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27 July 20234 minute read

Litigation funding for competition law claims?

In a landmark decision, the UK Supreme Court has held that litigation funding agreements in a follow-on competition law damages action were unenforceable. This will have wide-reaching implications in the UK, but will it impact the availability of litigation funding in New Zealand? In short, no.

For us in New Zealand, the important points to note about this decision are:

  • The result was specific to the legislation in the UK, and there is no comparable legislation in New Zealand.
  • Litigation funding remains a legal option in New Zealand, including for claims of anti-competitive and cartel conduct.
  • Follow-on damages claims in competition law cases are increasing and are attractive to litigation funders. A follow-on claim comes after the breach has already been established by a regulator, meaning less uncertainty for the funder.

More generally, the UK decision is another reminder of the need for companies and other market players to be vigilant about complying with competition laws. There are significant risks. Even well-intentioned actions can be a breach, such as collaborating with another party on sustainability, environmental or climate change issues.


The UK decision

The UK Supreme Court issued a long-awaited decision last night about the enforceability of litigation funding agreements in a follow-on competition law damages action.

In this case, R (on the application of PACCAR Inc. and others) v. Competition Appeal Tribunal and others, [2023] UKSC 28, the UK Supreme Court held that litigation funding agreements in that case were unenforceable.

Under specific UK legislation, "Damages Based Agreements" are not enforceable unless certain conditions were met. The question before the Court was whether the litigation funding agreements in this case were Damages Based Agreements, as defined in the legislation. Four of the five judges of the UK Supreme Court found that the agreements were Damages Based Agreements and therefore unenforceable, as the conditions had not been met.

The decision has wide-reaching impacts for litigation funders in the UK and will likely call into question a significant number of litigation funding agreements that are currently in place.


What this means in New Zealand?

As noted above, there is currently no specific legislation that regulates litigation funding in New Zealand.

The Law Commission has made recommendations to the government about introducing some specific legislation, but this has not yet been picked up. So, in New Zealand, we do not have comparable legislation to that considered in this UK Supreme Court case, and the issues in question do not arise.

Therefore, this case will not have any direct impact on the New Zealand litigation funding market, which can continue to operate as it currently does.


What is a follow-on damages claim and what does this case relate to?

The UK Supreme Court's decision was made in a price-fixing case against truck manufacturers brought by the Road Haulage Association Ltd., a trade body, and special purpose vehicle UK Trucks Claim Ltd. The case followed a European Commission decision that certain truck manufacturers had engaged in cartel conduct by entering into an agreement to pass on the costs of compliance with stricter emissions rules. The European Commission imposed a record fine of €2.93 billion on the truck manufacturers in 2016.

Competition law breaches can attract significant penalties, but affected parties can also pursue a follow-on damages claim and these are becoming increasingly common. Follow-on competition damages claims are also attractive to litigation funders and we expect to see more activity in New Zealand in this space.

The context also provides a useful reminder that agreements or collaboration about emissions rules or wider sustainability goals, can attract competition law risk.