A litigation funder is going to court to recover £1m it claims to be owed from a divorce case it helped to finance.

The unnamed funder has been added as an intervener in LS v PS. It is applying to have a consent order set aside after claiming to have been ‘bypassed’ by the negotiated settlement. The case will go to a four-day hearing listed for March.

As part of an application for disclosure of privileged material and information, the court heard that the funder lent money to the wife in financial remedy proceedings which resulted in her initially receiving £3m. This outcome was appealed by the husband and the parties went through a second set of proceedings with a private hearing last year.

It is alleged that negotiations were ‘deliberately structured’ by the parties so as to leave the wife with no assets or entitlement to property or liquid funds from which her litigation funding debt could be met. The company’s case is that it suffered a fraud as a creditor and that the consent order should not have been approved without it first being heard on this issue.

The husband has submitted that the agreement which he reached with his wife, as now embodied in the consent order approved by the court, should be upheld and that he will comply with its terms.

The court heard that the wife went into the private hearing with legal representation after the husband agreed to pay those costs once the funder reached its limits of lending. But at some point in the hearing she became a litigant in person when a potential conflict of interest was recognised and both her solicitor and leading counsel withdrew.

The litigation funder was joined to proceedings within days of learning about a proposed new settlement. On the same day, the husband's solicitor sent an email to the chambers of the allocated hearing judge with a copy of the draft consent order together with the required financial information. Nothing was sent to the court through formal channels and the family office at the Royal Courts of Justice was not notified that the order had been submitted for the judge's approval. The funder only became aware of the settlement terms at an urgent hearing a month after being joined to proceedings when the copies of emails passing between the husband’s solicitor and the approving judge was provided to them

On the disclosure application, the funder asked to see privileged documents including material generated for the private hearing and unredacted pages of witness statements. The husband relied on the without prejudice privilege which attaches to all Financial Dispute Resolution hearings as set out in para 6.2 of PD9A FPR 2010.

Hearing the application, Mrs Justice Roberts ruled that privileged material will remain subject to the FDR privilege mandated by para 6.2 of PD9A. She concluded that the court would have ample evidence available to it in the absence of the privileged material to form a view as to whether or not the order should be set aside.

In a footnote, the judge also hinted that the rules themselves might require another look, saying that ‘given the important of litigation funding to the system, the Family Procedure Rules Committee may wish to consider whether the potential issued raised by this case require some reconsideration of the ‘absolute bar’ in the interpretation of para 6.2 of PD9A.’