Henry‘s article was published in the Financial Remedies Journal, 21 August 2023, and can be found here.

DH v RH

In our recent article for the Financial Remedies Journal, ‘Living under an LSPO‘, Amy Scollan and I explored the many challenges of those operating under a Legal Services Payment Order (LSPO) and the need for Court of Appeal guidance. The recent judgment in DH v RH [2023] EWFC 111 creates further cause for concern.

The wife sought an LSPO in advance of a ten-day final hearing listed for October 2023. MacDonald J described her costs to date, of £1.35m, as ‘eye watering’, and contrasted them to the husband’s costs of around £600,000 (he was now acting in person). Of the wife’s previous costs, £800,000 had been funded through a litigation loan, with around £190,000 owed to her current solicitors and £98,000 owed to her former solicitors.

Mostyn J in Rubin v Rubin [2014] EWHC 611 (Fam) described LSPOs as ‘essentially look[ing] to the future’, such that they should only be used to cover historic unpaid costs where without such a payment the applicant will not reasonably be able to obtain future legal services. As such, the practice has been that legal fees owed to solicitors previously instructed by the applicant are not recoverable on an interim basis under an LSPO, but the court has often (though not always) permitted the currently instructed solicitors to recover at least some of what was owing to them on an interim basis. Cobb J, in BC v DE [2016] EWHC 1806, explained that one of the reasons for this was the impact of significant outstanding debt on the lawyer-client relationship and the client’s stance, and lawyer’s advice, on possible settlement.

In DH v RH the wife sought around £500,000 for future costs, plus payment of her outstanding fees to both her current and former solicitors, on the basis that her current solicitors would not continue to act for her unless both were paid. They had apparently undertaken to the wife’s previous solicitors that they would include their costs in any LSPO application and discharge their fees on receiving any sums from the husband under an LSPO. Perhaps predictably, this seems to have caused some judicial irritation, with MacDonald J describing it as:

‘a rather transparent artifice to try to bring the wife’s former solicitors within the circumstances that are understood by matrimonial lawyers to justify the inclusion of historic costs in an LSPO.’

MacDonald J appeared to cast doubt on whether the court even has jurisdiction to make an LSPO in respect of past costs, saying at [60]:

‘if the court has power under x22ZA to make an order that includes payment of historic costs owed by the applicant to their solicitors (I assume for the purposes of this case that it does).’

He held that any such power should be used:

‘sparingly and only on proper evidence that the applicant’s lawyers will refuse to act unless the historic costs are paid, notwithstanding the grant of an LSPO.’ (emphasis in the original)

MacDonald J refused the recovery of any historic costs in this case. He noted in particular that the wife’s lawyers had failed to provide sworn evidence that they would refuse to act for her unless both their and her former lawyer’s historic costs were paid, nor had the former lawyers provided sworn evidence that they would sue on the undertaking were it to be breached. The need for sworn statements from solicitors in respect of their willingness to work where historic costs have not been paid has been clear for some time now, and insistence on it is understandable.

As Amy and I set out in our article, the costs of making an LSPO can be considerable. MacDonald J’s judgment reinforces the limitations on interim recovery of historic costs, seemingly even in relation to the costs of making the LSPO application. The conclusion that one must draw is that it will be unwise to do any work on an LSPO matter other than making the LSPO application until an LSPO is made potentially delaying the matter by several months and creating difficulties in complying with initial standard directions orders as the solicitor may have to carry, for potentially years, any costs incurred prior to the LSPO. This could include, for example, the costs of efforts to settle the matter without resorting to litigation, or to narrow the issues.

Turning to the sums to be awarded under LSPOs for future costs, MacDonald J held that where:

‘in the view of the court that litigant has, prior to the application for an LSPO, spent profligately on legal services to little effect, the power of the court to control the deployment of amounts awarded under an LSPO will be of particular importance.’

On the facts, MacDonald J held that whilst this was not the occasion to make findings about the wife’s litigation conduct, it appeared that significant costs had been incurred by the wife in seeking to prove that the husband was hiding assets. He recognised that some of the husband’s actions will have fed into the wife’s concerns, but recorded that the wife had failed to itemise with particularity any deficiencies in the husband’s disclosure despite being ordered to do so.

Seeking to prove non-disclosure is inevitably challenging and making detailed inquiries in response to poor disclosure often reasonable. That efforts do not bear fruit does not necessarily mean that they were undertaken unreasonably. Limiting the wife’s future costs prior to determination of whether non-disclosure had taken place and of whether the wife’s inquiries had been reasonable does not appear entirely just. That judges can exercise far greater control over the costs of LSPO recipients than they can exercise over other litigants does not mean it is fair for them to do so. Surely the opportunity to address any unreasonably incurred costs is through costs orders made after the final hearing.

When assessing the wife’s costs budget, MacDonald J accepted the estimate proposed by her solicitors to take them to the PTR, but cut significantly that part of the budget intended to cover the period between the PTR and the final hearing, identifying some costs the example given is £4,230 to update the bundle as ‘plainly unsustainable’.

As Amy and I concluded in our article, part of the route towards making LSPOs more workable does undoubtedly lie with us lawyers we must prepare thorough and realistic costs budgets, make timely applications so far as reasonably possible, and ensure they are supported by all necessary evidence. However, the continuing judicial trend towards imposing costs-capping for one party in LSPO cases is a real concern. It not only creates an imbalance of power which works against those (usually women) in need of an LSPO, but also a real disincentive for lawyers to take on LSPO work and thus is an access to justice issue.