argue that costs incurred after the application was made were costs in relation to which the solicitors acting had decided to extend credit. Whereas costs incurred prior to the application are much more likely to be susceptible to that argument.

Funding is also available for mediation and arbitration

Finally, it is also worth remembering that it is possible for a LSPO to be made to fund any form of dispute resolution, including mediation and arbitration.

As stated at the outset, it is crucial to ensure that appropriate funding arrangements are in place. Where such funding cannot be achieved by agreement, then in appropriate cases, a well-considered, early application for a LSPO will help prevent difficulties later in the proceedings. 

If you require further information about anything covered in this briefing, please contact Caroline Holley, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, June 2021

Please note this content was originally published in the Family Law Journal. May 2021 edition, best practice section.