Is there light at the end of the PACCAR shaped tunnel?

With further spotlight being shone on the litigation funding industry following the depiction of the Post Office scandal in the must-see ITV drama, Bates v. The Post Office, will the government finally address the implications of the PACCAR judgment?

In what is often described as a nascent industry, July 26th 2023, will go down as a date to remember for litigation funding in the UK. In the case of R (on the application of PACCAR Inc. and others) v. Competition Appeal Tribunal and others [2023] UKSC 28, the Supreme Court held by a four-to-one majority that litigation funding agreements (LFAs) in which funders are entitled to a percentage share of damages fall within the statutory definition of damages‑based agreements (DBAs). In those circumstances, should an LFA fall foul of the requirements for a valid DBA, as detailed in Section 58AA of the Courts and Legal Services Act 1990 and the Damages Based Regulations 2013, they will be unenforceable. The implications of the decision are still not truly clear, with market commentators and players at odds as to the ramifications. What is clear is that funded deals in the UK are still being concluded. Both funders and funded parties have been working behind the scenes to review existing LFAs as well as LFAs that are close to being signed that are or were at risk of being unenforceable. In the context of the considerations applicable to funded parties, I believe it prudent to consider the past (concluded LFAs), the present (existing LFAs), and the future (LFAs that are being negotiated or on matters being considered for funding).

The question of enforceability arose in the context of the applications for collective proceedings orders (CPOs) of two claimants, UK Trucks Claim Ltd. (UTCL) and the Road Haulage Association (RHA). To obtain the relevant CPO, the applicants had to show that they had adequate funding arrangements in place; they chose to do so by relying on LFAs in which the maximum return to the funder was calculated as a percentage of the damages ultimately recovered from the litigation. The truck manufacturers, who were the respondents in the underlying competition claim, contended that the funding agreements could not be accepted as the LFAs were DBAs under Section 58AA (3) of the Courts and Legal Services Act. They further asserted that, as the LFAs did not meet the regulatory requirements for DBAs, they were unenforceable. Both UTCL and the RHA conceded that the LFAs did not satisfy the requirements, and the argument turned on whether LFAs, as drafted in this case, were to be construed as DBAs. The central issue in the appeal heard by the Supreme Court focused on whether litigation funders as capital providers offered ‘claims management services’. With reference to statute, the Supreme Court ultimately concluded that the role of a litigation funder does constitute a ‘claims management service’ given the reference to providing ‘financial services or assistance’ even when not directly involved with the management of a claim. Therefore, by extension, LFAs as drafted in the present case would be unenforceable.

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