Chalk to publish legislation overturning PACCAR ruling

Chalk: Levelling the playing field

The Ministry of Justice will today lay out plans to overturn last year’s Supreme Court ruling that rendered most third-party litigation funding agreements unenforceable.

In addition to the new standalone legislation, it has also confirmed comments made in Parliament last month that Lord Chancellor Alex Chalk is considering a wider review of the litigation funding market.

In PACCAR, an opt-out case in the Competition Appeal Tribunal (CAT), the Supreme Court decided that funding agreements taking a percentage of the damages were caught by the Damages-Based Agreement Regulations 2013 – most do not comply with them.

A government amendment to the Digital Markets, Competition and Consumer Bill currently going through Parliament tackles the impact of the ruling on opt-out collective proceedings in the CAT only, with ministers saying the bill was not the appropriate vehicle to address all claims affected by the decision.

Peers in the House of Lords have made efforts to widen the scope of the bill, but today’s announcement of legislation in this session of Parliament will supercede those.

In the meantime, the CAT decided in November that a new provision in a funding agreement allowing the funder to take a percentage of the damages only once it was “enforceable and permitted by applicable law” did not fall foul of PACCAR. The decision has been referred to the Court of Appeal.

The Ministry of Justice has cast the new legislation as making it “easier for members of the public to secure the financial backing of third parties when launching complex claims against moneyed corporations with sizeable legal teams which they could otherwise ill-afford”.

It cited support from former sub-postmaster Alan Bates, who has been at the forefront of the battle with the Post Office, with the group claim sub-postmasters brought “only possible due to the backing of a litigation funder”.

Mr Chalk said: “It’s crucial victims can access justice – but it can feel like a David and Goliath battle when they’re facing powerful corporations with deep pockets. This important change will mean more victims can secure vital third-party funding to level the playing field and support their fight for justice.”

The Ministry of Justice said it was considering options for a wider review of the sector and how third-party litigation funding was carried out.

This could consider whether there is a need for increased regulation or safeguards for people bringing claims to court, particularly given the growth of the litigation funding sector over the past decade.

The Ministry of Justice said next steps and any terms of reference of the review would be set out “in due course”, but business minister Lord Offord told Parliament last month that the Civil Justice Council may be asked to undertake the review, “given the need to ensure access to justice and the attractiveness of the jurisdiction”.

Writing in the Financial Times today, Mr Chalk suggested that one area he intended to look at was capping how much compensation investors could seek through funding agreements.

“In the Horizon case, the claimants – who let’s not forget had little money and little redress for what had happened to them – agreed to give 80% of their damages. That meant those who funded the case received £46mn of the £58mn awarded. That left each individual claimant with around £20,000 each – a fraction of the total award.

“This government agrees that we need to strike the right balance between access to justice and fairness for claimants. That’s why we are considering options for a wider review of the funding sector – and of what safeguards could be put in place for people who need financial backing to bring claims to court.”

Law Society president Nick Emmerson welcomed the new law, adding: “There could be merit in a review, but it would be worth considering the risk of the funding arrangement rendering any victory hollow for the consumers affected.”

Mohsin Patel, co-founder and director at funding broker Factor Risk Management, said:

“This is very welcome news to funders, claimants and lawyers alike. Since PACCAR, we have seen large corporate defendants gleefully take advantage of the uncertainty it caused to engage in expensive and protracted satellite litigation, wasting precious court time with the aim of delaying the resolution of meritorious claims.

“Similarly, some claimants that took the benefit of third party-funding to achieve a financial resolution, have since opportunistically sought to unwind those arrangements with a view to avoiding payment to their funder.”

Mr Patel added that the move should also reassure “those funders that had pumped the brakes on investing in cases in England and Wales post-PACCAR.”

Andrew Leitch, a partner at City firm BCLP, said the legislation was likely to provide some welcome certainty for funders and funded parties, and likely to trigger more clauses like the one approved by the CAT.

“However, the extent of the reform should perhaps not be overstated. Many references have been made to the Post Office litigation but the funding of such a claim was never directly threatened by the PACCAR ruling, provided the relevant litigation funding agreement complied with the DBA Regulations 2013.

“Most funding agreements do comply with those regulations or can be amended to comply without having to meaningfully alter the commercial terms of the funding deal.

“The impact of the government’s proposed legislation will undoubtedly be felt most acutely in the funding of opt-out collective actions in the CAT, in which DBAs are expressly prohibited.”

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