Litigation funding: are brokers really “rescuers”?

Divorce|June 14th 2010

I was interested to read in The Times that a barristers’ chambers in London has set up a company that will arrange funding in divorce cases:

“Steve Jones, its business development manager, says: “It’s a way of reducing the balance between unequal parties where one has resources and one hasn’t — giving access to justice.”

“What is striking is that the set itself does not stand to gain directly from this venture. Divorce is not its area of expertise so it is referring the case to other specialist barristers and solicitors. It is acting as the middleman, or broker, arranging money with one of the 14 companies now providing what is called third-party litigation funding. “We don’t take a percentage or brokerage fee — we benefit in goodwill,” Michael Martin, the senior clerk, says. “Solicitors may refer cases on to us — it’s good old-fashioned rain-making.””

I believe that, contrary to what is stated, litigation funding is more generally available than is suggested in this article, at normal commercial rates from high street banks when clients need funding for their divorce. We don’t organise it; our clients do. However problems do arise with cases where the assets are very difficult to trace, or are offshore, or are in the husband’s name. Then banks are understandably reluctant to lend without security. In such cases a Sears Tooth Agreement may be appropriate. If not, and as a last resort, the husband may be ordered to pay out of his monthly income towards the wife’s costs.

I am not a fan however, and would not recommend high risk funding at substantial additional cost to the client. Divorce is an extremely emotional and turbulent time. In many cases, clients don’t need large litigation loans at high levels of interest to worry about as well.

Suppose the client does enter into this type of funding, and then the solicitors and barristers run up tens or even hundreds of thousands of pounds in fees chasing the husband, often half way round the world? It is possible that they will then decide that they can’t continue because the case is becoming (predictably) too drawn out and expensive – and so they drop the client.

When this happens the client is, arguably, in an even worse position than before she started. She must recover the sum she has borrowed to pay these lawyers; if she begins again with new lawyers, she must obtain additional funding. So she goes into court in a negative situation before the case has begun.

And what if the husband continues to maintain that he has nothing? The court may take the firm view that such an assertion is nonsense and make appropriate orders against such a husband, but a determined litigant can salt money away over years. Then there are all the additional costs of recovering the award.

Where does the client come in all this? A firm second.

So here is my question. How does litigation funding, offered at high levels of interest, help to settle these very difficult, expensive types of disputes where, no matter how hard the lawyers try, they may find themselves chasing fool’s gold?

Isn’t it better to call it a day, and negotiate a deal on the best terms possible?

Not everybody comes out of divorce feeling like a “winner”, no matter how deserving they believe themselves to be. However I believe it is better to come out of a divorce with something, not bankruptcy.

 

Author: Marilyn Stowe

The founder of Stowe Family Law, Marilyn Stowe is one of Britain’s best known divorce lawyers. She retired from Stowe Family Law in 2017.

Comments(8)

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  3. Dave Willgress says:

    You entirely miss the point about third party litigation funding. TPLF is NOT a loan to the client. If the action fails, the client has no requirement to pay back the money invested. It is an investment in a piece of litigation in return for a percentage of the damages or the award made. I am astonished that a lawyer specialising in family law has failed to realise this fundamental point.

  4. Marilyn Stowe says:

    Thanks for your comment.
    You have misunderstood me. I was making express reference in my post to litigation funding arrangements I have come across where very high levels of costs have been incurred against litigation funding in place at high rates of interest and repayment has not been waived; which means that clients who have got nowhere chasing their spouse, are left with their hands tied even further behind their backs because there is a debt at high levels of continuing interest to be discharged before they obtain their settlement.
    You may be aware that family lawyers are expressly prohibited from entering into conditional fee /no win no fee arrangements, which in this area of the law are regarded as contrary to public policy – potentially taking advantage of the emotionally vulnerable, exacting high levels of payment in an area of law where no costs orders are usually made and therefore no chance of recovery from the other side.
    Whilst you may feel this proposal would nevertheless be attractive and completely enforceable if offered by a third party litigation funder as a type of “investment” to a desperate litigant spouse, personally I still see it as fraught with pitfalls.

  5. Dave Willgress says:

    Apologies if I have misunderstood your point. The agreements you may have encountered are not those that I recognise. Typically, credible TPLFs will not enter into agreements without their client first obtaining independent legal advice on the appropriateness of the deal being offered. Neither party should enter into any such arrangement lightly although for a client who has run out of money it can prove to be a real life-saver. The difficulty for TPLFs in deciding to fund divorce cases (a rarity, with the exception of Young v Young) is the determination of the existence and quantum of assets. Invariably, the aggrieved party will have unrealistic expectations on the desired settlement figure, which presents a challenge for the funder. If, however, a realistic figure can be agreed, fortified with confirmation of the existence of realisable assets, then it can prove to be the life-saver described above.

  6. How to fund your divorce. By Nick White. - Marilyn Stowe Blog says:

    […] a more in-depth examination of third party loan finance, see Marilyn Stowe’s post here. There is also the very important issue of the overall cost when obtaining this type of finance, […]

  7. Conrad earll says:

    I need to fund a divorce and my wife has everything at present, how can I fund the divorce not knowing how much to borrow or how difficult she will be in settling the finances, It’s so hard to know and predict. I am locked out of the house and have nothing!. what are my options?, I work full time but have no spare cash to talk of, my life was invested in the home and marriage/family now it’s gone!.

    • Cimmerian says:

      Conrad,

      If you are still around and can offer the solution you found it would be appreciated as I am in the same situation.

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