On of the more Pyrrhic cases in modern financial relief litigation is developing in the latest – and in many ways most unsatisfactory – round in Simon v Simon [2024] EWFC 160 (2 July 2024), Peel J. The wife (LS), funded by intervener Level (L, who had funded the wife’s part in the case) agreed to an order that left her insolvent. She would keep a property held by trustees (including her former husband (PS)) and he (PS) would keep the rest. L had funded this but now LS was insolvent and took almost no further part in the proceedings. L paid her original lawyers for all this, but now have nothing on which to charge their outlay (so far as they are entitled to: eg does any statutory charge apply to them?).
L want their money back; but appear to be doing this in separate civil proceedings. They have issued proceeding for, as King LJ in the Court of Appeal puts it:
[28] On 6 April 2021, three weeks after the sealing of the consent order, Level issued their civil claim which alleged repudiatory breach on the part of the wife, procuring a breach of contract by the husband, procuring a court order by fraud and unlawful means conspiracy. They relied on ss423-425 Insolvency Act 1986 (‘IA 1986’): ‘Transactions Defrauding Creditors’. The transaction relied upon was the consent order approved by the judge on 2 March 2021 and sealed on 16 March 2021.
They have instructed solicitors (now AFP Bloom LLP) who have retained J Southgate KC. Presumably Level are paying for this too?
Back to the Simon case. PS was unhappy about case management directions given on L’s attempt to join the proceedings and took this from Roberts J (in LS v PS [2021] EWFC 108, [2022] 4 WLR 19 (23 December 2021)) to Cusworth QC as a High Court judge (Simon v Simon & Level (Joinder) [2022] EWFC 29 (21 March 2022)) and the Court of Appeal (Simon v Simon & anor [Level] [2023] EWCA Civ 1048 (15 September 2023): more than half of Peel J’s judgement consists of cut and pasting much of the Court of Appeal judgment of King LJ).
A still insolvent wife and an irate lender
The net result of this is that LS is still insolvent (as I understand it). She takes only vestigial part in the proceedings. The original collusive order – if it was collusive, in the technical sense – has been set aside; and no further financial relief application is anticipated by LS and PS anticipated. Peel J recorded what he thought remained for him to do as:
[32] In default of any application for a financial remedies order being pursued, whether by consent or otherwise, the options today are, it seems, to me:
i) To adjourn the financial remedies application, but that would build in delay and further cost, and would take matters no further forward.
ii) To dismiss the financial remedies application, but that in itself is a form of financial remedies order and would require an evaluation by the court of the s25 criteria which neither party invites me to undertake.
iii) To make "No Order", and provide for W to withdraw her application. That would bring the proceedings to an end. It would enable either party at some point in the future to resurrect the claims and invite the court to make an order; there is no time bar to such applications….
Peel J’s conclusion was that the third ‘no order’ option was ‘preferrable… and for W to withdraw her [financial relief] application’. Were any application to be made by LS or PS, he continued:
[33] Level is to be automatically joined as intervener, and the application must be served on them…. For the avoidance of doubt, neither this order nor judgment are in any sense a substantive determination on the merits of the financial remedies application issued all those years ago by W. The financial remedies claims of both W and H remain open to them to pursue.
Peel J concluded his judgment (apart from a non-anonymisation comment) with the inscrutable:
The civil claim
[34] Level is not without potential remedies, as its civil claim remains pending. I make no observation on the merits, or otherwise, of its claim for a sum which now stands at about £1.2m (including interest but excluding costs).
And there the inter formerly married parties litigation ends.
A fourth option: the elephant in the room
There is, surely a fourth option in addition to Peel J’s three. LS’s original solicitors – maybe, to judge by what the Court of Appeal found, PS’s then solicitors, also – are the elephant in this room. Pool J was entitled to call in all lawyers who set up the collusive deal; and, as applicable, to tell them to pay any money back taken from Level as did Lord Denning MR in the analogous legal aid case of Manley v Law Society [1981] 1 WLR 335, CA: equity set aside the order where Dr Manley’s and his lawyers’ colluded to evade the legal aid statutory charge; and the Court of Appeal said Dr Manley’s lawyers should not be paid.
Anyone who says ‘I told you so’ is unattractive. I therefore draw attention to two recent Family Law articles with diffidence. I did examine the issues of collusion against a third party funder in ‘Funding family proceedings’ [2022] Fam Law 730 June and ‘Simon: funders and funded left adrift by the Court of Appeal’ [2023] Fam Law 1273(2) November each written by me. Neither Manley nor these articles seem to have been considered by Peel J.
Manley recalls the court’s supervision of its officers (ie solicitors) comes into it. It is not helpful just to repeat what was said in the articles referred to above; but for those who do not have easy access to Family Law a summary follows.
The Law Society was then responsible for operation of the legal aid scheme. Dr Manley had invented an 'echo-sounder' for ships to estimate the depth of water below them. Marconi at first were interested in developing it with him, but then dropped out. He was left with substantial debts. He got legal aid to sue Marconi. His case was set down for a 30-day hearing. Marconi wanted to avoid that since, even if his claim was dismissed, with costs, they knew he could not pay; but they would have to pay their own lawyers.
Marconi agreed to buy – in effect to pay off – Dr Manley's debts by payment direct to the creditors. No money would go to his solicitors; there was nothing – it was thought by Dr Manley's lawyers – on which the charge could operate (eg there were no damages on which the charge could bite). The lawyers would be paid from the legal aid fund (ie the non-party funders). Dr Manley's barrister advised the deal was safe from the statutory charge and contacted The Law Society just before the case started to inform them and of his advice. A Tomlin order was made by the court.
Supervision by the courts of solicitors
The Law Society was not as sanguine as counsel. In the fullness of time when the solicitors had their bill taxed (detailed assessment) they objected to pay. At first instance the solicitors were ordered to receive payment from the legal aid fund. On appeal to the Court of Appeal Lord Denning MR was unimpressed. He allowed The Law Society's appeal and said:
This case comes under another and better principle which I stated simply in Customs and Excise Commissioners v. Pools Finance (1937) Ltd. [1952] 1 All E.R. 775, 780: “[The parties] cannot assert that black is white and expect the courts to believe it.” It is the same as that which Lord Reid and I applied in Griffiths v JP Harrison (Watford) Ltd [1963] AC. The court should always look for the truth of the transaction. It should not let itself be deceived by the stratagems of lawyers, or accountants. It should not allow them to pull the wool over its eyes. It should not allow them to dress up a transaction in clothes that do not belong to it.
Questions for a litigation funder remain. So far L seems not to have tried to argue these points. For example, what was the extent of the collusive basis (if any) of PS and LS’s original property adjustment order; and if it was intended to leave L in the cold what was equity’s view of the solicitors’ actions? Is there any analogy between the legal aid fund and the funder’s entitlement to a form of equitable charge (see eg Solicitors Act 1974 s 73).
In Manley equity set aside the order where Dr Manley’s and his lawyers’ colluded to evade the legal aid statutory charge. Set aside of the original Simon property adjustment order has now been agreed to. But what of the parties’ original lawyers in all this? The variety of assistance from equity to protect funders in analogous cases is moderately clear. I explained this in 2022. This approach to the law, if adopted by Level, this may assist them to get some money back, rather than continuing their litigation against the straw-like LS (or does she have funds now the property adjustment order has been set aside?).
Equity assisted the third-party funders (ie the legal aid fund) in Manley. So why not Level? More importantly, with fairness to borrowers, a resolute approach in Simon may help those who need legal help themselves, and where they may have to rely on third party funder’s help.
David Burrows
4 July 2024