This month’s case report is taken from Lexis + and written by Seenal Dwarika Parsad, Attorney
Simon v Simon and another company [2023] All ER (D) 36 (Sep)
The latest instalment of the long-running litigation loan saga, in which Level had provided the wife with a litigation loan amounting to over £1 million, following which the wife entered into a consent order with the husband, which effectively deprived Level of the prospect of repayment of any of the sum to which they were entitled.
Background
The present appeal arose from long and expensive divorce proceedings between the wife and the appellant-husband. The wife’s litigation loan, which presently amounted to over £1m including interest, had been funded by a company (Level).
On 16 March 2021, a consent order was sealed following the approval of the judge. The effect of the order was to deprive Level of the prospect of repayment of any of the sum to which they were contractually entitled.
Level 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 Level 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 that lasted for five days in which Level would play a full part as an equal party in the proceedings. The judge also transferred Level’s parallel civil claim to the Family Court to be heard following the financial remedy proceedings.
The husband appealed against those case management orders, and his appeal additionally raised the issue as to what role, if any, a company that supplied litigation loans such as Level should be permitted to play in the financial remedy proceedings, they were funding by way of the provision of a loan to one of the parties.
Issues and decisions
(1) Whether Level should have been granted party status for the purpose of making submissions as to whether the proposed consent order should be made, and, if so, should that status have continued once the consent order had been set aside.
It was not, therefore, necessary for the present court to decide whether the judge was right to have made the order under FPR 9.26B (1)(b) rather than r 9.26B (1)(a). The concession made in correspondence by those instructing the appellant legal representative that Level should be permitted to intervene in order to make representations in respect of the making of the proposed consent order was right. It was equally the case that they should continue to be an intervener, at least in relation to any further argument as to whether an order should be remade in the same terms as the original consent order (see [51] of the judgment).
(2) Whether the judge was right to have refused summarily to remake the consent order, and if so, having declined to make the order summarily, was the judge right to move directly to a full hearing of the financial remedy proceedings and, if so, what, if any, part in those proceedings should Level play.
Given the history of the case and the deficiencies in the D81, the judge was inevitably going to decline summarily to make a fresh order in the terms of the original consent order (see [55] of the judgment).
Having set aside the consent order and declined summarily to make a fresh order in the same terms, the judge was obliged under FPR 9.9A(5) to ‘give directions for the rehearing of the financial remedy proceedings or make such other orders as may be appropriate for the disposal of the application'(see [56] of the judgment).
To date, the court has obtained the view of the wife only through the prism of her two short emails. The judge fell into error in moving straight on to make orders for the filing of fresh forms E, questionnaires and for the listing of a five-day trial of the financial remedy proceedings as well as directing that the wife attend in person for a two-day directions hearing. Failure to comply with those orders would place the wife in contempt. The judge should have taken an intermediate step and set the matter down for an inter parts hearing of the application by the parties for an order to be made in terms of the earlier consent order, an order which was still sought by both the wife and the husband (see [60] of the judgment).
At such a hearing, the wife would have the opportunity to tell the judge exactly what her intentions were. She would understand that if she wished for the protection of an order, then the court would need to consider whether the draft agreed order was appropriate and, if not, only then to consider what further directions or orders to make. If the wife made clear that she did not wish to pursue her financial remedy application and the husband had not sought the continuation of the proceedings, a court could not require her to do so. That was one reason why the present court considered that the judge was wrong to make the directions which he had (see [61] of the judgment).
The judge would, at such an inter partes hearing, have the benefit of the witness statement from the husband’s solicitors ordered by the judge on 21 March 2022. By ground five of the grounds of appeal, it was said that the judge was in error in being influenced by the circumstances of the making of the consent order. The present court disagreed. The judge rightly said in his first judgment that if the court had to re-exercise its function to approve any proposed outcome, then a proper understanding of those circumstances will be very likely crucial in determining whether to give such approval’ (see [64] of the judgment).
Even if, as the present court found, the judge fell into error in moving directly to provide for a full financial remedy hearing, there still needed to be a resolution of the case which would, if only given the circumstances leading up to the approval of the original consent order and the misleading D81, require some additional disclosure. The form and extent of that disclosure would be a matter for the first instance judge, having, in the circumstances of the present case, heard submissions from all three of the parties (see [66] of the judgment).
(3) Whether the judge was right to transfer Level’s civil claim to the Family Court to follow on from the financial remedy proceedings.
The judge was entirely correct in his conclusion that on the facts of the case if the agreement were made by him into a fresh court order, the civil claim would be ‘almost inevitably worthless’. A consent order in matrimonial proceedings derived its authority from the court and not from the consent of the parties, whereas in ordinary civil proceedings, a consent order derived its authority from the contract made between the parties. Although the court should not act as a ‘bloodhound or a ferret’, it had retained an inquisitorial role as s 25 of the Matrimonial Causes Act 1973 (MCA 1973) set out the ‘Matters to which the court is to have regard in deciding how to exercise its powers’. It followed that before making an order pursuant to s MCA 1973 s 33A, the court scrutinises the statement of information, with the list of factors from MCA 1973 s 25 at the forefront of its judicial mind and conducts an independent assessment to enable it to discharge its statutory function to make such orders as reflect those criteria (see [70] of the judgment).
