In a landmark decision handed down this week, R (PACCAR Inc & Ors) v Competition Appeal Tribunal and others [2023] UKSC 28, the court ruled that such agreements amount to damages-based agreements (DBAs), as funders receive a percentage of any damages awarded.
Garbhan Shanks, commercial litigation partner at Fladgate, said: ‘The Supreme Court’s ruling today that the litigation funding agreements in place for collective proceedings in the Competition Appeal Tribunal are not enforceable because they fall foul of the [DBA] statutory conditions is clearly an unwanted outcome for claimant side lawyers and funders in this space.
‘It will be quickly cured, however, with restructured compliant agreements, and the increase in collective and group action proceedings in the UK supported by ever-increasing third party funding capacity will continue at pace.’
The initial case concerned a European Commission finding that five major European truck manufacturers had been operating a cartel. The Road Haulage Association and a claims company separately sought permission to bring collective claims on behalf of customers. The appeal centred on whether the funding of the claims via a DBA was within the law.
The court held by a 4–1 majority it was not lawful, Lady Rose dissenting.
Mohsin Patel, director and co-founder at litigation finance broker Factor Risk Management, said the judgment ‘will have a significant and immediate negative impact on the funders in this case and more generally, as they find that their agreements are now potentially unlawful.
‘This will have serious repercussions, particularly for claims that have been brought on an “opt-out” basis which now face the double whammy of their funding agreements not only being in breach of the DBA regulations but also being unable to cure any breach through renegotiation as DBAs are not permitted in opt-out claims.
‘While many litigation funders will be reviewing their litigation funding agreements and considering their next steps in light of this judgment, the consequences may well not be as widespread as expected. Given that funder returns in many litigation funding agreements are structured as multiples of funds invested as opposed to a fixed share of damages, these should therefore fall outside of the DBA regulations.
‘Needless to say, the fallout from the issues raised and uncertainty caused by this judgment will have a far-reaching impact on the industry as a whole, and serve to be a retrogressive step for an industry still in its infancy. Overall, a bad day for consumers, funders and lawyers as a whole.’
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