New UK law to reverse ruling in PACCAR

On 4 March 2024, the UK government announced its intention to introduce new legislation to help claimants who are pursuing damages claims to obtain funding. The new law is expected to reinstate the position on litigation funding agreements (LFAs) to how it operated before the Supreme Court’s bombshell decision in PACCAR last year.

In R (on the application of PACCAR Inc and others) v Competition Appeal Tribunal and others¹ the Supreme Court held that LFAs under which the funder takes a share of any damages recovered constitute a “damages-based agreement” (DBA). DBAs are strictly regulated under the DBA Regulations 2013.² See our previous article – Supreme Court: Litigation funding agreements are “damages-based agreements” which considers the decision in PACCAR in more detail.

Initially, it remained unclear whether the decision in PACCAR extended to other funding arrangements, such as where the funder is compensated by way of a multiple of the funds invested if the claim is successful. Subsequently, in Alex Neill Class Representative Ltd v Sony Interactive Entertainment Europe Ltd³ the Competition Appeal Tribunal (CAT) certified a Collective Proceedings Order (CPO) application for an opt-out class action, where the LFA had been revised following PACCAR, so that renumeration would be a multiple of funding. However, the CAT gave Sony permission to appeal to the Court of Appeal on the basis that there needs to be a “conclusive decision” on post-PACCAR litigation funding.

In another interesting recent decision at the CAT (McLaren Class action⁴), a revised LFA was found to be enforceable even though it still allowed the funder’s fee to be calculated by reference to any proceeds. The CAT held that this was not a DBA as the relevant provision was contingent on such an arrangement being legal and enforceable (which it is currently not following PACCAR).

Due to the uncertainty created, there have been calls for the government to make legislative changes. On 31 August 2023, the Department for Business and Trade made a statement saying it was aware of the decision and looking at all available options to bring clarity. The government has already tabled an amendment to the Digital Markets, Competition and Consumers Bill such that a LFA would not be classed as a DBA in opt-out collective proceedings in the CAT. While this amendment was important as opt-out proceedings are not permitted under DBAs, it was thought not to go far enough, as it did not fully reverse the effect of the PACCAR decision. Further pressure was then placed on the government after former sub-postmaster Alan Bates broadcast his support for litigation funding, acknowledging that the sub post-masters’ claim was only possible as a result of financial support from a litigation funder.

The government’s latest press release indicates that a more radical legislative change will be introduced to allow the position on LFAs as existed before PACCAR. We expect changes will be introduced which mean LFAs will not be considered to be a DBA regardless of the funding structure and will not therefore need to comply with the onerous DBA regulations. The press release says that the new law is intended to make “justice more accessible for innocent people wronged by powerful companies”. Although the press release promises new legislation shortly, it is not clear whether this is likely to happen before the anticipated 2024 general election.

The press release also confirms that the government is considering a wider overall review of the sector and the operation of third-party litigation funding. Consideration is likely to be made of whether there is a need for increased regulation or safeguards for people bringing claims, particularly given the exponential growth of the litigation funding sector over the past decade. It is not yet clear when or how such a review will proceed.