Unless you have a real interest or you are an academic, do not read the decision of the Supreme Court. If you do read R (On the Application of PACCAR Inc and Others (Appellants) v CAT and Others (Respondents) (2023) UKSC 28, please have a cafetiere available and a cold towel!
The effect of the decision by The Supreme Court, Lady Rose dissenting, has sent shockwaves through the litigation funding market and shows the urgent need for parliament to intervene.
In essence, this case was about whether certain group actions in the Competition Appeals Tribunal had proper funding to allow them to proceed. These actions arose from decisions of The European Court that certain truck companies were cartels and guilty of anti-competitive behaviour. The remedy for those affected by the cartels in England and Wales is to bring follow on actions for damages in the CAT. To do so various collective actions have been commenced but the defendants challenged the funding of these group actions upon the basis that the third-party litigation funding agreements were, in fact Damages Based Agreements (DBA) and, as they didn’t comply with the statutory conditions applying to a DBA, they were unlawful and unenforceable. The defendants failed to persuade the CAT and the Court of Appeal was also singularly unimpressed. However, they did persuade the majority of The Supreme Court of the correctness of the decision. Simply put, a litigation funding agreement is a DBA because the funder is providing claims management services as defined by s. 4 Competition Act 2004 and is taking a share of the proceeds received by the funded case. Most litigation funding agreements will not comply with S 58AA of The Courts and Legal Services Act and the DBA Regulations because they will provide that the funder will be taking a share of the proceeds including rather than net of costs.
The decision means that, going forward, it will not be possible for funders to use what has been the standard agreement whereby the funder shares in the gross take of the successful claimant. More worrying is the possibility (no higher than that) that a funded party who has recovered damages pursuant to a funded claim is disgruntled about the percentage he has had to give away to the funder and decides to sue for its recovery upon the basis that the agreement was unenforceable.
In relation to future claims, the easiest solution for funders is not to go for the share of damages option but the option found in a minority of funded agreements, namely the recovery of a multiple of the money invested. The other possibility is to take a share of recovered proceeds net of costs but that would still leave the funder having to comply with all the other DBA conditions, which may not be possible or attractive. Finally, there is the “portfolio” option in which funders fund the solicitors who then deploy the funds pursuant to conditional funding agreements. This is not realistic for most solicitors who do not have a portfolio of fundable cases.
The real answer is for parliament to intervene. Unity would like parliament to pass legislation making access to justice easier and cheaper for all, whether it be by legitimising litigation funding or expanding civil legal aid. However, the Secretary of State could solve the problem very easily by statutory instrument to implement s 58B of The Courts and Legal Services Act rather belatedly which provides a definition of litigation funding agreements with which current agreements could easily comply.