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Litigation Funding: The Oligarch, Divorce And A £350 Million Yacht

George Williamson and Katie Alexiou, 27 November 2018

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Traditionally the family litigation funding market was largely dominated by one provider but, as new firms have emerged, so have new charging structures.

George Williamson and Katie Alexiou, founders of Level, family law specialist litigation funders, write about a recent extraordinary divorce fight involving a £350 million ($448 million) yacht.

There have been several high-profile divorce cases making headline news in recent years. Apart from giving rise to morbid fascination, these cases are a reminder that advisors need to be aware of the importance of careful wealth planning and protection. We hope these comments are useful. The editors of this news service do not necessarily endorse all views of guest contributors. Readers who want to respond should email tom.burroughes@wealthbriefing.com

This month, in the latest instalment of a seemingly never ending saga, Russian oligarch, Farkhad Akhmedov, has won the right to keep his £350 million superyacht, Luna, rather than hand it over to his former wife, Tatiana.

In December 2016 the High Court in London ordered Akhmedov to pay Tatiana an eye-watering £435.5 million, the UK’s largest ever divorce settlement. When he refused to pay up, she obtained a court order placing a worldwide freezing order on his assets, including Luna.

Akhmedov attempted to put the yacht out of the reach of the English courts and his former wife by hiding it behind a group of companies and moving it to Dubai.  He was similarly devious with his other assets, manoeuvring them around the world and placing them in complex structures, dubbing the English order “toilet paper”.  

However Tatiana successfully applied to the Dubai civil courts who upheld the English decision and arrested Luna as she underwent maintenance. Just days later Akhmedov appealed against the seizure on the grounds that the London court order wasn’t enforceable in the UAE. Consequently the matter was transferred to the Sharia court, ultimately with the effect that Tatiana’s claim was dismissed and, adding insult to injury, a costs order made against her earlier this month.  

This fascinating case with its superyachts and billions stashed in impenetrable trusts and corporate structures around the world is far removed from the lives of most.  But Akhmedov’s attempts to manipulate his way out of parting with his fortune illustrate a wider point - that for those embroiled in a legal battle with an adversary who is determined to frustrate their claims by putting assets at arms length, or when assets become subject to freezing orders as part of financial remedy proceedings, liquidity issues can feel like an insurmountable barrier to justice. 

So what happens when the financially weaker spouse has no liquid funds with which to pay for legal representation?  Litigation funders can provide a neat solution to this dilemma, stepping in to cover legal expenses (and living expenses too in some cases) until the end of the proceedings when the loan and accrued interest will be deducted from the settlement before it is paid on to the client.

This has many advantages: it takes the inevitable anxieties over cash flow away from solicitors meaning they can get on with the job at hand, it allows clients to obtain advice from solicitors of a similar calibre to that of their spouse, and it enables those clients to reach a fair outcome where otherwise their claims may have been thwarted by lack of funds. 

Traditionally the family litigation funding market was largely dominated by one provider but, as new firms have emerged, so have new charging structures.  It is crucial that solicitors and clients take care when choosing their lender that they fully understand what they are entering into.  

The traditional model charged an administration fee of £500 or 1 per cent of the loan facility, and around 1.5 per cent interest per month charged only on the amount used, not on the full facility. The yearly interest on a loan like this which works out at 18 per cent per annum is often perceived to be expensive and consequently some new products in the market are packaged up in such a way as to appear cheaper when in fact the opposite can often be true. This can be in the form of higher administration fees, redemption fees of 1 per cent across the total final outstanding loan figure and charging interest on seemingly arbitrary “tranches” of work rather than on the actual figure drawn down from the facility.  

It is also important to ensure that clients choose the right provider for them.  For example, a client with a complex case such as Tatiana’s would benefit from a lender who understood the legal technicalities and therefore the risk involved. This would ensure a quick lending decision and reduce the solicitor’s time (i.e. the client’s bills) as they could avoid spending chargeable hours helping the lender to get their head around the case and subsequently administering the loan. 

Every loan agreement contains certain obligations to which a client must adhere in order to avoid an event of default. These usually cover extreme scenarios such as misrepresentation of assets or a significant drop in creditworthiness. Aside from this, the facility should virtually be guaranteed throughout the proceedings. However, certain lenders operate on the basis that each drawdown constitutes a new loan and as such can be rejected if, for example, the lender has changed its risk appetite, meaning that clients can lose their funding at a potentially critical stage in the proceedings.  Borrowers beware!

Putting aside cost, arguably the most important factor in finding the right litigation lender is the service. Client and solicitor alike should feel reassured by the lender, knowing that the loan is being administered with integrity and transparency. The level of service can have a positive impact on the strategy and positively affect the outcome of the case as well as the client’s user experience. 

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