Supreme Court rules on third-party litigation funding

It was a ruling that was long awaited but not the outcome that was hoped for by litigation funders who will now be seeking to redraft agreements. 

In PACCAR Inc & Ors v Competition Appeal Tribunal & Ors the Supreme Court ruled (by 4 to 1) that as the litigation funding agreements (LFAs) in question fell within the statutory definition of damages-based agreements (DBAs) but without satisfying the conditions of DBAs, which was critical for their enforceability. The funding agreements were therefore deemed unenforceable.

The background of the appeal related to truck manufacturers and competition law, after a European Commission decision in 2016 that five companies had operated a cartel. In order for compensation to be sought for the higher prices paid as a result of breaching EU competition law, a collective proceedings order from the Competition Appeal Tribunal is required. To be successful in obtaining this, it has to be shown adequate funding arrangements are in place, and reliance was placed on the LFAs. 

The respondents position was that these LFAs do not constitute DBAs within the meaning of the relevant legislative provision (s 58AA of the Courts and Legal Services Act 1990 as amended in 2013 (“section 58AA” and “the CLSA 1990”, respectively), and accordingly are lawful and effective funding agreements. The Supreme Court did not agree, ruling that litigation funding falls within the express definition of ‘claims management services’ - which includes ‘the provision of financial services or assistance’ - in the Compensation Act 2006.  

In a joint statement, the International Legal Finance Association and the Association of Litigation Funders of England and Wales said: “We are disappointed by this decision as it runs contrary to the accepted understanding that financing agreements are not damages based agreements. The decision is not generally expected to impact the economics of legal finance and will not deter our members’ willingness to finance meritorious claims. It will only affect how legal finance agreements are structured so that they comply with the regulations and individual financiers will have been considering what if any changes are needed to their own legal finance agreements as a consequence of this decision.”

Posted on 09/06/2023 by Ortolan

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