For many years now, litigation loans have played a crucial role in achieving “equality of arms” in family cases in terms of the provision of funding, primarily to asset-rich/cash-poor clients, for the payment of their legal fees.
These loans are often a straightforward and more cost-effective alternative to an application for a legal services payment order (LSPO), an order requiring one party to fund the other’s legal fees. Indeed, when it comes to the funding of often complex family cases, the family courts expect clients to approach litigation lenders before a LSPO application can be considered - the applicant must show that he or she is not reasonably able to secure a loan to pay for the legal services. Mr Justice Mostyn, in Rubin v Rubin, has suggested that in order to qualify for an LSPO order it is usual to show evidence of refusal by at least two commercial lenders.
Against this background, the decision of Mrs Justice Roberts in the recent, and much-discussed case LS v PS is extremely concerning as, if upheld, it may well “sound the death knell” for litigation funding in family proceedings.
The question posed by this case is relatively straightforward: should the privilege afforded to Financial Dispute Resolution (FDR) hearings under the Family Procedure Rules be allowed to shield potentially fraudulent activities?
In LS v PS, the intervening funder alleged that a consent order was structured with the intention of defeating a significant debt - in excess of £1 million - owed to them by the wife. The intervenors’ application for disclosure was refused, with the judge finding that FDR privilege applied.
This decision has serious consequences. It is inconceivable that the authors of the Family Procedure Rules intended that FDR privilege could cloak potentially fraudulent and nefarious behaviour. If this decision is upheld, it is clear that clients, many of whom are vulnerable, will find it increasingly difficult to obtain access to justice through litigation funding.
It is difficult to reconcile the decision in LS v PS with the current family justice landscape, where litigation funders are playing an increasingly valuable role. Whilst it is important for FDR hearings (including private FDRs) to benefit from legal privilege, which is necessary to facilitate settlement, it cannot be right that this privilege can act to allow parties to defeat, and potentially defraud, legitimate creditors.
In a recent article in Family Law Week, James Roberts QC of 1KBW eloquently explores what he believes to be the very serious and possibly terminal impact upon the family litigation lending market as a whole. This article makes interesting reading, and poses the important question in light of the decision in LS v PS, of whether FDR privilege extends too far.
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