The matter of Simon v Simon & Anor [2023] EWCA Civ 1048 concerns a Court of Appeal decision regarding the function of a litigation loan provider in divorce proceedings. The appeal arose out of lengthy and expensive divorce proceedings in which the wife had obtained a litigation loan, the amount of which eventually totalled £1m. On 16 March 2021 a Consent Order was sealed in the financial remedy proceedings which essentially meant that the funder was unable to recover the loan amount.
Background
Financial remedy proceedings were issued on 12 February 2016 and the final hearing came before Parker J in July 2018. The husband was ordered to pay the wife £3m on a needs basis however the husband appealed the decision.
In December 2018, ahead of the appeal hearing, the wife applied to Level for a litigation loan in order to clear her outstanding legal fees and retain representation in the appeal proceedings. The Final Dispute Resolution Hearing (FDR) took place on 12 February 2021. At the FDR an agreement was reached whereby the wife would receive a life interest in a residential property to be purchased for a figure of £1m by the husband's trust to which thereafter would own the property absolutely. As the wife had no capital of her own, this effectively meant that there would be no funds to repay the litigation loan.
Despite Level notifying the parties that it wished to be joined to proceedings before any order was sealed, the parties proceeded to finalise the order. On 18 February a formal application was made by Level to be joined to proceedings and Newton J granted the application on paper the same day. Mr and Mrs Simon continued to exclude Level from correspondence and refused to provide a copy of the draft order as agreed and also sought to have the order approved without involving Level in correspondence. On 5 March 2021 Level issued an application, having not been aware that the order had been sealed, seeking disclosure from Mr and Mrs Simon, case management directions and an order that no substantive order should be made prior to the hearing. On 17 March 2021 Holman J ordered that the consent order be stayed and on 19 March he made a freezing order in relation to the marital assets.
On 6 April 2021, Level issued proceedings for repudiatory breach of contract, procuring a breach of contract by the husband, procuring a court order by fraud and unlawful means conspiracy. The matter came to trial on 21 March 2022, at which point the husband agreed to the consent order being set aside. Due to the delay this late admission caused, indemnity costs were awarded against the husband. The Judge also concluded that the test for joiner of proceedings under FPR rule 9.26B(1)(b) had been satisfied and Level should be joined as a party to proceedings.
The husband appealed, amongst other points, against the judge’s decision to join Level as a party to the divorce proceedings.
The Legal Position
By virtue of s58A(1)(b) Courts and Legal Services Act 1990, ('CLSA 1990') family proceedings 'cannot be the subject of an enforceable conditional fee agreement'. Legal aid was also largely removed for financial remedy proceedings by the Legal Aid Sentencing and Punishment of Offenders Act 2012, meaning that there is little to no funding for an impecunious party in divorce proceedings.
In order to assist with the inequality of arms, Section 22ZA MCA 1973 was inserted by LASPO 2012 which permits the Court with jurisdiction to make an order for a financially stronger party to pay a costs allowance to the weaker party to fund financial remedy proceedings. However the applicant must however be able to show that they could not source funding of legal fees by other means. In the present case, any application made by the wife would have failed on the basis that litigation funding was available.
Therefore, litigation loans are particularly important in matrimonial proceedings to ensure access to justice.
Findings
Lady Justice King noted the importance of litigation funding in matrimonial proceedings. The recent decision of R (PACCAR Inc) v Competition Appeal Tribunal [2023] UKSC 28 was also considered however it was found that this could be distinguished on the basis that this was an agreement for a loan to be paid back with interest, rather than for a percentage of damages to be payable.
It was found there were significant public policy points for consideration due to need for access to justice in divorce proceedings and the lack of alternative funding. Additionally, the position of a standard litigation lender differs from this type of litigation funding where the loan is unsecured.
Lady Justice King held that it is very rare for litigation funders to be provided party status in proceedings and they will need to satisfy the provisions of FPR r. 9.26B. They will also need to show that they are not able to otherwise secure the loan. Due to the nature of these loans and the circumstances, litigation funders should have some level of protection. Therefore, in circumstances such as this, where the parties have colluded to agree a settlement which would defeat its ability to recover the loan amount, it is appropriate for the lender to be joined as a party. Therefore the appeal was allowed.
Commentary
This is an interesting decision, particularly in the shadow of the recent PACCAR judgment which is expected to significantly change the landscape on litigation funding. It is highly unusual, and arguably champertous, for a litigation funder to have any control in the proceedings itself. However, in matrimonial proceedings, the Court clearly recognise the importance of litigation funding in achieving access to justice. Without this form of funding, significant issues in proceedings could be encountered where one party has limited capital however it could equally be said that a funder should not have this level of control in the proceedings, ultimately impinging on the level of justice actually achieved.
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