Litigation Funding Bill to reverse PACCAR

Good news for funders

As we predicted, the Government has introduced a short Bill to Parliament with the intention of reversing the effect of the Supreme Court judgment in R (on the application of PACCAR Inc) v The Competition Appeal Tribunal. This held that all Litigation Funding Agreements (LFAs) where the funder's return is potentially based on the damages recovered are Damages Based Agreements (DBAs) and subject to the 2013 DBA Regulations. No funders had worked on this basis and so many LFAs did not comply, with the effect that they became unenforceable.

In the face of heavy lobbying, including a letter to the FT in praise of litigation funding from Alan Bates, the founder of the Justice for Subpostmasters Alliance, it was clear that the Government would take action. It had previously proposed dealing with the difficulties funders faced by way of a small amendment to the Digital Markets, Competition and Consumers Bill. However, this would only have assisted funding agreements made in Competition Appeal Tribunal proceedings. That amendment has now been dropped in favour of the Litigation Funding Agreements (Enforceability) Bill which amends the Courts and Legal Services Act 1990 to simply state that no agreement is a DBA if it is a LFA. This will apply to LFAs in all manner of proceedings. Unusually, this is stated to be retrospective.

A missed opportunity?

While a relief for funders, the new Bill could be seen as a missed opportunity. Since their introduction a decade ago, the use of DBAs has been far lower than might have been expected, largely because the 2013 Regulations are so restrictive. The Court of Appeal said in its 2021 decision in Zuberi v Lexlaw that "nobody can pretend that these Regulations represent the draftsman's finest hour." Under them, lawyers cannot offer any form of hybrid DBA with lower fees payable regardless of result and a success fee based on damages recovered or avoided. The "all or nothing" nature of DBAs has limited their use. Ways have been found of structuring fee arrangements to have the same effect for clients as a hybrid DBA, but the added complexity of involving insurers, for example, should be unnecessary.

The PACCAR decision offered an opportunity to restart the work of a Working Group on DBAs established with judicial support in 2015. This produced a well-thought through set of draft regulations to replace the 2013 Regulations, but the idea withered with the onset of COVID. In its haste to address PACCAR, the Government has taken the easy option of simply exempting LFAs from the 2013 Regulations, rather than replacing them with better thought-out legislation.

A wider review of funding?

This may not be the end of the matter though. The Government has also indicated that it is considering a review of litigation funding and has asked the Civil Justice Council to lead this. The focus for now is very much on third party funding and the balancing of access to justice with the commercial aims of funders. Is it too much to hope that this could lead to a wider review of funding options for clients and a more workable framework for DBAs?