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Funding Family Proceedings: The New Law

Rhys Taylor, barrister of Thirty Park Place Chambers, considers the likely impact of Legal Services Order applications under sections 22ZA and 22ZB Matrimonial Causes Act 1973.






 












Rhys Taylor
, Barrister and Arbitrator (MCIArb) at Thirty Park Place Chambers

The problem
How is an impecunious party to divorce, judicial separation or nullity proceedings (or for financial relief in connection to those proceedings) to fund their ongoing legal costs of the case?

The problem  was clearly articulated by Wilson J (as he then was)  in Sears Tooth (A Firm) v Payne Hicks Beach (A Firm) [1997] 2 FLR 116, where His Lordship referred to "... a grave and widespread problem encountered increasingly in the Family Division: namely, how can a spouse, usually a wife, who is ineligible for legal aid but who has negligible capital, secure legal advice and representation in order to pursue her rights against her husband, particularly one who is rich, litigious or obstructive or whose financial circumstances are complex and unclear?"

It is submitted that this problem now has a fresh urgency, given the withdrawal of legal aid for most financial order applications from 1 April 2013.

The new law
Two important new sections are to be inserted into the Matrimonial Causes Act 1973 to help such litigants overcome this problem.  They are ss. 22ZA and 22ZB MCA 1973 (corresponding amendments will be made to Schedule 5 to the Civil Partnership Act 2004).

The Commencement Order bringing these new provisions into force from 1 April 2013 is The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Commencement No.7) Order 2013.

Summary of the new provisions
The new provisions:

A cursory review of the provisions may suggest that they do little more than provide for what looks like an interim lump sum (but not so described) for legal costs, backed with an order for sale, on the same terms as a Currey order. However, this article will seek to briefly look at the competing human rights considerations in the underbelly of these provisions. These suggest the approach may have to change. Early guidance from a test case is needed.

The costs allowance authorities
Before going to the new provisions it is instructive to consider how the old MPS  "costs allowance" developed, as that case law will be relevant when considering the new statutory provisions.

The seminal case was A v A (Maintenance Pending Suit: Provision for Legal Fees) [2001] 1 FLR 377 decided by Holman J. In summary, His Lordship held:

i. His Lordship noted that this includes a requirement of "equality of arms" – each party must be afforded a reasonable opportunity to present his case under conditions that do not place him at a substantial disadvantage to his opponent.
ii. Airey v Ireland (1979) 2 EHRR 305 required there has to be a practical and effective right to a fair trial and that in complex matrimonial litigation the theoretical possibility of appearing in person does not guarantee that right.
iii. His Lordship did not rely upon ECHR provisions to make a decision in favour of a costs allowance, but his Lordship was fortified by them.

In TL v ML and Others (Ancillary Relief: Claim Against Assets of Extended Family) [2005] EWHC 2860 (Fam) Nicholas Mostyn QC (as he then was) summarised developments since A v A in suggesting at paragraph [128] that the pre-conditions for the making of an order did not need to be exceptional, simply that the applicant needed to demonstrate that she "...(1) had no assets, and (2) could not raise a litigation loan, and (3) could not persuade her solicitors to enter into a Sears Tooth v Payne Hicks Beach charge."

Significantly, His Lordship comments at [129]:

"The second and third requirements make the Applicant prove a negative in each instance. In order to prove the inability to raise a litigation loan I would have thought that production of correspondence between her solicitors and at least two banks eliciting a negative response would suffice. A simple statement from her solicitors stating that they were not prepared to enter into a Sears Tooth v Payne Hicks Beach charge should ordinarily deal with the third requirement."

It was further suggested at [130]:

"In practice I would expect that if the application is made before the FDR the costs allowance should fund the applicant up to the FDR. In every case I would expect that a fairly detailed estimate of the costs expected to be incurred up to the FDR should be produced."

In Re G (Maintenance Pending Suit) [2006] EWHC 1834 (Fam), Munby J (as he then was) stated, when considering the costs element of maintenance, at paragraph [29]:

"As [counsel] correctly submits, equality of arms requires that I make the husband make at least some contribution to the wife's ongoing costs." (writer's emphasis)

The costs allowance cases culminate in Currey v Currey (No 2) in which Wilson LJ (as he then was) reviewed the authorities and described what has become the standard test for the costs allowance, stating:

"[19]  '...she has no assets [and] can give no security for borrowings' should not be taken literally. [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.

"[20] ...Overarching enquiry is into whether the applicant for a costs allowance can demonstrate that she cannot reasonably procure legal advice and representation by any other means. Thus to the extent that she has assets, the applicant has to demonstrate that they cannot reasonably be deployed, whether directly or indirectly or as a means of raising a loan, in funding legal services. Furthermore, ... she has to demonstrate that she cannot reasonably procure legal services by the offer of a charge upon ultimate capital recovery. I would add fourthly, that the court needs to be satisfied that there is no such public funding available to the applicant as would furnish her with legal advice and representation at a level of expertise apt to the proceedings.

