From 1 April 2013, amendments made by the Legal Aid and Sentencing and Punishment of Offenders Act 2012 to the Matrimonial Causes Act 1973 and the Civil Partnership Act 2004 allow the court to make an order for the payment of an interim lump sum for the payment of legal costs on a statutory basis. This is known as a legal services payment order, or LSPO. This replaces the previous procedure to seek orders for costs funding in certain proceedings under the 1973 and 2004 Acts, including in proceedings for divorce, nullity, judicial separation, the civil partnership equivalents and in connected financial proceedings. The 2012 Act did not affect proceedings under Schedule 1 of the Children Act 1989, the Inheritance (Provision for Family and Dependants) Act 1975 or Part III or the Matrimonial and Family Proceedings Act 1984.
What we have been lacking up until now is judicial guidance as to how to apply these new provisions. This omission was corrected in R v R  EWHC 611 (Fam), a decision of Moylan J handed down on 10 March 2014.
The guidance in the legislation
What the 2012 Act did was to insert sections 22ZA to 22ZB into the 1973 Act and a corresponding Schedule 5, 38A to 38B into the 2004 Act. Section 22ZA(1) gives the court power to order one party to pay to another an amount to allow the applicant to obtain legal services for the purpose of the proceedings. Subsections (3) and (4) provide a statutory test that must be satisfied before such an order is made:
(3) The court must not make an order under this section unless it is satisfied that, without the amount, the applicant would not reasonably be able to obtain appropriate legal services for the purposes of the proceedings or any part of the proceedings.
(4) For the purposes of subsection (3), the court must be satisfied, in particular, that—
(a) the applicant is not reasonably able to secure a loan to pay for the services, and
(b) the applicant is unlikely to be able to obtain the services by granting a charge over any assets recovered in the proceedings.
Under subsection (5), an order may be made to allow an application to obtain legal services of a specified description (such as for a certain period or for a specified part of the proceedings). Payments may be made by instalments which can be secured.
Section 22ZB provides a non-exclusive list of factors that the court should have regard to when making a LSPO:
(1) When considering whether to make or vary an order under section 22ZA, the court must have regard to—
(a) the income, earning capacity, property and other financial resources which each of the applicant and the paying party has or is likely to have in the foreseeable future,
(b) the financial needs, obligations and responsibilities which each of the applicant and the paying party has or is likely to have in the foreseeable future,
(c) the subject matter of the proceedings, including the matters in issue in them,
(d) whether the paying party is legally represented in the proceedings,
(e) any steps taken by the applicant to avoid all or part of the proceedings, whether by proposing or considering mediation or otherwise,
(f) the applicant's conduct in relation to the proceedings,
(g) any amount owed by the applicant to the paying party in respect of costs in the proceedings or other proceedings to which both the applicant and the paying party are or were party, and
(h) the effect of the order or variation on the paying party.
(2) In subsection (1)(a) “earning capacity”, in relation to the applicant or the paying party, includes any increase in earning capacity which, in the opinion of the court, it would be reasonable to expect the applicant or the paying party to take steps to acquire.
(3) For the purposes of subsection (1)(h), the court must have regard, in particular, to whether the making or variation of the order is likely to—
(a) cause undue hardship to the paying party, or
(b) prevent the paying party from obtaining legal services for the purposes of the proceedings.
The guidance given in R v R
The facts of R v R do not concern us at this point. Moylan J noted that, in the eleven months since the implementation of these powers, there have been only three decisions referring to them (Makarskaya v Korchagin  EWHC 4393 (Fam); BN v MA  EWHC 4250 (Fam) and MET v HAT  EWHC 4247 (Fam)). There has been no deep analysis of these new provisions. As Moylan J recently had to deal with a number of these applications he suspected that other courts might be facing them in some quantity as well. He therefore decided to summarise the applicable principles.
In fact, the new provisions are not particularly novel. At paragraph 36 of BN v MA Moylan J he noted that:
The statutory provision, in my judgment, does no more than to codify the principles to be collected in this regard in the authorities, most recently in Currey v Currey  1 FLR 946. Under s. 22ZA(3) the court cannot make a costs allowance unless it is satisfied that without the amount of the allowance, the applicant would not reasonably be able to obtain appropriate legal services for the purposes of the proceedings or any part of the proceedings, and for the purposes of this provision the court must be satisfied in particular that the applicant is not reasonably able to secure a loan to pay for the services (see s. 22ZA(4)(b)).
In that case, Moylan J dismissed the wife’s application for a LSPO on the basis that she was able to secure litigation loans.
At paragraph 13, Moylan J summarised the relevant principles (both substantive and procedural) as follows:
- When considering the overall merits of the application for a LSPO the court is required to have regard to all the matters mentioned in s 22ZB(1) – (3).
- Without derogating from that requirement, the ability of the Respondent to pay should be judged by reference to the principles summarised in TL v ML  EWHC 2860 (Fam)  1 FCR 465  1 FLR 1263 at para 124 (iv) and (v), where it was stated:
“iv) Where the affidavit or Form E disclosure by the payer is obviously deficient the court should not hesitate to make robust assumptions about his ability to pay. The court is not confined to the mere say-so of the payer as to the extent of his income or resources. In such a situation the court should err in favour of the payee.
v) Where the paying party has historically been supported through the bounty of an outsider, and where the payer is asserting that the bounty had been curtailed but where the position of the outsider is ambiguous or unclear, then the court is justified in assuming that the third party will continue to supply the bounty, at least until final trial.”
