Sept 15
In lengthy and procedurally complex divorce proceedings the wife secured a loan from a lender who provided litigation funding. On 16 March 2021, a consent order was sealed following approval by a deputy High Court judge, the effect of which was to deprive the lender of the prospect of repayment of any of the sum to which it was contractually entitled. The lender accordingly made an application to set aside the consent order, having already sought and been granted leave to intervene in the proceedings. Ultimately the consent order was set aside by consent. The judge directed that the lender should remain a party following the setting aside of the consent order and, in a separate order, went on to make extensive case management orders which were designed to drive the matter forward to a financial remedy trial in which the lender would play a full part as an equal party in the proceedings. The husband appealed, contending, inter alia that the judge had been wrong to conclude that the lender’s role as a litigation lender put them in a different or better position than other third party creditors, and that he had been wrong to move directly to a full hearing of the financial remedy proceedings.
On the appeal—
Held, appeal allowed in part. In considering whether to join the commercial provider of a litigation loan to financial remedy proceedings, different policy considerations than those in play in respect of other third party creditors applied, since the policy interest that underpinned the overall scheme of litigation funding was the desirability of third parties being available to provide assistance to ensure that those involved in litigation had legal representation. In the context of matrimonial proceedings, such funding enabled the financially disadvantaged spouse to secure legal representation in order to pursue an application and thereby to seek such orders as they were entitled to in order to meet their needs and those of nay children of the family. Furthermore, Parliament had legislated within section 22ZA Matrimonial Causes Act 1973 that a litigant in matrimonial proceedings without the financial means to litigate had, before they could seek an order that their spouse cover the costs of litigation, first to demonstrate that they were not reasonably able to secure a loan. Thus, those who provided such loans were entitled to expect some measure of protection from the improper manipulation of the outcome of the proceedings by the parties in order to avoid repayment of the loan. In the present case, the lender depended on the wife receiving a fair and appropriate award at the conclusion of the proceedings which properly took into account her liability in respect of the litigation loan. Although it would be very rare for it to be appropriate for a lender to have party status in relation to any aspect of financial remedy proceedings, since they would need to satisfy the provisions of FPR r 9.26B in order to achieve party status and their interest would ordinarily be apparent and taken into account without their intervention, where, as here, the lender wished to intervene in circumstances where the debt had been incurred exclusively in order to enable the wife to litigate and the lender had become aware of steps which they believed to have been taken by the parties to conclude a settlement which had the appearance of defeating its ability to recover all or part of its debt, the lender should be entitled to be heard in whatever form was felt to be appropriate by the court. Such intervention would usually be achieved by limited participation at the stage when the court considered whether to approve a consent order. Such limited intervention would avoid the consequence of full disclosure to the lender, or the ability for them to file questionnaires and to cross-examine the parties or to make submissions as to the appropriate settlement for the wife, which figure might be substantially over that which was owed to the lender or be in a form which would otherwise be inimitable to the wife’s wider interests. It followed that the judge had been right to conclude that the lender’s status as a litigation lender placed them in a different situation to other third party creditors. However, having regard to the indications from both the husband and the wife that they did not wish to litigate further, in the circumstances the judge had fallen into error in moving directly to a full hearing of the financial remedy proceedings. The appropriate course had been to take the intermediate step of listing for determination the outstanding application for a consent order to be made in the terms agreed between the parties and to only make any necessary directions for the purpose of such a hearing at which the lender would remain a party (paras 60, 61, 67, 104–107, 108, 110, 111).
Per King and Popplewell LJJ. Although it is difficult to envisage circumstances where the full participation of a lender in financial remedy proceedings would be justifiable, it is not possible to go so far as to say that the evidence of collusion, and the procedural circumstances in any particular case could never make it appropriate (paras 107, 110).
Richard Todd KC and Edward Benson (instructed by Paradigm Family Law LLP) for the husband.
Jonathan Southgate KC and Simon Calhaem (instructed by BloomBudd LLP) for the lender.