A ‘common sense victory for creditors’

The ruling in the recent Coventry v Lawrence case meaning that original cost agreements in ongoing cases undertaken under pre-Jackson conditional fee agreements (CFAs) or after-the-event (ATE) insurance arrangements will be upheld, has been welcomed by the profession.

By way of context, the case was a nuisance claim (valued at £74,000) where costs stood at in excess of £1m. The subsequent costs challenge concerned the liability to pay a fee to the successful party’s lawyers above base costs, to compensate them for acting on a Conditional Fee Arrangement and an ‘After The Event’ insurance premium in return for an insurance company has agreed to underwrite any liability for costs had the other party won. Had the decision gone the other way, legal action by insolvency practitioners to retrieve money for creditors going forward would be largely unaffordable.

The Supreme Court had been considering the decision since last year and had permitted interventions from senior interested parties including representation from the insolvency profession.

This ‘case had huge implications for creditors in insolvencies in cases where money was being withheld from them by directors or third parties,’ commented Frances Coulson, chair of R3’s (the Insolvency Industry trade body) fraud group. She added that ‘a decision the other way would have made legal action by insolvency practitioners to retrieve the money unaffordable in most cases……risking as much as £160m per year not getting back to creditors from rogue directors and others’. However, she then went on to advise that the threat to creditors’ money is not over, given that the Ministry of Justice is set to make a decision on how insolvency litigation is funded by the end of the year. ‘It’s important that that decision goes in creditors’ favour too’ she added. Contact us.