Costs News

09 July 2020
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No basis to ban use of third-party litigation funding in divorce cases

The fact that conditional fee agreements (CFAs) are banned in family cases does not mean third-party litigation funding should be too, the High Court has ruled.

Mrs Justice Knowles said there was no basis for impugning the funding arrangement between a divorcee and leading litigation funder Burford Capital as she seeks to enforce her award.

The ruling in Akhmedova v Akhmedov & Ors [2020] EWHC 1526 (Fam) is the latest stage in a high-profile and long-running divorce case which saw Tatiana Akhmedova awarded £453m in late 2016. Enforcement has proven exceptionally difficult, with the husband yet to pay a penny voluntarily, and to date she has only recovered £5m.

The ruling concerned her attempts to recover money from her son, Temur, who she alleges has played a key role in the husband's “strategy of evasion”, the judge said.

In a counterclaim, Temur sought an injunction restraining her from instructing in the proceedings any firm of solicitors to be paid, whether directly or indirectly, by Burford Capital.

He argued that the funding arrangements were unlawful because they were contrary to the public policy against the champertous maintenance of litigation, and specifically raised the “important issue of public policy” of whether third-party litigation funding should be permitted in family proceedings. He drew an analogy with the exclusion of family proceedings from the rules allowing CFAs.

The wife applied to strike out the counterclaim on the basis that Temur had no standing to seek relief in respect of her funding arrangements or there were no grounds in fact or law for asserting that they were unlawful or contrary to public policy.

She submitted that it was not a matter for the court to ban litigation funding where Parliament had chosen not to, particularly where it was professional funder that adhered to the Association of Litigation Funders’ (ALF) code of conduct.

Knowles J agreed with the wife. Given the support for third-party funding expressed by the Court of Appeal in 2016’s Excalibur case, she said it was “difficult to envisage how litigation funding conducted by a responsible funder adhering to the code of conduct could be construed to be illegal and offensive champerty or might be held to corrupt justice”.

The judge said Temur did not explain how or why any rights granted to Burford “could or would be exercised to corrupt the judicial process”.

For example, Temur pointed to the "significant control" ceded by the wife to Burford. Even if true, Knowles J said, a funder was only forbidden from having a degree of control which would be likely to undermine or corrupt the process of justice, rather than any control at all.

If the wife was required to obtain Burford’s consent before settling her enforcement action, “that would appear to be a perfectly proper protection for Burford Capital as funder and would not tend to corrupt justice”.

Knowles J said the analogy with CFAs was “misplaced because the different treatment afforded by the courts to contracts with lawyers is obvious”. Unlike with CFAs, the lawyers did not have a financial stake in the outcome.

“In this context, I am also mindful of the inappropriateness of extending the prohibition on third-party litigation funding to family proceedings as if settlement were any more difficult/desirable in those proceedings or because a portion of the monies at stake in the litigation were used to pay a funder.”

Third-party funding “has been accepted in this jurisdiction to be desirable to facilitate access to justice”, and there have been first-instance decisions in the Family Division supporting it.

The judge concluded: “Is there merit in an investigation of the detail of the wife's funding arrangements which would justify refusing the application to strike-out because there is an issue of principle about those arrangements in family proceedings? Having thought about this matter very carefully, I do not think that there is. To do so would require more than the matters pleaded in the defence or advanced in argument by Mr Owen QC.

“Ignorance as to the precise terms of the wife's funding arrangements does not, of itself, justify further enquiry or disclose reasonable grounds for bringing the application particularly in circumstances where the wife's litigation funder adheres to the ALF's Code of Conduct… In my view, [Temur] cannot sensibly maintain, in the light of the Court of Appeal decision in Excalibur, that the litigation funding in this case is prima facie champertous.”

This was not, she added, “a developing area of jurisprudence which requires detailed consideration by this court”. Without the funding, the wife would lose access to justice and the chance of recovering the monies awarded to her in December 2016.

As a result, she struck out the counterclaim.

Alan Gourgey QC and James Willan (instructed by PCB Litigation) for the applicant, Graham Brodie QC and Richard Eschwege (instructed by BCL Solicitors) for the Eighth and Ninth Respondents, Charles Howard QC and Charlotte Hartley (instructed by Hughes Fowler Carruthers) for the Tenth Respondent, and Tim Owen QC and Tim James-Matthews (instructed by Hughes Fowler Carruthers) for the Tenth Respondent.

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