What's the future for divorce litigation funding after Young? Would you lend?

Commercial litigation funding is still relatively new for divorce and family law. One or two of the first widely advertised schemes seemed to become popular rather quickly. They were seen as good for cashflow. However, certain funders looked to the lawyers to pay back the debt if the client defaulted. A few practitioners got their fingers burned as a result.

A new wave of lenders came along with slick, reassuring profiles. This time, thankfully, the lawyer was not the underwriter of the debt, simply a recipient of well-marketed munificence. The model was simple. The lender obtained the money at x% and loaned it at a rather higher interest rate.

The wife's funding in Young

Earlier this month divorce litigation funders must have stopped in their tracks when the judgment in Young v Young [2013] EWHC 3637 (Fam) was handed down. Moor J stated that a number of different lenders had paid for her previous advisers. (Her trial lawyers were representing her on the basis that they would only get paid if she received a significant lump sum from the husband.)

Moor J spelled out the extent of the wife’s borrowing. He said, ‘I accept entirely that a litigant who has no assets and cannot obtain legal aid is in a very difficult position in funding very complex litigation. In one sense, the Wife did amazingly well to be able to obtain as much litigation funding as she did, given that she had no security to offer.’

Moor J referred to the amounts spent as ‘truly eye watering’. The wife had three separate arrangements, he said: ‘The first was with an organisation called Harbour who provided her with funding of £400,000. The arrangement was terminated on 4^th December 2009. She then obtained funding from Bracewell Law who provided £1,000,000 before terminating the arrangement in July 2012. Finally, she reached an agreement with ASCL and others. Pursuant to this arrangement, the sum of £2,733,712 was advanced, which included a loan of £626,000 from Ideas Workshop.’

All in, the wife had apparently been able to spend around £6.5 million, £4m of which was litigation funding which ran out long before trial. The judge criticised this: ‘It cannot be right that all the litigation funding is spent long before the final hearing, which is, on any view, the most important part of the entire litigation exercise.’

The wife had paid £500,000 to a firm of forensic accountants, which was pursuing her for a further £300,000: ‘Maximum figures need to be placed on the disbursements incurred”, said Moor J. He went on to issue a stern warning, “If the solicitors and clients are not willing or able to do so, the court will have to impose limits. Without such restraints, litigation funders will be put off supporting these cases for ever.’

Assessing risk

I have not yet spoken to any such funders since the judgment. Surely, though Moor J is right.

Some time ago I wrote a presentation for a financial institution that was thinking of offering divorce loans. It soon became apparent that they needed a basic understanding of financial relief on divorce, not to mention an appreciation of how long litigation could take to resolve. Ultimately, the institution decided against offering such a scheme, presumably because it was too risky. Several years on, the Young decision has truly highlighted such risk issues.

Do terms of litigation funding agreements limit the level of disbursements? Not the ones I have read. A lesson might be learned from the public funding system where one had to seek and obtain prior authority before one could incur disbursements over a certain amount. Without the required authority, the expenditure would not be met.

All this ignores the bigger concern for lenders and lawyers alike here. How is the wife going to get her £20m lump sum? Moor J said, ‘I realise that the Wife will have difficulties in enforcing my order’.  Given that it took the wife 65 hearings to get to this point, not to mention the husband’s committal to prison for six months at an earlier stage by the very same trial judge, this might prove to be something of an understatement.

One very much hopes, like the judge, that the husband will take the view that he is better off paying the lumps sum so that he can then concentrate on rebuilding his life. If the husband chooses not to, quite how will the wife fund any enforcement proceedings? Would any divorce loan provider spring to her aid?

Moor J made it quite clear that he did not want to say anything that would make it more difficult for litigants to obtain divorce loans in the future. By describing the startling background to this case, one hopes that, instead, lessons can be learned which will ensure that commercial arrangements remain appropriately available to clients who truly need funding.

Tony Roe is a solicitor and  family law arbitrator at Tony Roe Solicitors, Berkshire

Twitter: @tonyroedivorce