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Costs allowances: back-door costs?

First published in the April 2017 issue of Family Law Journal

In BC v DE [2016], the applicant mother made an application for the respondent father to pay her outstanding and prospective legal costs, neither of which were considered disproportionate or unreasonable at the preliminary hearings. The issues before the court were whether a claim for historical costs could be made on an application for a legal services payment order (LSPO), such order by its nature being considered where there are prospective costs, rather than retrospective, and further whether the applicant’s application was in effect being utilised as a method of circumventing the rules under Pt 44, Civil Procedure Rules 1998 concerning cost awards.

Retrospective or historic costs

The issue of how historic costs should be treated in such applications has been relatively positive. The decisions in A v A (Maintenance Pending Suit: Payment of Legal Fees) [2001] and G v G (maintenance pending suit: costs) [2003] are good examples of when the court plainly did not distinguish between prospective and outstanding legal costs. It was in the more recent case of US v SR [2014], that Roberts J (who dealt with an earlier interim hearing in BC v DE) made a LSPO, that included a substantial award for costs in relation to a fact finding hearing that had concluded six months earlier. The justification for this was that she had made clear at the time that she had intended to make a costs order in light of the husband’s litigation misconduct, but had not had enough court time to make the determination at the time.

In contrast to the above cases, the central query that arose in BC v DE was whether the applicant was seeking to recover costs that not only that had already been incurred but for litigation where there would be no further substantive legal work going forward, ie whether the prospective legal costs concerned separate and new litigation altogether.

The question of whether a party can legitimately make a claim for historical costs on a LSPO application was dealt with in Rubin v Rubin [2014] when Mostyn J warned (at paragraph 13(iv)) that:

It is important that the jurisdiction is not used outflank or supplant the powers and principles governing an award of costs in CPR Part 44.  It is not a surrogate inter partes costs jurisdiction.  Thus a LSPO should only be awarded to cover historical unpaid costs where the court is satisfied that without such a payment the applicant will not reasonable be able to obtain in the future appropriate legal services for the proceedings.

In Rubin, Mostyn J rejected the legal costs funding application, assessing it to be an attempt to obtain a costs order ‘through the back door’ and that it related to claims already concluded. Indeed, the wife’s claim in Rubin did very clearly on the facts relate to costs incurred in entirely different proceedings. However, as a result of that decision there has been a growing misconception that claims for historic costs are at considerable risk of being automatically disallowed.

The decision in BC v DE is a clear reminder that an application in relation to costs incurred in the earlier stages of financial remedy proceedings is perfectly legitimate. Historic costs fall within the jurisdiction of the court and ought to be given due consideration on any application for a LSPO.

The ‘beholden’ solicitor

In BC v DE, Cobb J referred (at paragraph 6) to the previous judgment of Roberts J in the same proceedings, and quoted Mostyn J’s judgment in Rubin as follows:

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 be reasonably be able to obtain in the future appropriate legal services for the proceedings.

Roberts J had also been concerned with the need for a ‘level playing field’ and sought to remind that the purpose of such applications was achieving ‘equality of arms’, and the parties’ Art 6 rights under the European Convention on Human Rights (right to a fair trial) require that each party ‘…has the ability to engage in that litigation on the basis of the professional expertise from which [they have] hitherto benefitted’.

The challenge for Cobb J in making his determination was whether the applicant in BC v DE fell foul of the principles set out at paragraph 13(iv) of Rubin, i.e. this was not a case where the applicant’s representatives were indicting that they would ‘down tools’ unless they were paid outstanding costs, as well as legal funding going forward. Simply because the applicant’s representatives would clearly continue acting, how far should this abrogate the applicant’s right to a successful claim, particularly in circumstances where the respondent has the means to meet the same?

Cobb J’s view was that where there has been substantive litigation (which in the case of BC v DE been going on for almost eight years), legal representatives did not need to somehow show that in default of payment of historical costs, or indeed of legal costs going forwards, they would have to stop all substantive work on a matter.  There was a pragmatic recognition that it was highly unlikely that in such circumstances, particularly where the case was perhaps drawing to an end or had reached a crucial junction, that a long term legal team would decide to leave their client ‘high and dry’.  This should not, however, prejudice a party’s right to obtain rightful litigation funding.

Cobb J therefore distinguished BC v DE from Rubin on the basis that the applicant’s prospective costs would be incurred in an identical way to the outstanding costs. Importantly (and something that is highly valuable to all practitioners), he noted that:

The applicant would face real prejudice on an application for a legal costs funding order if she or he has to wait weeks or even months between the date of the application and the court date, racking up costs in the meantime, only to be entitled to those which arise after the court’s determination.  (Paragraph 17)

Simply because solicitors have made a decision to shoulder the credit burden at a stage in the litigation (or even from the outset), they should not be required to continue carrying that debt and be expected to cease work on behalf of their client until they are paid.  In reaching this conclusion, Cobb J pointed to the concept of reasonableness in both statute and common law.

