King LJ, Moylan LJ and Popplewell LJ. Appeal concerning the role of a litigation lender in financial remedy proceedings. Previous hearing summarised here.

The parties had entered into a consent order in 2021 which effectively deprived Level, a litigation funder, of repayment of the loan they advanced to the W, which now had a balance of c.£1m. Level were joined as a party and the consent order was set aside by consent. Directions were then made for a full trial where Level remained a party. The H appealed those case management orders. The appeal raised issues of what role, if any, a litigation lender should be permitted to play in financial remedy proceedings they are funding.

Background

The parties reached an agreement at a private FDR, which was listed after H’s appeal of a final order requiring payment to the W of £3m on the basis H had access to trust assets which he said were not available. The agreement provided for W to receive a life interest in residential property to be purchased for £1m by the H’s trust, which would thereafter own the property absolutely. The W was to receive no free capital or income and would therefore have no funds to repay any part of the Level loan.

Level were informed and made a formal application to be joined to the proceedings which was granted ex parte. A liberty to apply provision was eventually included and a hearing listed.

Simultaneously, the H’s solicitors had emailed the judge directly via his chambers attaching the draft order and a (deficient) D81 requesting that the order was approved, without mentioning the order joining Level or the listing of a hearing. The D81 did not refer to the H’s trust and incorrectly recorded the W as earning £31,000 per month instead of per annum. The judge approved the order without knowledge of the issue concerning Level or these deficiencies.

The H made an application for the order permitting Level’s intervention to be discharged, which was listed for an urgent oral hearing where the consent order was stayed. Level were directed to plead their civil claim, which they did, and eventually, in February 2022, the H conceded the consent order should be set aside. The W said she wanted no further part in the proceedings.

Judgment

Roberts J determined that Level should remain a party to the proceedings and refused H’s application for a consent order in the same terms as the one set aside to be made summarily.

The judge also disagreed with H’s submission that there should be no rehearing of the financial remedy proceedings. The judge ordered the parties to undertake disclosure by way of Forms E and questionnaires and listed a full hearing at which Level would also be a party. He concluded Level’s civil claim should be transferred to the Family Court to be heard following the financial remedy proceedings.

The grounds of appeal

1. The judge was wrong to permit Level’s intervention;
2. If Level were allowed party status, the judge should have either made the consent order or no order;
3. Allowing Level’s intervention and directing a new hearing trespassed on confidential proceedings;
4. The judge was wrong to find that litigation lenders fall into a special category to be treated better than secured creditors;
5. The judge was wrongly influenced by the circumstances of the making of the consent order.

The result

The H did not pursue the first ground of appeal and accepted that the initial decision to allow Level’s intervention was appropriate.

King LJ held that it was inevitable that the judge would decline to summarily make an order in the terms of the original consent order given that the court had to approach the matter in accordance with s 33A MCA 1973 and that the judge now had knowledge of the circumstances leading to the making of the original consent order and the deficiencies in the D81.

However, the judge was in error in directing the case to a full financial remedy hearing. The case should have been listed for a hearing to determine the application for the consent order to be made in the terms agreed by the parties. Only the necessary directions for such an application would have been required, instead of the raft of directions made.

King LJ noted that if the W did not wish to pursue her financial remedy application and the H did not seek continuation of the proceedings, a court could not require the W to pursue them. Level accepted that there was little they could do if the W withdrew her application for financial remedies.

In terms of the transfer of the civil claim, King LJ noted that once the consent order was set aside by consent, there was no longer a transaction for the purposes of s 423 IA 1986. In transferring the civil claim to be heard the judge treated Level’s claim as continuing to be properly made in the financial remedy proceedings, this was incorrect given there was no longer a transaction and therefore no valid s 423 claim to be pursued at that stage.

In considering Level’s role as litigation funder, the court noted the requirement that a court must be satisfied any applicant under s 22ZA MCA 1973 ‘is not reasonably able to secure a loan’, and therefore litigants are required to seek loans to fund the litigation before seeking recourse to funds from the other party. The court considered the lack of legal aid available and that it was desirable for these third parties to be available to ensure litigants have legal representation.

Level submitted that, given litigation lenders can only ever lend on an unsecured basis, the risk is that borrowers can engineer their finances to cut out the lenders, making the current business model unviable.

The court held that those providing such loans are entitled to expect some measure of protection from improper manipulation of the outcome of the proceedings to avoid repayment of the loan. However, King LJ concluded that it would rarely be appropriate for a lender to have party status as their interest will ordinarily be apparent and taken into account without their intervention. But, where the lender wishes to intervene because the debt has been incurred exclusively to enable the recipient to litigate and the lender has become aware of steps which they believe to have been taken by the parties to conclude a settlement which has 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 is felt to be appropriate by the court (this would usually be limited participation at the point where the court is considering whether to approve the consent order). King LJ considered that it was difficult to envisage circumstances where full participation of a lender would be justifiable but, would not go as far as saying that evidence of collusion and procedural circumstances in any particular case could never make it appropriate.

Therefore, Level were to remain a party for the purposes of the outstanding application by the H and W for a consent order to be made in the terms agreed between them at the FDR.