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Litigation funding orders – how do they work?

By January 30, 2021November 15th, 2021No Comments

An ex-wife in a family court matter was told she could access her superannuation to cover her legal fees instead, after she applied to the courts to have her ex-husband contribute to her legal costs via a litigation funding order. What are litigation funding orders and when can they be issued? Let’s have a quick look.

In this particular matter, pseudonymised as Simpkin & Simpkin by the courts, the ex-wife had applied for a litigation funding order in the sum of $50,000 to cover her legal costs. However, as her financial evidence showed, she had combined superannuation, savings and shares with a combined value of more than half a million dollars. As such the court said there was no financial inequity between the parties and the ex-wife would be able to cover her own legal expenses and dismissed her application.

What is a litigation funding order?

Under section 117 of the Family Law Act 1975, separating couples are expected to pay their own costs, however under section 117(2) of the Act, the court does have the authority to make orders for costs if “the court is of opinion that there are circumstances that justify it in doing so”.  The making of an order for litigation expenses in such circumstances is known as litigation funding order, and sometimes also a ‘Hogan’ or ‘Barro’ order. And while relatively uncommon, these are a legitimate option to consider for those unable to meet the cost of funding their family law litigation.

Who might need a litigation funding order?

A litigation funding order is an option for people who do not have the funds available to conduct their legal proceedings. This could be due to not being able to access a relationship’s cash savings, or due to being “asset rich and cash poor” with limited liquid funds. Litigation funding orders are also typically seen in situations where a party to a relationship may have controlled the finances or been the sole breadwinner while the other party raised the children, leading not only to a disparity in the financial circumstances of the parties, but also to a situation where one party does not have access to sufficient funds to pay for their legal fees. 

When one party to a relationship is in a financially dominant position, there is the potential to seek funding from that party, at the discretion of the judge, with the aim of putting both parties on an equivalent financial footing for proceedings. 

Essentially a partial property settlement received in advance, monies are paid into the financially weaker party’s solicitor’s trust account to cover the legal fees and expenses that will be incurred (note that orders can be made for costs already incurred as well as for future costs).  When it comes to the final property settlement, the funds advanced are included in the net asset list and are deducted from the entitlement of the party who received the funds.

The courts regard making a litigation funding order as a last resort and will expect efforts to have been made to obtain consent to access funding prior to making such application. For example, parties usually first try to obtain consent from the other side for a joint drawdown of funding from the matrimonial asset pool, which is equally favourable to each side.

However in cases where consent is not given, it’s possible to apply to the courts to order the financially dominant party to provide the other party with a lump sum of funds to prosecute their case.  If the wealthier party’s funding would be asset-based, the court is able to order the sale of assets to pay the amount.

Where does the money come from?

The potential source of funds for a litigation funding order include savings accounts in a party’s sole name, investment properties that can be sold, non-essential assets that could be liquidated (eg. caravans, second cars), and funds from the sale of a property already held on trust. (Of course, if you and your ex agree about accessing these funds, you won’t need a court application and can simply reach a private agreement.)

How do courts decide about litigation funding orders?

The issuing of a litigation funding order is dependent on the individual facts and circumstances of a case, including the available asset pool and whether parties meets certain prerequisites and threshold tests.

Section 117(2A) of the Family Law Act lists the factors to be considered by the court in determining if a party should be ordered to pay the costs of the other.  For example, it must be proven that the wealthier party is in fact in a financially dominant position, that they have the capacity to pay their own legal costs, and that the financially weaker party can’t meet their legal costs. Evidence also needs to be provided as to actual legal costs incurred to date and the amount being applied for must be less than the amount the applicant is likely to receive in the final property settlement. The court will also take into consideration a number of other factors, such as the parties’ conduct during proceedings. 

In Simpkin & Simpkin, when considering whether to make a litigation funding order the court had to look at the relative financial positions of each party, the capacity of the ex-husband to pay his own costs if the litigation funding order was made, and the inability of the ex-wife to meet her litigation costs. The wife was able to successfully demonstrate the first two planks, but not the third which the court said was “fatal” to her application.

The wife informed the court she did “not wish to access her superannuation to pay her legal expenses and her preference is to receive a share of the respondent [husband’s] savings”. However, the court said, “A mere preference does not make the proposed order just and the question to be answered is whether the evidence established that the applicant is unable to meet her litigation costs. That question must be answered that she is able to meet her anticipated litigation costs in their entirety.”

Because the making of a litigation funding order application itself will incur legal costs, it’s important to be expertly advised by a family law solicitor on the commercial reality of whether you are likely to be granted a litigation funding order. The court also has discretion to order that the wealthier party pays the other party’s costs of making the application, if a party was forced to make the application because consent was not provided but would have been reasonably expected to have been provided.

Would you like to discuss negotiating legal funding with your ex-partner, or alternatively making a litigation funding order application?  Please contact Cristina Huesch or one of our other experienced solicitors here at Alliance Family Law on (02) 6223 2400.

Please note our blogs are not legal advice.  For information on how to obtain the correct legal advice, please contact Alliance.

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