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The Scottish Government has announced that they are to embark upon a review of litigation funding, echoing the evaluation undertaken by Sir Rupert Jackson in his Civil Litigation Costs Review in England and Wales.

The review will be undertaken by Sheriff Principal James Taylor and he is not expected to report back to Scottish Ministers for another 18 months. The terms of reference will include consideration of the affordability of litigation and how Scotland compares to litigation disputes centres across the globe.

Whilst the assessment will take into account all types of litigation funding including contingency fees, third party funding and before the event insurance, what it will say in relation to after the event insurance and conditional fee arrangements is of particular interest.

It is quite possible that the final Scottish report will be published around the same time that recoverability of ATE insurance premiums and CFA success fees in England and Wales could be coming to an end, assuming some commentators are right in predicting the reforms for late 2012 (if indeed they happen at all).

It is possible that the review could recommend Scotland makes itself more attractive as a centre for litigation by introducing recoverability. As England and Wales becomes a more hostile environment for certain types of litigation, Scotland may see an opportunity and move in the opposite direction.

The problem for the Coalition is that, if they decide to change their mind and re-introduce recoverability, perhaps influenced by the Scottish review, the damage to the ATE market may mean it is not possible. Ironically, the damage may itself have an impact on the availability of after the event insurance in Scotland as many of the insurers are London markets whose portfolio is dependent on a healthy market south of the border.

The after the event insurance market has not heavily invested in Scotland traditionally, due to the lack of recoverability, albeit the demand for legal expenses cover is there. However, as England and Wales contemplates a non-recoverable regime, after the event insurers and funders will become increasingly interested in commercial litigation where the premiums can be absorbed within the client’s recovery in many jurisdictions around the world.

If you would like to learn more about how litigants in Scotland can remove their risk through after the event insurance, contact us.