LJ Jackson Backs Litigation Funding and Questions Legality of CFAs – 19th October 2015
Jackson Calls for End of Exemption and Points to Litigation Funding as a Key Alternative
Following his Mustill Lecture in Leeds on Friday 16th October 2015, LJ Jackson today released his formal opinion on whether the insolvency exemption from the LASPO reforms should continue.
The Judge concluded that: “The exemption should not continue. It should come to an end exactly as the Government proposed in May 2012. Furthermore by now the profession has had more than enough time to prepare for the changes.”
LJ Jackson justified his conclusion by giving four key reasons, these are set out in his formal opinion (see link below) which can be summarised as:
- Recovery of success fees and ATE in 2000 was intended for the very poorest people in society to gain access to justice, who at the time had lost Legal Aid.
- The Supreme Court found CFAs and ATE to be "oppressive" and had the "chilling effect of blackmail” - because the costs of the defendant were 4x the cost of the claimant (own costs, claimant costs x2 due to CFA uplift + ATE premium).
- CFAs and ATE lead to large increases in the costs of running cases – the CFA/ATE costs bill is often several fold larger than the damages alone.
- There are now of alternatives available to IPs in the financial markets to fund insolvency litigation, which do not fall foul of the three items above.
“Those who support a continuation of the insolvency exemption rely heavily upon the Walton Report. R3 make extensive reference to that report in their literature. …..In those circumstances, I shall pay close attention to the Walton Report in explaining the four reasons why – with the utmost respect – I disagree with R3, the Bar Council and many other campaigners on this issue.”
LJ Jackson then highlighted the alternative funding options open to IPs. He was keen for IPs to have as many options for funding insolvency litigation as possible. Litigation funding, and an obvious reference to Manolete Partners as the UK’s only specialist major insolvency litigation funder, feature high on his list:
“New funding options have opened up, which were unavailable in the past: (i) IPs will still be able to use CFAs and/or ATE, albeit without recoverability, if the present exemption ends. (ii) In larger cases IPs will be able to take advantage of third party funding, which is a new arrival on the litigation scene. A glance at the Internet reveals at least one major funder which specialises in insolvency litigation. (iii) IPs will also be able to use DBAs, which first became lawful in April 2013. It was an important element of the 2013 civil justice reforms that as many different funding options as possible should be made available to litigants. Unlike their forefathers, IPs will now be able to take advantage of these options. (iv) Since 1st October 2015 liquidators and administrators have been able to assign rights of action for fraudulent trading, wrongful trading etc pursuant to the provisions of the Small Business, Enterprise and Employment Act 2015. In some cases this enables them to raise money for the benefit of creditors without taking on the risks of litigation.”
However, more concerning for some IPs (although he states only 20% use CFAs and ATE) was LJ Jackson’s section upon whether the continuation of the exemption was lawful under the European Convention For Human Rights – paragraph 9 of his opinion.
Manolete Partners has never used a CFA arrangement and we now self-insure all adverse cost exposure from our own balance sheet. We believe that our model is the best, and fairest for all stakeholders, available on the market and our track record across 6 years and 115 cases pays testament to it:
- We have financed 115 cases – this makes us the largest and most experienced funder in the Northern Hemisphere;
- We have never lost a single case and never paid a penny of adverse costs;
- We have generated many millions of pounds in recoveries for insolvent estates - at no risk to the IP or creditor estate;
- Our recoveries are far higher than if a CFA/ATE solution had been utilised - on the vast majority of our cases we are engaged when the CFA/ATE has failed to deliver any return at all;
- We support IPs and their chosen legal team – paying millions of pounds in fees, as and when incurred on a case: and
- The average time to complete our cases is just 9 months from the date of financing.
This is why IPs, from the Big Four and to one and two partner regional practices, use Manolete Partners time and again – it delivers for all stakeholders.
LJ Jackson's full opinion can be seen at: https://www.judiciary.gov.uk/announcements/2015-mustill-lecture-by-lord-justice-jackson/