Recent Developments In Litigation Funding

In this journal in 2015, I wrote on the subject 'Funding insolvency litigation: a new dawn', outlining various streams of funding available to insolvency practitioners (IPs) (see (2015) 5 CRI 183). Since then, the sun has set on one era and risen again. This article considers key developments in litigation funding in recent years, as well as upcoming reforms which may further change the landscape.

Key Points

The Jackson reforms have now bitten on insolvency proceedings, meaning insolvency practitioners cannot recover the costs of conditional fee agreements and after the event insurance entered into after 6 April 2016. Unfortunately, the alternative funding models introduced by the same reforms have not been well used. However, there remains a range of options for funding insolvency litigation other than from the insolvent estate, with legal representatives, insurers, commercial funders and insolvency practitioners themselves coming up with innovative packages of funding. Conditional fee arrangements (CFA)

One of the key means of funding insolvency litigation has historically been the CFA, which is a funding arrangement under which all or part of the legal fees and expenses incurred on a matter will be payable only if the claim succeeds. A full CFA is thus colloquially known as a 'no win, no fee' arrangement. The payoff is that, to offset the risk of not recovering their fees on an unsuccessful claim, lawyers will charge an uplift of up to 100% of their basic fees in the event of success (as defined in the CFA), known as the success fee.

CFAs are often used in conjunction with an after the event insurance (ATE) policy. In the case of a full CFA, if a claim is unsuccessful, the IP pays none of its own legal costs, and their successful opponent's legal costs and disbursements are covered by the ATE policy. If the claim succeeds, the IP pays its lawyers' basic fees plus the success fee and the ATE premium (which is often deferred until the outcome of the case). What historically made this funding combination even more popular was that a successful litigant could in principle recover both CFA success fees and ATE insurance premiums from their unsuccessful opponent, in addition to basic fees. CFAs backed by ATE therefore allowed IPs to commence proceedings without up-front costs, and eliminate the risk of an unsuccessful claim having to be funded out of the assets of the insolvent estate.

The landscape changed somewhat when the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) came into force, implementing many of the costs reforms proposed in Lord Justice Jackson's 2009 Review of Civil Litigation Costs. One of the effects was that in most civil proceedings, success fees and ATE premiums would no longer be recoverable from the losing party for CFAs and ATE policies entered into after 1 April 2013. Litigants could still obtain the costs protection of CFAs and ATE, and use them to defray (in the case of success) or defer (in case of loss) the payment of legal costs, but the costs of that funding could no longer be visited on their opponent.

There was, however, a carve out for certain types of proceedings, including insolvency proceedings, which were given a longer grace period where these funding costs would...