"[21] No doubt the applicant's due demonstration will incline, often very strongly, towards the making of an allowance. But at this stage other factors may well come into play which will no doubt on occasions lead the court to decline to make it notwithstanding the demonstration. The subject matter of the proceedings will surely always be relevant; and, insofar as it can safely be assessed at so early a juncture, the reasonableness of the applicant's stance in the proceedings will also be relevant."

The parallel jurisdiction under Schedule 1 to the Children Act 1989
Running parallel to the MPS costs allowance case law, a jurisdiction has developed under Schedule 1 to the Children Act 1989 for applicants to seek interim lump sums on account of costs for both Schedule 1 and s.8 applications. Interim lump sums are permitted under Schedule 1, but the Currey approach is adopted when considering merits. These are provisions, post 1 April 2013, which practitioners may well find themselves turning to more frequently than hitherto.. The case of CF v KM (Financial Provision for Child: Costs of Legal Proceedings) [2010] EWHC 1754 (Fam) describes the jurisdiction. These provisions remain unaffected by the new statutory provisions.

The competing ECHR provisions
It is rare for the ECHR to be cited in financial order cases. However, it is suggested that competing Convention rights do underpin the new provisions. Further, they should not be lightly dismissed in the context of vanishing legal aid which, in part, will have to be compensated for by a raid on the private property of the other party to the proceedings.

In the applicant's ("wife's") corner there is the Article 6 right to a fair trial, an essential part of which is equality of arms. Significantly, Article 6 does not provide a litigant with an absolute free choice of legal representation, if he is unable to afford to pay for them himself. (See R (on the application of Taylor) v Westminster Magistrates Court [2009] EWHC 1498 (Admin) citing Croissant v Germany (1993) 16 EHRR 135).i

In the "husband's" corner there is Article 1 of the First Protocol which provides for the peaceful enjoyment of possessions, except in the public interest and as provided by law. This right is expressly qualified to allow the state to enforce such laws as it deems necessary "to control the use of property in accordance with the general interest..."

The husband's arguments relying upon Article 1 of the First Protocol have had a mixed reception from the courts, in the context of s.25 Matrimonial Causes Act 1973.

In Wilson v First Country Trust Limited [2003] UKHL 40, Lord Nicholls made the following obiter observation, which supports the argument that Article 1 of the First Protocol is relevant in the matrimonial finance context:

"Article 1 of the First Protocol has a similar character. It does not confer a right of property as such nor does it guarantee the content of any rights in property. What it does instead is to guarantee the peaceful enjoyment of the possessions that a person already owns, of which a person cannot be deprived except in the public interest and subject to the conditions provided for by law: Marckx v Belgium (1979) 2 EHRR 330, para 50. Here too it is a matter for domestic law to define the nature and extent of any rights which a party acquires from time to time as a result of the transactions which he or she enters into. One must, of course, distinguish carefully between cases where the effect of the relevant law is to deprive a person of something that he already owns and those where its effect is to subject his right from the outset to the reservation or qualification which is now being enforced against him. The making of a compulsory order or of an order for the division of property on divorce are examples of the former category. In those cases it is the making of the order, not the existence of the law under which the order is made, that interrupts the peaceful enjoyment by the owner of his property. The fact that the relevant law was already in force when the right of property was acquired is immaterial, if it did not have the effect of qualifying the right from the moment when it was acquired." (writer's emphasis)

However, in Charman v Charman (No 2) [2006] EWHC 1879 Coleridge J stated at [126]:

"Many of the arguments deployed by and on behalf of the husband by his legal team are both interesting and, as I have accepted, compelling. However the suggestion that a lump sum order made pursuant to s.23 and s.25 of the Matrimonial Causes Act 1973 (as expounded upon by the House of Lords) and following a nine day hearing with the fullest and most skilful representation, in some way breaches the husband's right to "peaceful enjoyment of his possessions "(per Art 1 of the first Protocol) is, in my judgment, frankly absurd. I entirely agree with Mr Pointer QC's exposition in this regard. These "Human Rights" arguments have never yet been successfully deployed in these applications. I hope this is the last we shall see of them."

Choudrey & Herring comment:ii

"It is a shame that Coleridge J did not explain further why he thought such arguments were "absurd." It seems hard to deny that there has been an interference with the husband's enjoyment of his possessions when he is required to transfer some of his property to his wife. It should be emphasised that English family law does not recognise any form of community of property regime, where property on marriage becomes jointly owned."

