Legal Services Payment Orders

All clients must consider how they will fund their costs, but for some, a lack of funding options can pose a true barrier to the receipt of adequate legal representation. With the UK inflation rate at 9.9 per cent (at the time of writing) and interest rates rising monthly, funding is a growing concern for clients. Litigation loans can assist in some instances, but this is rarely possible when clients do not have sufficient assets in their own name to provide security or where all assets are offshore.

In May 2021 this column highlighted some top tips when making applications for legal services payment orders ("LSPOs"). A number of judgments reported since then further inform how we should approach these applications and so this column will add to those top tips in light of recent developments.

Respondent’s refusal to assist with costs funding

It may be the case that there are joint funds available, but the respondent is unwilling to agree to those being used to fund the applicant’s costs. In the recent decision of L v L [2021] EWFC B83, the wife’s counsel complained that the husband had stopped the wife from using their joint funds to pay for the litigation. A decision was taken not to apply for a legal services payment order so as to avoid satellite litigation and running up yet more costs. Therefore, in order to finance her costs, the wife had taken a litigation loan that carried a high rate of interest.

The judge determined that the husband’s actions in refusing to agree to the wife using joint funds to fund her costs could be categorised as litigation misconduct. It was not for the husband to decide how the wife spent her share of their joint funds and insofar as his decision had cost the wife, she was entitled to be put back in the position she would have been in had she been spending her own money and not having to borrow.

Further in Gallagher v Gallagher (No.2) (Financial Remedies) [2022] EWFC 53, the wife had significant debts which were largely referable to a substantial litigation loan on which she was paying 14 per cent interest. The judge was critical of the husband and noted that it was emblematic of the wastage of money in this case that the wife should have been forced to take out a high interest litigation loan rather than being provided with monies on account of her award.

The applicant’s ability to secure funding elsewhere

Section 22ZA(3) of the Matrimonial Proceedings Act 1973 ("MCA 1973") provides 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. S22ZA(4)(a) and (b) requires the court to be satisfied that the applicant is not reasonably able to secure a loan to pay the fees, nor obtain representation by granting a charge over assets recovered in the proceedings.

The decision of Mostyn J in Rubin v Rubin [2014] EWHC 611, [2014] 2 FLR 1018 establishes that refusals from two commercial lenders will normally be sufficient evidence that a litigation loan is unavailable. It is clear from the recent decision in E v B (Interim Maintenance Inaccurate Time Estimate) [2021] EWFC B90 that these will be carefully scrutinised. In that case, Recorder Chandler attached little, if any, weight to evidence of refusals from two loan providers in circumstances where the applicant falsely asserted that she could not sell a property co-owned with her mother.

Future or historic costs

In Rubin, Mostyn J made clear that in considering whether the applicant can reasonably be able to obtain appropriate legal services for the proceedings, the court looks to the future and 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 obtain in the future appropriate legal services for the proceedings.

This was followed by the decision of Cobb J in BC v DE (Proceedings under Children Act 1989: Legal Costs Funding) [2016] EWHC 1806 (Fam), [2017] 1 FLR 1521 who distinguished between cases such as Rubin where there were no ongoing proceedings in England and those where the outstanding costs had been incurred within ongoing proceedings. He found that it was not necessary for an applicant to demonstrate that his or her solicitor had actually "downed tools" or would do so before he or she could legitimately make an application, just that they were reaching the end of their tolerance.

Most recently, Mostyn J has further clarified the position in Xanthopoulos v Rakshina [2022] EWFC 30 stating:

"i) A legal services payment order should only be made in respect of outstanding costs to current solicitors where, without payment, those current solicitors would likely cease acting for the party in question (i.e. so to ensure that that party can continue to access representation)

ii) The position is entirely different in relation to former solicitors as they have already ceased acting for the party in question (i.e. so payment of their outstanding costs has no relevance to the question of whether a party can continue to access representation)."

In Xanthopoulos the applicant’s lawyers came off the record the day before the hearing and so fell into this second category.

They therefore became creditors of the husband and would need to recover their costs in the usual way. Furthermore, since the former solicitors were arguably no longer relevant to the applicant’s future costs, the costs schedules submitted with the LSPO application were now redundant. Any future solicitors could have entirely different estimates and so the applicant would need to instruct new solicitors and submit his application afresh.

Exceeding costs ordered by a LSPO

There is a clear expectation that the solicitors involved in a case will work within the financial parameters set by the court and should not therefore exceed the sums allowed by way of a LSPO (see Re Z (Schedule 1: Legal Costs Funding Order: Interim Financial Provision) [2020] EWFC 80), [2021] 2 FLR 727. More recently, in Xanthopoulos Mostyn J stated that, as a matter of principle, it could not be right when a legal services payment order had been made on the basis that it was to fund costs for a certain period, for there to be an enormous overspend with the consequence that an applicant returns for a further order seeking more costs for the same period.

Accurate time estimates

In E v B [2021] EWFC 90 Recorder Chandler observed that applications for maintenance pending suit and/or a LSPO are frequently given inadequate time estimates. He stated:

"For too long, interim applications like these...have been crow-barred into inadequate time estimates, allowing the court insufficient time to consider the papers before the hearing, or sufficient time to properly review its judgment, in the context of what are often the most hotly disputed applications in financial remedy applications...Realistic time estimates must be given."

Although the judge acknowledged that by their nature, these cases need to be heard at the earliest opportunity, this did not excuse a manifestly wrong time estimate. He said that in his view the case, which was estimated to last two - two and a half hours should have been listed for a day.

Deductions and reductions

Finally, it is worth bearing in mind, especially when managing client expectations, that costs ordered by way of a LSPO may be discounted to reflect a notional standard basis of assessment. Mr Justice Peel did just this in MG v GM

[2022] EWFC 8 where he applied a 30 per cent deduction to an already reduced sum relating to historic costs. He also reduced the sum requested for future costs and made it clear that this was intended to be a final, capped figure.

As stated at the outset, with rising costs of living, the funding of legal costs is likely to continue to present challenges for clients. A well-considered, early application for a LSPO will assist.

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.

Please note this content was originally published in the Family Law Journal. November 2022 edition, best practice section.

© Farrer & Co LLP, January 2023