What developments can we expect in ATE and litigation funding in the coming year?

The start of a new year is always an opportune time to take a look at what the next 12 months have in store. So what is likely to happen in the world of costs, funding, and after-the-event insurance?

On the third-party funding front, I am told that there are plans for at least one new funder to come onto the commercial litigation scene this year; and I suspect that there will be more.

In general, the expectation is that the funding industry will grow, with more funders entering the market. That will be good news for lawyers (in the commercial sector, at least), with more capital available to support their cases. It may even do something to address the current lack of real competition on price between funders – which is hampered by the fact that most funders insist on the protection of an exclusivity deal with the lawyer before they can roll their sleeves up and get stuck in to the serious work they undertake before deciding whether to invest.

As the funding market expands, the big question is whether anyone will succeed in making funding work for the lower-value cases; for example by working more closely with law firms to fund a group of cases. That question is explored in more depth in February’s Litigation Funding. There are difficult economic barriers to cross, but if competition for the high-value cases starts to become more fierce, perhaps there will be greater incentive to experiment at the lower end.

We will also see change in the ATE market, with insurers finding new, more flexible ways to support clients. As broker TheJudge predicts (also in February’s Litigation Funding), we may see greater use of some more unusual techniques, such as ATE being used to cover the deferment of a lawyer’s own side costs, to help clients with the ongoing expense of bringing the case. The idea is that by using ATE in this way, the lawyer can defer a bigger proportion of their fees than they would be able to under a partial CFA. By the time we get to April, the Jackson reforms will have been in place for a year, and insurers will have a better idea of how their bottom lines have been affected by the changes to recoverability, and whether or not this is a business that they want to stay in.

Another development this year should, of course, be the new – and hopefully improved – regulations governing damages-based agreements. Lawyers have tended to assume that the revised regs will permit ‘hybrid’ DBAs which will allow them to combine the DBA with other methods of funding or payment.

But at an event on third-party funding held by the Westminster Legal Policy Forum last month, Civil Justice Council member Professor Rachael Mulheron had a word of warning on this – she pointed out that the debate about whether or not hybrid DBAs should be permitted is still ‘rumbling on’, and as far as anyone knows, the policy decision on whether or not to allow them has not yet been made. Whichever way that decision ultimately goes, one only hopes that – on the second attempt – the regulations will actually make the position clear.