CFA Success Fees and ATE Insurance Premiums are no longer generally recoverable in litigation. At the time of the Jackson Reforms, an exemption was made allowing recovery of such additional liabilities in insolvency litigation. However, the Minister of State for Civil Justice has now announced in a written statement that the exemption will come to an end on 1 April 2016. This will bring insolvency litigation into line with other types of claim.
The trade body for insolvency professionals R3 has, therefore, lost its hard-fought campaign for the exemption to be made permanent.
Only time will tell whether this move will lead to 'responsible’ and ‘fair’ litigation as envisaged by the Jackson reforms, and the government intends to review the reforms towards the end of the period between April 2016 and April 2018.
We suspect the reality is that little will change in the long term. IPs will still be able to use CFAs and/or ATE insurance (albeit without recoverability), and parties will still consider early settlement; engaging in ADR and reaching global settlements. It is these things R3 said were at risk if the exemption was removed.
IPs will also still be able to take advantage of third party funding, and no doubt funders (existing and new) are readying themselves with an increased offering of financial solutions to reflect the change. Creditors may also again support claims, funding litigation in the conventional way, as they did pre-April 2000. The exception to this, however, may be for claims of modest value. IPs may well now think twice about pursing these claims given the economics involved, but as noted above, this simply brings insolvency proceedings into line with other types of claim.