Under s22(ZA), Matrimonial Causes Act 1973, the court will look at whether ‘the applicant would not reasonably be able to obtain appropriate legal services’, and in  Currey v Currey [2007] the Court of Appeal  referred to ‘whether the applicant for a cost allowance can demonstrate that she cannot reasonably procure legal advice and representation by other means’.

An overwhelming concern for Cobb J (even in a long standing case such as BC v DE, where the client would have benefited from a considerable amount of legal advice and support), was the impact of representation being taken away and the potential negative effect on the outcome:

[F]or as long as any client has incurred significant outstanding legal costs with his or her solicitor, there is no doubt but that they become bound to each other by the debt; this may well impact on the freedom of, and relative strengths within, their professional relationship.  Further, the solicitor may feel constrained in taking what may be important steps in relation, for instance, to discovery or in relation to exploring parallel non-court dispute resolution.  The debt may be to influence the client’s stance on possible settlement, and the solicitor’s advice in relation to the same: a client – without independent resources – is a vulnerable position and, may be more inclined to accept a settlement that is less fair simply because of the concerns about litigation debt.  (Paragraph 22)

The respondent’s representatives argued that the jurisdiction to award legal cost funding was a narrow one, and principally concerned with ensuring that parties were on an equal footing in terms of legal advice and representation.  The argument was that solicitors take commercial risks and that s22 (ZA) had never been intended a ‘commercial safety valve to mitigate that risk’.

As set out above, the question is whether it is reasonable for solicitors to shoulder the debt/credit, and when it is reasonable to insist that the applicant to take certain steps to fund their own case. Cobb J referred to Currey, where Wilson LJ noted that the wife ‘did have assets and could give security for borrowings; the point was, however, that it was unreasonable to expect her to do so’.

At paragraph 18 of Cobb J’s judgment, there was also a clear nod in the direction of those cases where the stronger financial party is simply attempting to ‘win’ a case by attrition and exhausting the applicant’s fighting fund. The counsel for the applicant quoted Lord Wilson in Wyatt v Vince [2015] on the position of legal representatives who cannot be expected to proceed on a Sears Tooth basis in a case where the recovery is likely to be small and ‘against an evidently litigious husband who was causing substantial escalation of the interlocutory costs in a manner which clearly caused him difficulty’.

In deciding for the applicant, Cobb J looked to the decision in A v A, in which Holman J permitted the wife a costs allowance as to both prospective and outstanding legal costs.  Similarly in that case it was not accepted that solicitors ‘should be willing to wait for their costs and run the risks of not recovering them, as many other solicitors in their position have had to do’.  As per the decision in A v A, the concern for Cobb J was avoiding a precedent whereby, if parties cannot obtain a fair and reasonable contribution to legal costs from the financially stronger party, they will simply not find willing representation.  Such a position would clearly be prejudicial to access to justice and representation in private law proceedings.

Conclusion

The decision in BC v DE does appear to be a concerted effort by Cobb J to ensure that applications for LSPOs are not perceived to be subject to narrow rules, but in fact should offer a wide degree of judicial flexibility and discretion, in looking at all the facts and circumstances of each individual case.

Simply because solicitors may have taken a commercial risk by continuing to undertake work on behalf of a client (particularly in long term cases, or where they have faced an overly litigious opponent, perhaps purposefully escalating the litigation in order to deplete the applicant’s own resources) this does not mean that the applicant or representatives should somehow be punished for that decision: this would evidently not be in the public interest.

Cobb J helpfully makes the point that legal representatives are not charities or credit-agents, and indeed it would be wrong to expect them to continue offering unsecured credit.  Furthermore he reminds that there is a ‘solid reason for solicitors not having a final interest in the outcome of family law litigation’.

The facts in BC v DE were ultimately distinguished from Rubin on the basis that in the latter the legal costs funding claim arose in relation to costs reasonably and legitimately incurred within the ongoing proceedings. While the argument was made that without being able to make payment towards her outstanding costs the mother’s solicitors would be unable to provide their services going forward and she would not be able to instruct alternative solicitors with such liability outstanding, Cobb J’s final assessment was that it was not necessary for an applicant to convince the court that their representatives had ‘downed tools’ or was intending to do so before they could legitimately make an application for a LSPO, where there were historic costs in the same course of court action.

As it is so often the case, in reaching its conclusion the court relied on its ability to exercise discretionary powers and establish that such an award was fair and reasonable in all the circumstances of the case.  There was also clear concern not to set a precedent that may run the risk of discouraging parties from approaching the court to make applications for LSPOs and thus obtain a proper determination of their financial claims.

Cases

BC v DE [2016] EWHC 1806 (Fam)

A v A (Maintenance Pending Suit: Payment of Legal Fees) [2001] 1 WLR 605 [no neutral citation available]

G v G (maintenance pending suit: costs) [2002] EWHC 306 (Fam)

US v SR [2014] EWHC 2864 (Fam)

Rubin v Rubin [2014] EWHC 611 (Fam)

Currey v Currey [2006] EWCA Civ 1338

Wyatt v Vince [2015] UKSC 14

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