Litigation fund backs £400m divorce case

A woman at the centre of a multimillion-pound divorce battle has tapped a new source of funding to pay her legal bills in a development that might exacerbate concerns about London’s reputation as the divorce capital of the world.

As private banks rein in lending for big-money bust-ups, Harbour Litigation Funding, one of the best-known providers of funding for commercial lawsuits, has stepped into their place in London’s lucrative divorce market.

In its first foray into the divorce business, Harbour is backing a high-profile case brought by Michelle Young against her estranged husband, Scot Young, a property entrepreneur. Ms Young is using the courts to find out more about the loss of her estranged husband’s fortune, valued at more than £400m just three years ago.

The still nascent business of financing lawsuits for profit in the UK has typically involved commercial disputes, where third parties unconnected with the case, such as banks or hedge funds, stump up financing in return for a share of any compensation awarded.

However, the retreat by private banks from the divorce market in the wake of the credit crunch could create an opening for niche funders in some cases involving couples splitting up, family law experts said.

Susan Dunn, Harbour’s head of litigation funding, said: “Collectively, the Harbour team has funded 66 commercial cases. While the Young case is a divorce matter, in truth it has the same elements as a commercial dispute, and as such it fits with the core business that we undertake.”

Before the financial crisis, many private banks were keen to provide loans to help cash-strapped divorcees pay their legal fees in the hope of establishing a long-term relationship.

As asset values have dipped, however, it has become much more difficult for stay-at-home wives, in particular, to secure financing, family lawyers said.

British courts have also thrown up a series of unpredictable rulings in big-money cases.

Suzanne Kingston of Dawsons solicitors said: “It could be that the banks think they may be running too much in terms of risk as the outcome of some of these cases is uncertain.”

London has become known as the divorce capital of the world in the wake of settlements such as the record £48m awarded to the former wife of John Charman, the insurance tycoon, in 2006.