Litigation Funding In The News Again
Author: Rachel McCulloch
Key Contact: Aisha Wardell
What is Litigation Funding?
Litigation funding is when a third party (the funder) provides the financial resources to enable a claimant to pursue litigation or arbitration. This is usually done in return for a share of any recovery received, but if the claim is unsuccessful, there is normally no obligation to repay the funder.
The UK has been considered a global leader for its use of litigation funding and the UK litigation funding market has grown quickly. Litigation funders in England and Wales can sign up to the voluntary Code of Conduct which is enforced by the Association of Litigation Funders (ALF). The Code includes provisions such as making sure funders maintain the financial resources to meet their liabilities and prevents funders from attempting to control the litigation.
A high-profile case that has utilised litigation funding is Bates v Post Office Ltd where over 500 sub-postmasters received litigation funding to help them pursue their case against the Post Office. Many, including Mr Bates, have stressed the importance litigation funding had in bringing the claim.
R (PACCAR Inc and others) v Competition Appeal Tribunal and others (PACCAR)
In the 2023 case of PACCAR, the Supreme Court ruled that litigation funding agreements (LFAs) are damage-based agreements (DBAs), which are agreements between a representative and a client where the fee payable to the representative is based on the amount of damages recovered. DBAs are not allowed in collective actions in the Competition Appeal Tribunal.
For DBAs to be enforceable, they have to comply with the DBA regulations. Prior to the PACCAR case, litigation funding agreements were not considered DBAs and so many did not comply with the DBA regulations. As a result of the decision, many LFAs became unenforceable. The decision has had a significant impact with many litigation funders who had to renegotiate their agreements.
In response to the PACCAR decision, the government proposed an amendment to the Digital Markets, Competition and Consumers Bill to allow the use of DBAs for litigation funders in opt-out collective proceedings heard in the Competition Appeal Tribunal. However, this does not address the issue that LFAs that do not comply with the DBA regulations may be unenforceable.
The UK Government’s Justice Secretary Alex Chalk has recently said that the Government intends to reverse the damaging effect of the Supreme Court ruling in PACCAR at the first legislative opportunity. The Government will likely be looking at the best way to change the current law so that litigation funding can continue to be permitted.
Whilst it remains to be seen what legislative changes will be made following this statement, it is likely to be welcome news to litigation finance funders.
If you wish to discuss the points raised in this article, please contact our Commercial Litigation Team and we will be happy to help.