Litigation funding agreements have been very much in the spotlight since the decision in R (on the application of PACCAR Inc and others) v. Competition Appeal Tribunal and others,[1] in which the Supreme Court of the United Kingdom found that a funding agreement that provided for the funder’s remuneration to be calculated as a percentage of any damages recovered was an unenforceable damages-based agreement (DBA). Given the prevalence of such funding agreements, the judgment was a significant cause for concern.
However, since then, draft legislation has been introduced to carve out opt-out collective proceedings from the effect of the judgment, the Competition Appeal Tribunal has approved funding agreements that provide for the funder’s remuneration to be calculated as a multiple of the funds provided or a percentage of any damages to the extent enforceable and permitted by law, and the Ministry of Justice announced that the Lord Chancellor will introduce legislation to restore the litigation funding position that existed before PACCAR.
PACCAR
The UK Supreme Court held in PACCAR that a funding arrangement providing for payment to the funder based on a percentage of damages received fell within the definition of a DBA. DBAs are required to comply with a strict regulatory regime, and as the funding agreement in this case did not comply, it was unenforceable. Further, the Competition Act 1998 specifically provides that DBAs in respect of opt-out collective proceedings in the Competition Appeal Tribunal are unenforceable. See our July 2023 blog post on this case for further details.
As the UK Supreme Court itself recognised, the consequence of the decision was that most litigation funding agreements then in place were unenforceable as the law stood. Unsurprisingly, various stakeholders were highly motivated to reduce the impact of the judgment.
Legislatives carve out for opt-out collective proceedings
The first development was the UK government’s quick introduction of a draft amendment to the Competition Act 1998 via the Digital Markets, Competition and Consumers (DMCC) Bill. The amendment specifies that litigation funding agreements would not be considered DBAs in the context of opt-out collective proceedings in the Competition Appeal Tribunal. The DMCC Bill is currently making its way through UK Parliament.
The Competition Appeal Tribunal’s approval of funding agreements
While the change in law has yet to be confirmed, funders have sought to allow for remuneration by reference to damages if/when that happens by providing for alternative remuneration – either as a multiple of the funds provided or as a percentage of damages recovered ‘only to the extent’ that such recovery is ‘enforceable and permitted by law’.
The Competition Appeal Tribunal has now considered two funding agreements containing such provisions (most recently in Mark McLaren Class Representative Limited v. MOL (Europe Africa) Ltd and others[2]) and approved them. The tribunal determined that the conditional nature of the provision – which meant that there would be no payment determined by reference to the proceeds unless and until there was a change in the law – made the clause acceptable. Further, as a matter of freedom of contract, it was open to the parties to agree on such a provision, and the tribunal could see no reason of public policy or otherwise to make it objectionable.
The Ministry of Justice’s announcement
Finally, this week, the Ministry of Justice announced that the Lord Chancellor would soon be introducing legislation to restore the position in respect of litigation funding to what it was prior to PACCAR. It is not clear what form this legislation will take, or its scope, but it is perhaps notable that the announcement focussed on the need ‘to make it easier for members of the public to secure the financial backing of third parties when launching complex claims against moneyed corporations with sizeable legal teams which they could otherwise ill-afford’. The wait to find out about the government’s proposals shouldn’t be too long, as we are told legislation will be introduced ‘shortly’.
[1] [2023] UKSC 28.
[2] [2024] CAT 10.
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