Litigation funding bring level playing field in accessing justice

Litigation funding bring level playing field in accessing justice

President of the Family Division of the High Court, Sir Andrew McFarlane, has recently published his views on what he refers to as the ‘unprecedented and unsustainable’ pressure currently facing the family justice system.  In the wake of cuts to legal aid, he has reported a steep rise in the number of individuals resorting to self-representation and in the sheer volume of private law cases relating to children.

Sir Andrew hopes initially to tackle the problem by setting up working groups to discuss the situation and make recommendations but, in the meantime, he publicly acknowledges that all professionals involved in the family justice system will continue to experience the adverse impact of the high volume of cases and increasing number of litigants in person.

This isn’t the first time Sir Andrew has spoken out about the cuts to legal aid and its effect on the family justice system.  In 2010, the new coalition government started making drastic cuts to public services in a bid to reduce the UK’s deficit. The Ministry of Justice was one of the hardest hit.  Legal aid, the system introduced in 1949 by the Legal Aid and Advice Act with the purpose of assisting society’s most vulnerable, has been devastated by the cuts. Initially focused on divorce, the scope of the act rapidly grew until around 80% of the population was eligible for public funding in the 1970s and 80s.  In the wake of the credit crunch, however, drastic changes took place and in April 2017 The Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act removed legal aid from family litigation in all but a handful of cases.

Unable to afford professional advice but desperately needing access to justice, individuals are forced either to accept an unsatisfactory outcome or to act in person, representing themselves through potentially complex and stressful litigation.  Incredibly, over a third of family law cases now involve litigants in person on both sides.   Mr Justice Bodey said of this, ‘I find it shaming that in this country, with its fine record of justice and fairness, that I should be presiding over such cases.’ 

Inevitably, cases run by litigants in person create extra workload for the justice system and the pressure on family courts has reached a critical point.  It is, however, as important as ever that people are still able to access legal advice and an appropriate method of paying for it. 

So what happens if you have no liquid funds or simply no access to funds but you don’t feel able to represent yourself through the process?  There may be some options available. 

  • You may be able to take out a bank loan or use credit cards, which usually have relatively low borrowing limits and often carry punitive rates of compounding interest.
  • Obtaining a loan from a parent or friend is a possibility, although the potential risk lies in it appearing as a soft loan on the asset schedule, which a judge would not take into account upon assessing the fair division of assets.
  • You could consider an application for a Legal Services Order whereby one party is required to pay towards the other party’s legal costs.  Not only can this drag out the litigation and usually not meet costs in full; it is an expensive process in itself.  Historic and pre-existing costs are not necessarily covered by this type of arrangement.
  • A Sears Tooth agreement might still be offered by some solicitors, although this involves paying Counsel’s fees as well as other disbursements up front and carries risk for the solicitor.
  • Litigation funding, which, depending on the provider, comes in various different forms.

Specialist family litigation funding can be an extremely helpful tool both in terms of cashflow and strategy.  However, some providers limit their assistance to purely financial litigation and may not be interested in disputes relating to children or TOLATA claims.  In many cases there may be insufficient assets for funders to secure or take a view against and, in this case, litigation funding is highly unlikely to be an option, particularly if legal costs are likely to escalate.

Most funders have a minimum funding provision below which it may  not commercially viable to lend given the specialist nature of the work involved.  Similarly, if the case involves matrimonial assets in a different jurisdiction or the party requiring borrowing represents a ‘flight risk’ because he or she lives abroad or has the potential to move abroad, many funders will not lend.  This, could of course, also apply to a borrowing party applying for leave to remove a child from the jurisdiction.

However, in circumstances where there are sufficient assets to cover legal fees with a good level of headroom so that the lender can see a clear route to repayment and is satisfied that the borrower will be left with a decent sum after paying back their loan, litigation funders may be able to step in to provide a very good solution. 

The significance of litigation funders has increased considerably since the cuts to public funding were made.  Traditionally the family litigation funding market was largely dominated by one provider,  However, there has recently been an influx of new providers bringing new challenges for family solicitors when deciding which funder is the most appropriate for their client.

The traditional charging structure of a litigation loan, which usually consists of a relatively low set up fee and a 1.5% ongoing monthly interest rate, allows clients to ringfence a maximum facility and draw down from it as and when invoices become payable.  Interest is only charged on the amount they draw down and is rolled up to the end of the loan term, when a settlement is received.  Because clients only pay for what they actually use and are not penalised for not drawing down on the full facility with large fixed costs, it is suitable for the notoriously unpredictable timeframes and costs associated with family litigation. This has many advantages for both client and solicitor.  Clients are able to access the advice they need in order to obtain the best outcome for themselves and their children and their case can progress more swiftly.  Solicitors can move on with the strategy of the case without being hindered by legal services order proceedings or cash flow issues. It achieves equality of arms for an individual who may otherwise have been unable to access legal advice. 

Some providers are also able to provide living expenses loans.  This is an ‘unrestricted use’ loan, meaning that a client can use the money for whatever they like.  For example, if a generous friend or family member has loaned the client some money to see them through the proceedings, the client can use the living expenses loan to repay that friend or relative.   This means that, whereas the loan would most likely have been viewed as a soft loan and not taken into account, it will now appear on the asset schedule as a hard debt which needs to be repaid.  It is also very useful if, for example, a client is receiving £2,000 a month to live on but actually needs £5,000.  Not only can a living expenses loan top the client up to the desired amount without resorting to a potentially lengthy and costly MPS application, but it is also very useful strategically in demonstrating needs, i.e. that he or she cannot get by on a certain amount per month.

Of course, with new providers come different approaches, expertise, and  charging structures so it is vital that solicitors and their clients are alert to the potential pitfalls associated with this type of lending.  The key focus should be on the ‘true cost’ to the borrower and not just the headline interest rate.

For example a funder charging 1% upfront and 1.5% per month (18% per annum) is likely to be significantly better value than a funder charging 2% upfront, 1%  per month (12% per annum) and 1% redemption fee in circumstances where a case settles and repays early (e.g. at the FDR) and / or does not use their full facility or the loan is for less than 12 months.  This is because the former structure has considerably lower fixed costs.

Other funders may not deal directly with the client, meaning the solicitor incurs higher hourly fees over the course of the litigation when liaising with the funder. 

Where a case is complex, a funder with in-house family law expertise will be able to quickly and efficiently grasp the intricacies of the case, meaning a quick turnaround can be achieved and, importantly, the client won’t have to pay additional hourly fees for the solicitor to assist the funder in getting comfortable with the case.

The family courts are clearly still feeling the effects of the cuts to legal aid, however,  specialist family litigation finance is a step in the right direction in helping individuals to get the outcome they need without resorting to self-representation.

Katie Alexiou and George Williamson – founders of Level, a litigation funder specialising in Family Law.

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