UK government introduces bill to reverse the effect of Paccar

The UK Supreme Court's judgment in Paccar Inc & Ors, R (on the application of) v Competition Appeal Tribunal & Ors in October 2023 had significant implications for litigation funding agreements (LFAs).

The Supreme Court determined that the LFAs applicable in the proceedings were to be construed as the litigation funders providing "claims management services" thereby the LFAs were truly damages based agreements (DBAs) which must comply with the requirements set out in the DBA Regulations 2013.

The Supreme Court's ruling had two main consequences: an impact on opt-out proceedings in the Competition Appeal Tribunal (CAT) as well as on compliance with the DBA Regulations.

CAT opt-out impact

The first was the impact on opt-out proceedings in the CAT – section 47C(8) of The Competition Act 1998 states that DBAs cannot be used to fund opt-out proceedings in the CAT.

However, it is well known that the majority of high value opt-out collective actions that are brought rely on litigation funding. Paccar therefore created uncertainty as to how such cases will be pursued in the future.

DBA Regulations compliance

The Supreme Court accepted that the majority of LFAs currently in place would not comply with the DBA Regulations. Previously, LFAs were considered to be outside the scope of the regulations, therefore compliance was not required.

As a result of the Paccar judgment, the LFAs would potentially become unenforceable unless amended, where funders receive a percentage share of recoveries rather than, for example, a multiple of the amount provided by them in funding

Post-Paccar legislation

The UK government has recognised the impact of and uncertainty caused by the Paccar judgment on the litigation funding industry, which has experienced enormous growth in recent years, and potentially on access to justice, in particular in potential group litigation cases.

Consequently, the government has swiftly intervened and introduced the Litigation Funding Agreements (Enforceability) Bill, which is currently progressing through Parliament having had both its first and second readings in the House of Lords. The exact timing of the introduction of this legislation is currently unclear.

Osborne Clarke comment

The Litigation Funding Agreements (Enforceability) Bill, as currently drafted, aims to amend section 58AA of the Courts and Legal Services Act 1990 to explicitly ensure the enforceability of LFAs. Importantly, it will have retroactive effect, resolving any uncertainties surrounding the enforceability of LFAs entered into prior to the Paccar ruling.

In a separate development, it has also been confirmed that the Civil Justice Council will be conducting a review of the litigation funding market in England and Wales. The terms of reference for the review were published on 23 April 2024, confirming that the review will explore (among other things):

• The current position of third-party funding in England and Wales, including an analysis of how it is dealt with in other jurisdictions.
• Whether the status quo is adequate in delivering effective access to justice.
• The possibility of capping funder returns and also assessing the need for greater regulation within the sector.

An interim report is scheduled to be published during summer 2024 with a final report expected by summer 2025.

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.