Legal Services Payment Orders (LSPOs) and Litigation Conduct: Warnings to Lawyers

 

Rebecca Alexander an Associate at FLiP discusses Legal Services Payment Orders (LSPOs) and litigation conduct following her involvement in the recent case of Xanthopoulos v Rakshina (led by FLiP Director David Allison). This was a long-running case concerning financial provision following a divorce in Russia (Part III MFPA 1984, the “Part III Application”).

This article was first featured in Family Law, Lexis Nexis on 19 May 2023 and can be found here.

Legal services payment orders and litigation conduct – a warning to solicitors flowing from the recent judgment of Sir Jonathan Cohen in Xanthopoulos v Rakshina [2022] EWFC 30.

Judgment in this long-running international financial remedy case was handed down on 4 April 2023 by Sir Jonathan Cohen (“Cohen J”). The case began when the former husband (“H”) issued a petition for divorce in England on 21 September 2020.  Since then, the parties have been engaged in costly litigation about jurisdiction, children and money.  This was H’s application for financial remedy orders pursuant to leave given under Part III of the Matrimonial Family Proceedings Act 1984. The parties’ marriage was brought to an end by a decree of divorce granted in Russia in March 2021.

Both parties are Russian nationals with H also having Greek nationality. They married in Moscow in March 2006 and made a home together in Siberia. A Russian post-nuptial agreement was signed in November 2013. The parties have 2 children and they spent time in England to enable their children to be educated here. At the final hearing, Cohen J found that H should have accepted an open offer made by the former wife (“W”) in May 2021. H never made a single offer, nor did he respond constructively to W’s open offers. Cohen J was clear that what could never have been the right course was for H to do nothing.

The judgment contains warnings for solicitors and litigants alike and the key developments are:

1. The impact of litigation conduct; and
2. The law on Legal Services Payment Orders for costs during litigation.

1. The Impact of Litigation Conduct

All of the costs of this litigation were paid by W from her resources. It is now well established by Rothschild v De Souza [2020] EWCA CiV 1215 that litigation conduct (or misconduct) can be taken into account as conduct within the terms of Section 25 (2)(g) of the Matrimonial Causes Act 1973 (“MCA 1973”). Conduct can lead to a party receiving less than their needs. In this case, H breached nearly every court order made. W’s counsel recited 35 breaches of 15 orders made. Cohen J was clear that the impact of the post-nuptial agreement and H’s litigation conduct and the costs resulting therefrom were determinative factors.  Cohen J commented: “If the conduct in relation to costs was bad in Rothschild, that case does not begin to approach what has happened in this case”.

H engaged 7 separate English law firms to act for him through the proceedings at different stages. Each set of solicitors had to read into the case, duplicating enormously the costs. Cohen J was clear that the costs incurred by H in prosecuting his application for financial remedies were wholly disproportionate in many different ways and caused W to incur excessive and unnecessary expense.

The change of solicitors on 7 occasions was found to have increased costs materially. This impacted significantly on H’s award. Future litigants must be advised that litigation conduct will have consequences on a final order and will likely reduce what the offending party receives, which may be less than their needs. In reaching his conclusions Cohen J was clear that H had taken no constructive steps in the proceedings since April 2022 and he should be solely responsible for the costs incurred by both sides thereafter. Cohen J adopted a “needs-light” approach.

2. The Law on Legal Services Payment Orders (LSPOs)

Sections 22ZA and 22ZB of the MCA 1973 provide that the court can make one or more legal services payment orders (LSPO) having regards to specified factors. The provisions apply to proceedings for “financial relief” in connection with divorce or nullity of judicial separation. LSPOs are payable in instalments or by way of lump sum. Case law says that a court may also impose a charge over a respondent’s property to fund the applicant’s legal costs where there are no other resources against which an LSPO can be made (AM v SS [2013] EWHC 4380 (Fam)).

In order to obtain a LSPO, the applicant must demonstrate the following:

1. The applicant would not reasonably be able to obtain appropriate legal services for the proceedings without a legal services payment order.
2. The applicant cannot reasonably secure a loan to pay for legal services.
3. The applicant is unlikely to be able to obtain legal services by granting a charge over assets to be recovered.

In this case H made 11 LSPO applications normally without a budget and sometimes without a formal application ever having been issued. H spent £4,150,000 gross of VAT.

Horrifying though these figures already are, H’s solicitors overshot the sums granted by way of LSPO and the proceedings concluded with H owing £900,000 to five different firms. Cohen J commented that: “it is astonishing that H is indebted to 5 of his previous sets of solicitors in such a sum, each gave a quote for the sum required and it has been provided either in full or to a very large extent by the making of a LSPO. If that proved insufficient, at any time it was open to the solicitors to apply for more”. Cohen J made it clear that there was no expectation that provision for repayment of these outstanding costs would be made in his award.  In any event H also had costs orders to pay of £1.04 million. The point Cohen J emphasised which solicitors must now heed is that if solicitors run short of funds, it is their duty to apply for a further LSPO. If solicitors continue working and incur further fees, they do so at their own risk. Great regard must be paid to the financial parameters set by the court and solicitors must budget with great care.

In a previous judgment on this case Mostyn J commented as follows:   

“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 part in question (i.e. so to ensure that that party can continue to access representation).”

“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 Re Z (No 2) Schedule 1: Further Legal Costs Funding Order; Further Interim Financial Provision [2021] EWFC 72, the mother obtained an award to cover her future costs, but subsequently there was significant overspend. She returned to court seeking that the shortfall be made up and Cobb J commented: “I must confess to being dismayed to discover that the solicitors in this case have billed the mother sums significantly in excess of the amount which I award to cover the costs of the Schedule 1 litigation” and “I set a budget within which I expected the mother’s solicitors to work” and “I cross-checked my assessment with what I considered to be reasonable and proportionate in all the circumstances. I expected – as all judges would expect – that the lawyers in the case would conscientiously work within the budget which I had set. Sadly, I sense that they have not tried very hard to do so”.

Cohen J was clear that: “It is not the job of the court to act as the insurers of solicitors who overshoot, let alone dramatically overshoot, the sum provided by way of LSPO. If the solicitors run short of funds, then it is their duty to apply to the court for a further order. If they choose to carry on with their work and incur further fees, then they do so at their own risk.” He went on to say that “Consideration might be given to being far stricter about how legal services payments are to be utilised in a case of a litigant who continuously breaches court order. I would suggest that the provision of funds should be firmly tied to compliance with court orders.”

Sir Jonathan Cohen’s judgment on the impact of litigation conduct and on legal services payment orders are new developments which warrant careful consideration by the legal community.