CFA Success Fees and ATE… Again

Another attack on Conditional Fee Agreements (CFA) and the recoverability of uplifted fees from respondents in insolvency proceedings has been defeated.

We have commented before on the exemption extension given to the insolvency profession enabling office holders in insolvency proceedings to engage solicitors under CFA and to take out After the Event (ATE) Insurance when issuing legal proceedings and to recover legal fees, success fees and ATE premiums from defendants when those actions succeed.

As if it was not enough for the insolvency profession to have had to fight tooth and nail to retain the ability to issue proceedings under CFAs and supported by ATE Insurance (for the time being), the case of Coventry & Ors v Lawrence and Anor, alleging that such agreements breached the European Convention on Human Rights, has now been considered by the Supreme Court

This was an application in a non-insolvency case involving “pre Jackson” CFA and ATE Insurance and had been under consideration by the Supreme Court since last year. The Court had during this period, allowed interventions from a number of senior interested parties including the secretary of state for justice, the Law Society and the Bar Council.

In July 2015 the Supreme Court ruled by a majority of five to two, that the recovery of costs under a CFA together with success fees and ATE insurance premiums was indeed compatible with the European Convention on Human Rights.

Whilst this was a non-insolvency case, the ruling applies equally to litigation issued by office holders in insolvency proceedings under a CFA and protected by ATE Insurance.

The message to defendants in insolvency proceedings is therefore clear; unless you are supremely confident that you will win, take steps to settle before the Insolvency Practitioner enters into a CFA and takes out ATE insurance. Losing could otherwise be an extremely expensive affair.

The future however still holds some doubt. The extension given to the insolvency profession in February 2015 was temporary only, whilst the Ministry of Justice considered other alternatives for bringing litigation in insolvency proceedings. News on this is expected towards the end of 2015.

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