In a judgment released this week the Supreme Court has held that litigation funding agreements (“LFAs”), by which a third-party funder finances litigation costs in return for a percentage of any damages successfully recovered, fall within the definition of “damages-based agreements” (“DBAs”). Accordingly, LFAs are required to meet the special conditions set out by law which apply to DBAs.

Based on the Supreme Court’s judgment, any pre-existing LFAs which do not meet these conditions may now be unlawful and unenforceable.  The judgment has potential to impact significantly on the whole litigation funding sector because, as the Court was informed, most third-party litigation funding agreements currently in place do not, in practice, satisfy these conditions (the general assumption having been that LFAs are not DBAs). 

In a dissenting judgment Lady Rose acknowledged that the Supreme Court judgment would likely require “a radical review” of the entire litigation funding sector in the UK.  At the very least, for both pre-existing and future LFAs, action may be required to ensure appropriate compliance with the DBA conditions.

Next steps

We recommend actively considering whether you have any involvement with LFAs that could be impacted by the Supreme Court’s judgment.