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2nd October 2023

Litigation funding and LSPOs

Litigation funding and LSPOs
Henry Hood
Henry Hood
Senior Partner

Update: 3 October 2023

Same judge, different approach

Peel J handed down his judgment in Xanthopoulos v Rakshina on 26 September leading to the rather gloomy conclusions concerning LSPOs given in the post below.

Little did I know that three days later, on 29 September, he would hand down a further judgment with a LSPO element in HAT v LAT [2023] EWFC 162. which arrived at a quite different conclusion concerning discounting.

Focusing solely on the LSPO issues raised by the judgment, the wife’s application was for costs both incurred and prospective: she sought £227,000 to cover fees already incurred and costs up to and including the FDR (in respect of which Peel J acknowledged the need for a leader and junior on a 'level playing field' basis). 

The judge stated that he had considered applying a notional reduction to reflect what would occur on a standard basis assessment, referring again to Cobb J’s 2016 judgment BC v DE. However, he said this would be the 'wrong approach' as an LSPO is not an inter partes costs order, but a solicitor/client sum sought by the applicant to enable her to litigate.

This does not mean that the full amount asked for was granted. Peel J thought that the estimate exceeded what was reasonable, and so awarded £200,000, a reduction of around 12%. Why judges think that their summary review of costs is likely to be more accurate than the exhaustive process that solicitors undertake in preparing the necessary estimates remains a bit of a bugbear, but one discounting process is better than two – particularly as the 'notional assessment' basis has no legal logic to it.

One intriguing issue is which of Peel J’s competing thought processes is the most recent. HAT v LAT (the preferred approach) was handed down later, but related to a hearing that took place at the end of July 2023, whilst he heard the LSPO application in Xanthopoulos in the days after 15 September when the Court of Appeal referred the application back to the High Court. 

2 October 2023

I was very pleased that in Simon v Simon and Another [2023] EWCA Civ 1048 the Court of Appeal has recognised the importance of litigation loan financing in finding that litigation funders are entitled to some measure of protection from the 'improper manipulation' of the outcome of proceedings to avoid repayment of a loan. This is important in promoting access to justice.

Only a few days later, Peel J’s decision in the latest judgment in the Xanthopoulos v Rakshina [2023] EWFC 158 saga may have rather the opposite effect. There he used 'a notional standard basis of assessment' to confirm his decision to cut by 25% a solicitor’s estimate of prospective costs in an LSPO application. He had taken this approach to costs already incurred in MG v GM [2022] where he said that such a discount was frequently, but not invariably applied. It is not clear that he was right so far as future costs are concerned.

The justification for discounting on the standard basis was given by Cobb J in BC v DE in 2016 to be CPR part 44. However, it is not clear that the CPR apply to LSPOs at all as they are not costs orders.

On a more practical level, operating under an LSPO is hard enough for solicitors without the summary (and sometimes brutal) discounting of the amount which, based on their experience, they estimate that a piece of work will cost. An LSPO already tips the playing field against them, because only they are acting under its restraints. If they are denied most of their profit as well, solicitors will vote with their feet and simply not take on such work.

Where, as a matter of law (MCA 1973 ss22ZA(4)), an LSPO is only possible where a litigation loan is not available, solicitors taking that view would mean there would not be any legal involvement at all.

Solicitors undertaking LSPOs would like it if all such applications were assigned to Francis J who seems, on the bases of his judgment in DR v ES [2022] EWFC 62, to recognise the realities faced by those utilising LSPOs!

Amy Scollan and I wrote at greater length on these issues in the Financial Remedies Journal Summer 2023 issue.