In a written statement in Parliament last month, justice minister Sarah Sackman KC said legislation would be brought forward as soon as parliamentary time allows and would have ‘prospective effect’. The litigation funding market, which is self-regulated on a voluntary basis, will be made subject to ‘proportionate’ regulation. The proposals act on the two main recommendations of the Civil Justice Council’s review of third-party funding, published in June.
In R (on the application of PACCAR) v Competition Appeal Tribunal [2023] UKSC 28, the Supreme Court held third-party litigation funding agreements are legally categorised as damages-based agreements (DBAs), and therefore unenforceable.
The decision led to uncertainty and lost confidence in the litigation funding industry. Sackman referenced the ‘vital role’ played by litigation funding where there is inequality of arms, for example, in Sir Alan Bates’ claim against the Post Office, and noted that PACCAR ‘risks undermining the competitiveness of England and Wales as a global hub for commercial litigation and arbitration, both of which bring significant benefit to the UK economy’.
The previous government’s bill to reverse PACCAR with retrospective effect was interrupted by the 2024 general election, and stalled by the incoming Labour government while the Civil Justice Council conducted its review.
David Greene, co-president of the Collective Redress Lawyers Association (CORLA), said: ‘This announcement is good news for ordinary people seeking access to justice.
‘However, while the government has recognised the urgent need to reverse PACCAR, the proposal to regulate litigation funding agreements as part of the proposed legislation is likely to add considerable delay. We therefore urge the government to introduce an urgent bill to reverse PACCAR, and that the thornier issue of what light touch regulation of litigation funding might look like be considered separately.’
Joseph Evans, partner, Charles Russell Speechlys, said: ‘The government statement boasts that the proposed legislation will be a victory for access to justice for claimants suing rich and powerful organisations in the UK.
‘However, we must also remember that commercial litigation funding attracts huge returns, meaning the funders will often receive the lion’s share of recoveries in a case, and it is the funders who perhaps stand to profit most of all. Although PACCAR threatened to derail the funding industry for a while, most of the uncertainty surrounding it disappeared earlier this year following unsuccessful challenges to funding arrangements brought before the Competition Appeals Tribunal by Sony, Apple, Visa and Mastercard.
‘The Tribunal ruled that it would be “absurd” for the funding arrangements in that case, under which the funder’s return was calculated on a multiple of the investment it had made, to be considered a DBA. There does remain some uncertainty where the funder’s return is calculated on a percentage of the damages in the case, which is something the legislation will clear up.’
Law Society president, Mark Evans welcomed the proposed legislation but called for ‘more information on the timeline for introducing this legislation’.
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