Hayley Trim's Analysis: Toothless?

15 OCT 2010

Hayley Trim, Family Law PSLOne of the most difficult things I found as a solicitor was asking clients for money. Legal fees have to be paid out of taxed income or savings while people are going through the trauma of separation, and knowing that going forward the family income will have to fund two households instead of one.

It is of course always preferable to have funds on account or at least have bills paid on a regular monthly basis so that the solicitor is not permanently out of pocket and the client is not faced with having to make a large payment all in one go. But sometimes it is just not possible. Alternatives are litigation loans, but these can be expensive and not all clients will be able to secure such borrowing. Maintenance pending suit applications can themselves be costly and time consuming and there is no guarantee of getting enough of a legal costs element to cover the ongoing fees.

Entering a Sears Tooth Deed with a client assigning such proportion of the ultimate award as covers the outstanding legal fees is not an ideal situation. It should probably be a last resort or a belt and braces approach alongside other options to secure recovery of legal fees. The client should take independent advice, and if they are reluctant to sign this puts pressure on the relationship between solicitor and client. There is a risk that insufficient liquid funds are recovered by the client to cover the fees, and perhaps a concern that the solicitor has half an eye on obtaining realisable assets in this jurisdiction to ensure their fees are covered. In the absence of cash, perhaps a charge has to be taken over a property, significant delay (and cost) in recovering the fees, potentially litigation against the client and a souring of the relationship. The client will need to be constantly reminded during settlement negotiations that their legal fees will come off the top slice and must be factored in to the package offered.

A recent case has highlighted further drawbacks with such arrangements that practitioners should bear in mind. In Sandler v Sandler and Lloyd Platt & Co [2010] EWHC 1415 (fam) the wife had entered a Sears Tooth arrangement with her solicitors (LP & Co) and the husband's solicitors had been duly notified.  The ancillary relief order provided for the husband to make a "parity payment" on the sale of the matrimonial home to achieve overall equality. The wife retained a French property. The husband then obtained costs orders against the wife totalling over £35,000 and sought to set these off against the parity payment of approx £47,000 he was required to make under the order. LP &Co claimed a prior and preferential claim arising from the Sears Tooth deed.

Macur J held that although the Sears Tooth Deed was valid and had been properly served before the costs orders were made, the husband's costs orders could nevertheless be offset against the parity payment.  LP & Co as the assignee of the debt owed by the husband to the wife could not be in a better position than the assignor (the wife). The costs orders comprised an equity which was good against the assignee whenever notice of assignment was given since they were "closely connected" with the assigned debt. This was an equitable result because LP & Co, being aware of the proceedings between husband and wife, the parameters of the likely award and of previous difficulties in their client's litigation conduct leading to a costs order, were able to assess the risks of entering the Sears Tooth arrangement.

The solicitor is not protected from clients who go off on a frolic of their own and engage in litigation misconduct which results in costs orders. LP& Co was left to charge the wife's French property or seek enforcement by other means, (no doubt a far lengthier and expensive process).

So, a note of caution: costs orders arising even after a Sears Tooth Deed has been executed and notified will take priority over the solicitor's security. If no longer instructed, the solicitor will be unable to influence the client's behaviour and so, as here, orders for costs become a greater risk.

Hayley Trim is a Family Law PSL at Jordan Publishing and was formerly a family solicitor practising in London.

She works on the Family Law online major works providing updating notes on cases and other relevant developments as they happen for The Family Court Practice, Children Law and Practice and Matrimonial Property and Finance online.

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