It followed, in the court’s judgment, that once the consent order was set aside by consent at the hearing on 17 March 2022, there was no longer a transaction for the purposes of s 423 of the Insolvency Act 1986 (IA 1986) (see [75] of the judgment).
The judge, however, treated Level’s contractual and IA 1986 s 423 claim as continuing to be properly made in the financial remedy proceedings. He held that the claims between the husband and wife and between Level and the wife were ‘interwoven’ given that the debt owed by the wife was incurred to enable her to fund the children and financial litigation consequent upon her separation from the husband and that her ability to repay that debt, was a ‘central element in the financial circumstances before the court in the financial remedy proceedings’. The judge, while agreeing with the appellant that listing the two sets of proceedings to be heard at the same time was not appropriate, took the view that the civil claim should be transferred to the Family Court to be listed behind the financial remedy proceedings (see [76] of the judgment).
While the present court could quite see why the judge felt that that was an appropriate order to make, the court could not think he would have made that decision had he understood that the consent order having been set aside, there was no transaction for the purposes of IA 1986 s 423 and therefore no valid s423 claim for Level to pursue at that stage. Nor would there be if the court declined to make a fresh consent order in the future. Further, if the judge made an afresh order upon submissions or following a trial, then, for the reasons set out, the new transaction which would result would be almost impossible to challenge by way of a fresh s 423 claim. While Level’s civil claim was not limited to that under s 423, the focus of the hearing, which led to the transfer of the civil claim was firmly on s 423 (see [77] of the judgment).
It followed that the judge was in error in transferring the civil proceedings to the Family Court (see [78] of the judgment).
Hill v Haines [2007] EWCA Civ 1284, [2008] 2 All ER 901, applied
Sharland v Sharland [2015] UKSC 60, [2016] AC 871, [2016] 1 All ER 671 considered
L v L [2006] EWHC 956 (Fam), [2008] 1 FLR 26 considered
(4) Whether Level’s role as a litigation lender put them in a different or better position than that of an ‘ordinary’ third-party creditor.
Critically, it should be noted that the court would not make an order unless satisfied that the applicant ‘is not reasonably able to secure a loan’. As a consequence, no matter how wealthy the husband was and no matter how long the marriage had lasted, consideration had to be given to that requirement. That was the case even in circumstances such as the present where any award would be made from non-matrimonial property and was therefore likely to be constrained by needs (see [84] of the judgment).
In the present case, any application by the wife for the husband to pay her legal fees under s 22ZA MCA 1973 would have failed because a litigation funding agreement was available (see [85] of the judgment).
Contrary to the submission of the appellant and for the reasons given by case law and adopted by the judge, somewhat different considerations applied where the creditor was the commercial provider of a litigation loan. The policy interest that underpinned the overall scheme of litigation funding was that articulated in
Gulf Azov Shipping Co Ltd v Idisi
[2004] EWCA Civ 292, the desirability of third parties being available to provide assistance to ensure that those in litigation have legal representation. To repeat what case law said, ‘Litigation funding is an accepted and judicially sanctioned activity perceived to be in the public interest’. 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 she was entitled in order to meet her needs and those of any children of the family (see [104] of the judgment).
Parliament legislated within MCA 1973 s 22ZA that a litigant in matrimonial proceedings without the financial means to litigate should, before they could seek an order that their spouse covered the costs of litigation, first demonstrate that they were not reasonably able to secure a loan. In the present courts view, those who provide 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. It should be remembered that there could well be little or no security reasonably available; in the present case for example there was nothing: even the matrimonial home was held in the husband’s name. Level, in common with most lenders, therefore depended on the borrowing party receiving a fair and appropriate award at the conclusion of the proceedings which award properly takes into account that party’s liability in respect of their litigation loan (see [105] of the judgment).
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. They would need to satisfy the provisions of FPR 9.26B in order to achieve party status and their interest would ordinarily be apparent and taken into account without their intervention. Where however, as here, the lender wished to intervene in circumstances where the debt had been incurred exclusively in order to enable the recipient 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. That was because as case law put it, there was evidence of ‘collusion between the spouses designed to adversely affect the creditors’ (see [106] of the judgment).
Such intervention would usually be achieved by limited participation at the stage when the court considers 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 could 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. As case law said, the lender’s interest was limited to such sum as would satisfy its contractual debt. Where the issue arose other than through a proposed consent order, the wide case management powers of a judge were again likely to allow for limited participation by a lender, for example by way of a preliminary finding of fact hearing. It was difficult to envisage circumstances where the full participation of a lender in financial remedy proceedings would be justifiable, but the present court would not go so far as to say that the evidence of collusion, and the procedural circumstances in any particular case could never make it appropriate (see [107] of the judgment).
Case report by Seenal Dwarika Parsad, Attorney, for Lexis +