- Where the claim for substantive relief appears doubtful, whether by virtue of a challenge to the jurisdiction, or otherwise having regard to its subject matter, the court should judge the application with caution. The more doubtful it is, the more cautious it should be.
- 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. It is important that the jurisdiction is not used to outflank or supplant the powers and principles governing an award of costs in CPR Pt 44. It is not a surrogate inter partes costs jurisdiction. Thus 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 logic was referred to in the facts of R v R, where part of the application was to pay for the wife’s representation at an earlier hearing where she had been represented. At para 18, Moylan J noted that ‘This court cannot rewrite history by retrospectively making an order to recover costs on the footing that if the payment were not paid she would not have been able to be represented. This is a counter-factual absurdity.’
- In determining whether the applicant can reasonably obtain funding from another source the court would be unlikely to expect her to sell or charge her home or to deplete a modest fund of savings. This aspect is however highly fact-specific. If the home is of such a value that it appears likely that it will be sold at the conclusion of the proceedings then it may well be reasonable to expect the applicant to charge her interest in it.
- Evidence of refusals by two commercial lenders of repute will normally dispose of any issue under s 22ZA(4)(a) whether a litigation loan is or is not available.
- In determining under s 22ZA(4)(b) whether a Sears Tooth arrangement can be entered into a statement of refusal by the applicant's solicitors should normally answer the question.
- If a litigation loan is offered at a very high rate of interest it would be unlikely to be reasonable to expect the applicant to take it unless the respondent offered an undertaking to meet that interest, if the court later considered it just so to order.
- The order should normally contain an undertaking by the applicant that she will repay to the respondent such part of the amount ordered if, and to the extent that, the court is of the opinion, when considering costs at the conclusion of the proceedings, that she ought to do so. If such an undertaking is refused the court will want to think twice before making the order.
- The court should make clear in its ruling or judgment which of the legal services mentioned in s 22ZA(10) the payment is for; it is not however necessary to spell this out in the order. A LSPO may be made for the purposes, in particular, of advice and assistance in the form of representation and any form of dispute resolution, including mediation. Thus the power may be exercised before any financial remedy proceedings have been commenced in order to finance any form of alternative dispute resolution, which plainly would include arbitration proceedings.
- Generally speaking, the court should not fund the applicant beyond the FDR, but the court should readily grant a hearing date for further funding to be fixed shortly after the FDR. This is a better course than ordering a sum for the whole proceedings of which part is deferred under s 22ZA(7). The court will be better placed to assess accurately the true costs of taking the matter to trial after a failed FDR when the final hearing is relatively imminent, and the issues to be tried are more clearly defined.
- When ordering costs funding for a specified period, monthly instalments are to be preferred to a single lump sum payment. It is true that a single payment avoids anxiety on the part of the applicant as to whether the monthly sums will actually be paid as well as the annoyance inflicted on the respondent in having to make monthly payments. However, monthly payments more accurately reflects what would happen if the applicant were paying her lawyers from her own resources, and very likely will mirror the position of the respondent. If both sets of lawyers are having their fees met monthly this puts them on an equal footing both in the conduct of the case and in any dialogue about settlement. Further, monthly payments are more readily susceptible to variation under s 22ZA(8) should circumstances change.
- If the application for a LSPO seeks an award including the costs of that very application the court should bear in mind s 22ZA(9) whereby a party's bill of costs in assessment proceedings is treated as reduced by the amount of any LSPO made in his or her favour. Thus, if an LSPO is made in an amount which includes the anticipated costs of that very application for the LSPO, then an order for the costs of that application will not bite save to the extent that the actual costs of the application may exceed such part of the LSPO as is referable thereto.
- A LSPO is designated as an interim order and is to be made under the Pt 18 procedure (see FPR r 9.7(1)(da) and (2)). 14 days' notice must be given (see FPR r 18.8(b)(i) and PD9A para 12.1). The application must be supported by written evidence (see FPR r 18.8(2) and PD9A 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.
Conclusion: consider the alternatives
It is clear from the above that an application for a LSPO will need to be thoughtfully considered and carefully prepared. It will need to tick a number of boxes and be conservative in its scope. A court is unlikely to grant a large and poorly reasoned war chest to a party.
Furthermore, when making an application for a LSPO, the applicant would be well advised to provide a detailed costs estimate of the anticipated work involved for each stage of the proceedings. The applicant in BN v MA was criticised for failing to do this.
Finally, alternatives to a LSPO need to be considered. Do not neglect to consider a Sears Tooth agreement, bank borrowing or borrowing n credit cards or obtaining a litigation loan (bearing in mind that there is a growing market in ‘divorce packages’). Always remember that the Solicitors’ Code of Conduct 2011 makes it clear that a solicitor should only enter into a fee agreement with a client that is legal and which is suitable for the client’s needs and takes account of the client’s best interests: Chapter 1, O(1.6).