Government faces JR claim over litigation funding legislation

MoJ: Legislation will support Davids against Goliaths

The Ministry of Justice is being threatened with judicial review over the draft legislation that aims to reverse the impact of the Supreme Court’s PACCAR ruling.

Two businesses in dispute with their litigation funders, who say they will be badly prejudiced by the ruling, have sent a letter before action to the government complaining about the retrospective effect of the Litigation Funding Agreements (Enforceability) Bill.

During the bill’s second reading in the House of Lords earlier this week, Lord Stewart, the Lord Advocate for Scotland who was speaking on behalf of the government, confirmed the “legality and propriety” of the bill being retrospective, including its compatibility with the European Convention on Human Rights (ECHR) – although some peers said they would want to explore this in more detail during the bill’s committee stage.

The letter was written by Candey, representing Bugsby Property, and the ‘Orb claimants’, who have been involved in a long-running commercial fraud dispute and are represented by fellow London firm Marriott Harrison.

Bugsby is in dispute with funders Therium and Omni Bridgway – the High Court having already rejected its bid to use PACCAR to invalidate the litigation funding agreements (LFAs) – while the Orb dispute is with Harbour.

The claim argues that the Bugsby and Orb LFAs “are, and always have been, legally unenforceable” for the reason decided by the Supreme Court in PACCAR – that litigation funders provide claims management services and therefore their LFAs are damages-based agreements (DBAs) that have to comply with the 2013 DBA regulations.

Thus, the letter said, the retrospective effect of the bill was premised on a “fundamental misconception” that, as the explanatory notes said, it would restore the position “to that which prevailed before the decision of the Supreme Court, that LFAs are not DBAs and hence are enforceable”.

Candey said: “PACCAR did not change the legal position; rather it declared what the legal position had always been and which market participants were capable of independently ascertaining. It follows that it is plainly irrational to promote the bill on the basis of such legal error.”

Further and in any event, the letter said, the bill would violate the claimants’ rights under the ECHR, namely the protection of property under article one of protocol 1 (A1P1), and the right to fair trial under article 6.

It said the bill would deprive the claimants of “the right to retain the proceeds of their respective litigation without disbursing any part of those proceeds to Therium, Omni and/or Harbour” and the ability to raise the unenforceability of the LFAs in any dispute settlement procedure with the litigation funders.

There was, it asserted, “no (or no sufficient) justification for the retrospective effect which could render such interference with the claimants’ rights compatible with the ECHR and [Human Rights Act 1998]”.

Candey pointed to previous cases where the “retrospective interference with legal rights” in proposed legislation was found incompatible with A1P1 and article 6.

It estimated the possible damages for Bugsby at £26m and more than £150m for the Orb claimants.

Bugsby and the Orb claimants have written a separate letter about the issue to Lord Chancellor Alex Chalk, which was co-signed by Nick Rowles-Davies, a well-known litigation funder and chief executive of Lexolent, Tamar Halevy, head of dispute resolution at Marriott Harrison, and costs lawyer Jim Diamond.

They said they were “seriously concerned that the bill has not been subject to any proper consultation. Indeed, no consideration at all appears to have been given as to the rights of the parties who will be affected by the bill (and in particular the effect of its purported retrospective effect)”.

They argued that the funding industry “knowingly took the risk that their LFAs were regulated DBAs because, we submit, their business models meant that they could not accept any cap on recoveries”.

The Ministry of Justice said it did not comment on ongoing legal matters. A spokeswoman added: “It is crucial victims can access justice – but it can feel like a David and Goliath battle when they’re facing larger and better-resourced corporations.

“This legislation will mean more victims can secure vital third-party funding to level the playing field and support their fight for justice. The sub-postmasters were able to secure third party funding in their legal action against the Post Office. Now others will too.”

    Readers Comments

  • David Arkin says:

    Both the government and this group can be correct.

    The prospective aspect of the bill can ensure David can come meet Goliath. Victory for the government. Regulations if any can come in due course.

    The wholly separate retrospective aspect to which the group rightly complains does nothing in this respect. It strips legal rights without justification and does nothing to assist with access to justice. It is merely value shifting in the face of what the law has always been, like it or not. It is clearly incompatible with convention rights.

    In fact, for example, if the retrospective part is enacted it forever restricts the sub-postmasters from seeking further redress when they currently hold, and have always held, an unlawful contract. Is that fair to the subpostmasters? Is that politically attractive? Did anyone give this much thought when rushing to get this bill on the calendar? Answer – No. Just look at the mess of supporting documents. The convention rights document itself is so wrongly conceived and littered with errors that the most ardent bill supporters must have their head buried in their hands wondering what the government was doing.

    Everyone should come to their senses. The bill have merit, but only looking forward. Both sides have good points. Split the baby, get the the prospective piece passed, blame the MoJ for not enacting legislation a decade ago, but don’t wash over it through retrospective legislation as if it is not the funders and the MoJ’s fault. It is. If funder’s want compensation, ask the MoJ and not the parties that should have been delivered a compliant contract.

    We keep hearing this was all a surprise. It wasn’t. Go look at the evidence. The ALF has known since 2013 LFAs were problematic yet continued to write them in an unenforceable manner. Risk taken, bet lost. Let’s move forward.

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