UK government bides time on legislative action to reverse the effect of Paccar

The new Labour government has given an early indication on its initial approach to third-party litigation funding and the future of the former government's abandoned bill to reverse the effect of the UK Supreme Court's Paccar judgment in 2023. 

The Litigation Funding Agreements (Enforceability) Bill introduced by the former government in March was abandoned after it failed to make it through the parliamentary "wash up" prior to the general election, and excluded from the subsequent new government's legislative agenda published in July, which left many to consider the bill permanently abandoned.

While the bill is not presently on the legislative agenda, the Civil Justice Council's review of the litigation funding market in England and Wales is ongoing and the final report is due for publication in summer 2025.

The Labour government has not yet taken any action to resurrect the bill. However, in an answer on 1 August to a House of Lords written question for the Ministry of Justice, Labour peer Lord Ponsonby confirmed that the government "recognises the critical role third-party litigation funding plays in ensuring access to justice" and confirmed that it would take "a more comprehensive view of any legislation to address issues" once the Civil Justice Council's review is concluded.

Paccar recap

In October 2023, the UK Supreme Court, in R (on the application of Paccar Inc and others) v Competition Appeal Tribunal and others, determined that an LFA, which entitles the funder to a percentage of any damages or other proceeds recovered by the claimant, amounts to a damages-based agreement (DBA) under the definition in the Court and Legal Services Act (CLSA) 1990. 

The significance of an LFA being a DBA is that DBAs are unenforceable in opt-out collective proceedings before the Competition Appeal Tribunal under section 47C(8) of the Competition Act 1998 and in all proceedings, unless the DBA complies with regulatory requirements contained in the CLSA 1990 and the Damages Based Agreements Regulations 2013.

The decision in Paccar came as a nasty surprise to the litigation funding industry. Litigation funders had previously not considered LFAs based on a share of damages to amount to DBAs. As a result, many of the LFAs that were entered into prior to the Supreme Court decision in Paccar related to opt-out collective proceedings that were before the Competition Appeal Tribunal or were not drafted in such a way as to comply with the DBA regime. This has led to concern in the market that LFAs – or parts of them –  drafted pre-Paccar will be held to be unenforceable DBAs.

The Litigation Funding Agreements (Enforceability) Bill was designed to restore the pre-Paccar status quo. It would have amended the definition of a DBA under the CLSA to expressly exclude LFAs and was intended to have retrospective effect.

Osborne Clarke comment

The government's latest comments in relation to the future of the Litigation Funding Agreements (Enforceability) Bill are focused on the aspects of the Civil Justice Council's review that deal with the protection of claimants.

In particular, the government in its written answer stated that it is "keen to ensure access to justice in large-scale and expensive cases" while setting up adequate safeguards to protect claimants from unfair terms.

While it is currently unknown whether the bill will resurface once the Civil Justice Council's review has concluded in summer 2025, in light of the recent comments, it appears the government may be minded to introduce amendments to the draft legislation so that the proposed legislation could do more than simply ensure the enforceability of LFAs, as it did in its previous form.

Should you require advice on existing or proposed litigation funding arrangements or funding options for litigation in England and Wales generally, please reach out to one of our experts.