Do FDRs have too much protection and are divorce litigation loans doomed?

This is a really insightful analysis by leading silk James Roberts QC of 1KBW, which flags up two issues arising from a recent court judgement (namely LS v PS [2021] EWFC 108). The case itself involved a divorcing couple that settled their case in such a way that they essentially defrauded a litigation loan company that had funded the wife’s £1m legal fees.

1. For those that are not family lawyers, a Financial Dispute Resolution hearing (FDR) is normally the second court hearing in financial remedy proceedings on divorce. The judge at the FDR gives an indication to the parties of what they may order if they were deciding the matter at trial. To encourage a settlement, the hearing is protected by enhanced legal privilege; it is kept entirely secret from a final hearing Judge (who must be a different judge to the FDR judge) and as the judgement in LS v PS clarifies, the chances of FDR privilege being waived in any circumstances (even where there may have been fraud, and even when an agreement has been concluded between parties and ordered by the court) is slim to none.

So, as James Roberts QC states, does the protection of FDR hearings go too far?

FDR hearings are an incredibly valuable tool in the court process and so they should of course still retain a form of privilege. However, in my view, and particularly once an agreement has been reached between parties, FDRs shouldn’t have the enhanced blanket protection they currently enjoy. Whilst this particular case of LS v PS is quite extreme, it’s not uncommon in my experience for dishonest people to hide behind FDR privilege in order to abuse the process to their own gain.

2. James Roberts QC flags that the judgement of LS v PS puts litigation funding in divorce cases at risk. Quite simply, it’s a very worrying point.

Litigation funding is particularly important in cases of great financial disparity, and where – more often than not – there is an element of abusive/coercive controlling behaviour. The decline of litigation funding would only help those in a position of wealth and power, and put those more in need of legal assistance in a position of significant vulnerability.

It can be seen that the present state of the law as exemplified in this case may have a very serious, and possibly terminal, impact upon the family litigation lending market as a whole. The area is one which is already considered to be more risk laden for lenders than the other areas in which litigation funders are active conventionally. An absolute bar on disclosure of material which would otherwise be allowed in other divisions will only increase the risk. This conflicts with recent judicial comment which has been supportive of lending within family proceedings.  The loss of such litigation funding, or its severe curtailment, has the capacity to undermine, in a significant cohort of cases, any talk of 'equality of arms' for the more economically vulnerable party.