The argument fared little better before Moylan J in C v C [2007] EWHC 2033 (Fam), [2009] 1 FLR 8 where His Lordship stated at [96]:

"Further, the husband has relied upon the right to the peaceful enjoyment of possessions provided by Article 1 of Protocol 1 of the European Convention on Human Rights . In Charman v. Charman Coleridge J. was met with similar arguments which he despatched simply and with an expression of hope that "This is the last time we shall hear of or see them". I agree. It is not clear to me that this article applies at all to the exercise by the court of its powers under the Matrimonial Causes Act . However, even if it does, the power given to the court under that Act is clearly proportionate and strike a fair balance."

Finally, in NG v KR (Pre-nuptial contract) [2008] EWHC 1532 (Fam) [2009] 1 FLR 1478, Baron J accepted at [135] that Article 1 of the First Protocol was engaged.

"But there is nothing arbitrary in the application of the Act in financial proceedings. I accept Mr Mostyn QC's formulation that section 25 of the Act strikes a fair balance between existing property rights and the entitlement of the claiming party to share, to receive compensation or have his needs met. This fair balance is well within the margin of appreciation afforded to this country."

Campbell v MGN [2004] UKHL 22, [2004] 2 AC 457 articulates well how competing Convention rights are to be balanced with "an intense focus on the comparative importance of specific rights being claimed ..." To bring the argument home, the tribunal, be it the High Court or a District Judge must then seek to read primary legislation, in this context s.22ZA, in a way which is compatible with Convention rights.iii

The new provisions
Sections 49-50 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 amend the Matrimonial Causes Act 1973. The provisions in full are set out in an endnote.iv

Something akin to a lump sum or something akin to periodical payments?
Section 22ZB(2) allows for an order or orders to be made. Section 22ZA(6) provides that the payments may be made in instalments. Once ordered they may be received in the same periodic way as a Currey order. However, this does not have to be the case and wives (and their legal advisers) will no doubt be seeking to persuade the court to make a global advance payment, so as to avoid the added complications of monthly recovery.

The gateway for consideration of a Legal Services Order
Under s.22ZA(3) the court "may not make" an order "unless satisfied" that without the amount the applicant would not "reasonably" be able to obtain "appropriate" legal services for the proceedings or part of the proceedings. This provision places the burden of proof, as under Currey, on the wife to prove that she cannot obtain the representation which is appropriate to her case. Again, the wife is left having to prove a negative. This is the gateway through to the court exercising a discretion assisted by a checklist at 22ZB(1). To what extent will she now be required to prove a negative?

Further pre-conditions to the gateway are set out in s.22ZA(4) which provide that in considering subsection (3) the court "must be satisfied" that the applicant cannot:

The s.22ZA(4) conditions look very similar to the requirements as set out in Currey, with the fourth requirement concerning ineligibility for legal aid having been dropped. However, will the test remain (per TL v ML) the "production of two letters from the bank" and a solicitor's letter confirming that the solicitor will not act under a Sears Tooth charge?

Article 1 of the First Protocol, in the context of the discretionary exercise under s.25 Matrimonial Causes Act 1973, as we have seen above, has not made an impact.  Section 22ZB(1) contains its own checklist allowing for a discretionary outcome as to whether a Legal Services Order should be made. It appears unarguable that discretionary decisions made under s.22ZB(1) will fall within the margin of appreciation, by way of analogy with the cases cited above.

However, the gateway, conditions precedent, contained within s.22ZA(3) and (4), it is submitted, must be rigorously considered, to ensure Article 6 and Article 1 First Protocol compliance. Will this result in a change of approach?

Whilst the statutory tests might look like the judge made test, they are new statutory provisions which should be considered afresh, it is suggested, bearing in mind the competing Convention rights, which appear to be engaged: 

Limiting the Legal Services Order
Section 22ZA(5) provides that the legal services order may be made for a specified purpose or for a specified period of the proceedings. This provides for a similar approach to Currey where the costs are limited up to the FDR. However, it goes further in providing that the funding be limited to particular aspects of the proceedings. It is anticipated that this will lead to the telescoping of arguments at the Legal Services Order application stage – the husband trying to stop funding being granted on the basis that a particular argument or arguments look thin, the wife seeking funding on the basis that they are clearly arguable.

The order for sale
It will be interesting to see how the order for sale provision will change the dynamic. In addition to providing for the court to free up liquid cash flow, by ordering the sale of property (which, of course includes personal property) it is likely to cast a shadow against which negotiations will take place. For well pitched s.22ZA applications, no longer will the power reside exclusively with the wealth holder, secure in the knowledge that little can be done by the court until a final order which may be many months away.

