The government’s new Litigation Funding Agreements (Enforceability) Bill is a very short Bill that packs a very big punch.
If enacted, it will restore the position that was widely understood before the Supreme Court’s controversial decision in R (on the application of PACCAR Inc) v Competition Appeal Tribunal [2023] UKSC 28 that litigation funding agreements (LFAs) are not damages-based agreements (DBAs).
As currently drafted, the Bill achieves this by amending the definition of a DBA in section 58AA(3)(a) of the Courts and Legal Service Act 1990.
The Bill provides that an agreement is not a DBA if it is a ‘litigation funding agreement’. It goes on to define an LFA as an agreement where a funder funds a litigant’s legal fees or the payment of an adverse costs order, in return for some form of payment to the funder.
To keep things simple, the Bill only addresses the Supreme Court’s finding that LFAs are DBAs; it does not attempt to reverse the Court’s finding that litigation funders provide ‘claims management services’.
What is particularly significant – and unusual – about the Bill is that it is retrospective in its effect; expressly stating that its amendments are to be treated as always having had effect.
This means that if enacted, it will put an end to the current arguments that are raging around whether particular forms of funding agreement, such as those based on a multiple of the sum invested rather than a percentage of damages, are DBAs, and therefore unenforceable. A number of appeals are currently pending on this point following decisions in the Competition Appeal Tribunal.
This Bill is hugely significant for the litigation funding industry. In announcing the government’s intention to bring the legislation forward earlier this month, lord chancellor Alex Chalk said:
‘Third-party litigation funding enables people to get funding to bring big and complex claims against bigger, better-resourced corporations, which they could not otherwise afford.
‘The Supreme Court judgment in July 2023 rendered third-party litigation funding agreements unenforceable. Uncertainty around litigation funding risks a detrimental impact on the attractiveness of the England and Wales jurisdiction as a global hub for commercial litigation and arbitration, and on access to justice more broadly.
‘This Bill will enhance access to justice and the attractiveness of a thriving UK legal sector which contributes over £34 billion per annum to the UK economy.
‘The Post Office Horizon scandal has also underlined the importance of third-party litigation funding, as the post-masters’ claim was only possible due to the backing of a litigation funder. This highlights a clear access to justice deficit which, without legislation to mitigate the impacts of the judgment in full, would continue indefinitely.
‘The new legislation, which will apply to all proceedings, will remove this risk and allow government to deliver a return to a funding regime which promotes access to justice, as well as enhancing the competitiveness of the jurisdiction’.
Litigation funders and their clients will be watching keenly as the Bill makes its way through Parliament.
March 28, 2024 by Rachel Rothwell
Insights
