In our recent article of 4 March 2024, we considered the impact of, and the responses to, the PACCAR judgment of July 2023 in detail.
Read our detailed article of 4 March 2024 'Litigation Funding Agreements still in Limbo'
A brief update is now necessitated by the UK Government’s most recent actions.
Following concerns that the tabled amendment to the Digital Markets, Competition and Consumer Bill – which it was hoped would solve the immediate issues caused by the PACCAR judgment relating to Collective Proceedings Order applications for opt-out proceedings before the Competition Appeal Tribunal – did not go far enough, the UK Government acknowledged these concerns and confirmed that new legislation would be introduced in order to combat the wider impacts of the PACCAR judgment.
The UK Government has now taken this step and on 19 March 2024 it introduced the Litigation Funding Agreements (Enforceability) Bill (the LFA Bill) to the House of Lords. This is a very short bill with just one operable clause which we have reproduced below.
1 Enforceability of litigation funding agreements
(1) Section 58AA of the Courts and Legal Services Act 1990 (enforceability of damages-based agreements) is amended as follows.
(2) In subsection (3), after paragraph (a) insert “, but
(aa) an agreement is not a damages-based agreement if or to the extent that it is a litigation funding agreement.”
(3) After subsection (3) insert—
“(3A) For the purposes of this section a litigation funding agreement is an agreement which provides that—
(a) a person providing claims management services (“the funder”) is to fund (in whole or in part)—
(i) the provision of advocacy or litigation services (by someone other than the funder) to the recipient of the claims management services (“the litigant”), or
(ii) the payment of costs that the litigant may be required to pay to another person by virtue of a costs order, and
(b) the litigant is to make a payment to the funder in circumstances specified in the agreement.”
(4) The amendments made by this section are treated as always having had effect.
As currently drafted, the LFA Bill amends section 58AA of the Courts and Legal Services Act 1990 (Section 58AA) which is the location of the statutory definition of a Damages Based Agreement (a DBA) on which the PACCAR judgment turned.
The LFA Bill inserts a statement into Section 58AA which makes it utterly clear that a DBA is not a DBA if it is, or to the extent that it is, in fact a Litigation Funding Agreement (an LFA). The LFA Bill then inserts a definition of a LFA into Section 58AA because, as the Supreme Court found in the PACCAR judgment, one does not currently exist. This new definition of a LFA centres around the troublesome phrase ‘claims management services’ which is currently included within the definition of a DBA, found within Section 58AA, but which has been crying out for clarification and expansion so as to allow for a clear statutory distinction between DBAs and LFAs. The LFA Bill provides that the amendments to Section 58AA are to be treated as always having had effect; they will be retroactive.
The LFA Bill has only gone through its first reading within the House of Lords as of yet, with the second reading set for 15 April 2024. The LFA Bill’s passage through Parliament and final make-up post-amendments is impossible to predict, but it is on course to resolve the wider issues stemming from the PACCAR judgment which have plagued all interested parties for almost a year.
Additionally, in our article of 4 March 2024 we highlighted that the Government was considering a wider review of the litigation funding sector, particularly in relation to increased regulation and safeguards to protect individual claimants. It has now been confirmed that the Lord Chancellor has written to the Civil Justice Council, inviting it to undertake a review of the sector. Terms of reference for this review are still to be announced.
As ever, this is a fast developing area so please stay tuned for our future updates on this.
