>   <xsl:when test="parent::lg[position()=1]">

position() refers to the position of the node in the current node list
and having selected along the parent axis there is only at most one node
so position() is always 1 if the filter is evaluted at all.

You want something like

test="not(parent::lg[preceding-sibling::*])"


(exactly what you want depending on whether you also want to test
whether the parent is lg.)

David



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