Regulatory relief: UK government introduces legislation to reverse Supreme Court judgment in PACCAR on litigation funding agreements

On 19 March 2024, the Government introduced draft legislation in the House of Lords, in the form of the Litigation Funding Agreements (Enforceability) Bill (HL Bill 56) (the Bill), to address the impact of the Supreme Court’s majority ruling in the PACCAR ¹ case in July 2023 that litigation funding agreements (LFAs) may be damages-based agreements (DBAs) and thus unenforceable: 

• insofar as they relate to opt-out collective proceedings before the Competition Appeal Tribunal; or
• if they relate to other proceedings, if and to the extent they do not comply with the requirements of the Damages-Based Agreement Regulations 2013 (which restrict the return to the funder where calculated as a percentage of recovered damages). 

The ruling in PACCAR had run counter to broadly-held views in the litigation funding market that LFAs were not DBAs. Lord Chancellor Alex Chalk MP announced on 4 March that focused legislation was coming to address the resulting uncertainty caused, and the draft Litigation Funding Agreements (Enforceability) Bill and explanatory notes have now been unveiled.

The legislative proposal is short and simple: it introduces an amendment to the definition in section 58AA the Courts and Legal Services Act 1990 of a damages-based agreement. A new subsection (3)(aa) will provide that “an agreement is not a damages-based agreement if or to the extent that it is a litigation funding agreement”. A new sub-section (3A) will then define a litigation funding agreement for these purposes. 

There had been speculation as to whether and how the legislation would have retroactive effect. Sub-section four of the draft Bill provides that the amendments it introduces will indeed be treated as always having had effect. 

The Government’s intention behind the legislative proposal is that it should: 

1. reverse the effect of the Supreme Court’s PACCAR ruling that litigation funding agreements are damages-based agreements (and outstanding satellite disputes about the enforceability on this basis of funding agreements in other cases should therefore also fall away); and
2. resolve uncertainty caused by the PACCAR ruling in this regard in the litigation funding market and in relation to current and past funded litigation. 

We and many others will watch the Bill’s passage through Parliament with interest.

¹R (on the application of PACCAR Inc and others) v Competition Appeal Tribunal and others [2023] UKSC 28 (which concerned an underlying claim against truck manufacturers regarding anti-competitive behaviour).