Many will recall the manner in which s.38(6) Children Act 1989 used to operate. Whilst an assessment could be properly ordered, this may have had the additional advantage in giving sub-optimal parents a last chance saloon in which to receive assistance and training with basic parenting tasks. This was not the purpose of the order, but a side effect of it. Will the order for sale for a s.22ZA have similar side benefits? The wife's primary purpose in seeking the sale of an asset may be to enforce her Legal Services Order. However, she may also have a secondary or ulterior motive in alighting upon the classic car, prized medal collection or even some form of real property (which might also be sold quickly via auction) in firing a warning shot to the husband that the negotiating table is the wiser place to be. The threat of sale of cherished items may well incentivise husbands to seek out sources of funding which they have hitherto refused to countenance.

Undue hardship
The checklist contained in s.22ZB(1), which guides the discretionary resolution of  Legal Services Order applications, is not considered in detail in this article. However, of note is sub-section (h) which enjoins the court to consider "the effect of the order or variation on the paying party." This is further expanded upon in s.22ZB(3) in which it is stated that the court "must have regard, in particular" to whether an order will:

"Undue hardship" does not appear to prevent the court from making an order, provided that it has taken particular note of it. We can expect an old argument to be resurrected, albeit in a new context.  No longer will it be exclusively the husband drawing the distinction between "hardship" and "undue hardship" (cf s.25A(2) MCA 1973). No doubt wives will argue that what is sauce for the goose should be sauce for the gander. Whilst the sale of a car may well cause hardship, will the requirement to downgrade from an executive vehicle to a runabout be "undue hardship?" Will having to catch the bus be held to cause "undue hardship?" This issue has the potential to add a new layer of acrimony and argument to the course of proceedings, necessitated purely to access litigation funding.
___________________________________________

Endnotes:
i
Arguments pursuant to Article 14 (prohibition on discrimination) appear to this writer tenuous and are not further developed here. See Ram v Ram (No 1) [2005] 2 FLR 63 at [34] to [36].

ii European Human Rights and Family Law (Hart), Shazia Choudry and Jonathan Herring.

iii Human Rights Act 1998 s.3, and note FPR 29.5 if a specific Convention right is to be asserted.

iv 49 Divorce etc proceedings: orders for payment in respect of legal services

(1) In section 22 of the Matrimonial Causes Act 1973 (maintenance pending suit)—

(a) number the existing provision subsection (1), and

(b) after that subsection insert—

"(2) An order under this section may not require a party to a
marriage to pay to the other party any amount in respect of legal services for the purposes of the proceedings.

(3) In subsection (2) "legal services" has the same meaning as in section 22ZA."

(2) After that section insert—

"22ZA Orders for payment in respect of legal services
(1) In proceedings for divorce, nullity of marriage or judicial separation,
the court may make an order or orders requiring one party to the
marriage to pay to the other ("the applicant") an amount for the
purpose of enabling the applicant to obtain legal services for the
purposes of the proceedings.

(2) The court may also make such an order or orders in proceedings under this Part for financial relief in connection with proceedings for divorce, nullity of marriage or judicial separation.

(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.

(5) An order under this section may be made for the purpose of enabling the applicant to obtain legal services of a specified description, including legal services provided in a specified period or for the purposes of a specified part of the proceedings.

(6) An order under this section may—

(a) provide for the payment of all or part of the amount by
instalments of specified amounts, and

(b) require the instalments to be secured to the satisfaction of the
court.

(7) An order under this section may direct that payment of all or part of the amount is to be deferred.

(8) The court may at any time in the proceedings vary an order made
under this section if it considers that there has been a material change
of circumstances since the order was made.

(9) For the purposes of the assessment of costs in the proceedings, the applicant's costs are to be treated as reduced by any amount paid to the applicant pursuant to an order under this section for the purposes of those proceedings.

(10) In this section "legal services", in relation to proceedings, means the following types of services—

(a) providing advice as to how the law applies in the particular
circumstances,

(b) providing advice and assistance in relation to the proceedings,

(c) providing other advice and assistance in relation to the
settlement or other resolution of the dispute that is the subject
of the proceedings, and

(d) providing advice and assistance in relation to the enforcement
of decisions in the proceedings or as part of the settlement or
resolution of the dispute, and they include, in particular, advice and assistance in the form of
representation and any form of dispute resolution, including
mediation.

(11) In subsections (5) and (6) "specified" means specified in the order
concerned."

50 Divorce etc proceedings: matters to be considered by court making legal services order.
After section 22ZA of the Matrimonial Causes Act 1973 insert-

22ZB   Matters to which court is to have regard in deciding how to exercise power under section 22ZA

(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.

(4) The Lord Chancellor may by order amend this section by adding to,
omitting or varying the matters mentioned in subsections (1) to (3).

(5) An order under subsection (4) must be made by statutory instrument.

(6) A statutory instrument containing an order under subsection (4) may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.

(7) In this section "legal services" has the same meaning as in section
22ZA."

51 Divorce etc proceedings: orders for sale of property
In section 24A(1) of the Matrimonial Causes Act 1973 (orders for sale of
property), after "makes" insert "an order under section 22ZA or makes".

28/3/13