An Act of Oblivion and Indemnity

The decision of the Supreme Court in R (on the application of PACCAR Inc and others) (Appellants) v Competition Appeal Tribunal and others (Respondents) [2023] UKSC 28 has prompted much litigation, an arbitration, and some degree of angst and soul searching since it was handed down last summer.

Now, with surprising speed, the government has leapt into action with the publication of the Litigation Funding Agreements (Enforceability) Bill, which is meant to reverse the decision. As the Explanatory Notes to the Bill state:

4 Prior to the Supreme Court judgment in PACCAR, LFAs worked and enabled individuals, groups of individuals, and small and medium sized corporations to obtain funding to bring claims against well-resourced corporations and others which they could not otherwise afford.

5 However, on 26 July 2023, the Supreme Court held that litigation funders provided claims management services as defined in section 419A of the Financial Services and Management Act 2000 (c. 8), which includes the provision of financial services or assistance under section 419A(2)(a). Accordingly, it further held that LFAs in which the litigation funders’ fee is calculated by reference to a share of the damages recovered in the litigation were DBAs as defined in Section 58AA(3)(a) of the CLSA 1990 (c. 41) which defines a DBA as an “agreement between a person providing advocacy services, litigation services, or claims management services and the recipient of those services”. This reversed the finding of the CAT and the Divisional Court, and the commonly held view that LFAs were not DBAs.

6 Before the Supreme Court judgment, LFAs were unregulated and not considered in scope of either section 58AA CLSA 1990 or the Damages-Based Agreement Regulations 2013 (“DBA Regulations”) made under that section. LFAs do not generally comply with the DBA Regulations and are therefore made unenforceable by the PACCAR judgment. As such they will be unenforceable between the litigation funder and the funded party, which means, in turn, that the payment of costs to a successful funded party will not be enforceable against a losing party. Moreover, in opt-out proceedings in the CAT, the use of DBAs is prohibited, and, without adequate funding in place that is sufficient to meet not only the claimant’s own costs but also any adverse costs order made against them, the claim will not be allowed to proceed.

7 The Supreme Court judgment rendered LFAs unenforceable. Uncertainty around litigation funding risks a detrimental impact on the attractiveness of the England and Wales jurisdiction as a global hub for commercial litigation and arbitration, and on access to justice more broadly.

8 The Government announced by way of a Written Ministerial Statement on Monday 4 March 2023 it will introduce new legislation that will restore the position that existed before the Supreme Court ruling and ensure cases can continue being funded via LFAs.

The actual text of the Bill can be found here:

It is short, and doubtless to the eyes of litigation funders, delightfully sweet. The Bill has been introduced in the House of Lords, has reached the second reading stage, and given the lack of other meaningful measures in the government’s legislative programme, probably has a good chance of becoming law, before the summer recess, followed by the party conference season, followed by that long awaited election.

But this may not be the last piece of legislation on litigation funding. There is to be a more general review of litigation funding, the terms of which are yet to be set. The European Union is moving to regulate litigation funding. The spectre of caps on returns is being openly debated. And it may yet be the case that litigation funding, which has hitherto escaped regulation for decades, will find that its move into the consumer space, triggers a regulatory seachange.

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