Government plan to address PACCAR “does not go far enough”

Parliament: Amendment to be debated next week

Lawyers and litigation funders have expressed disappointment at the government’s legislative proposal to address the Supreme Court’s PACCAR ruling.

It yesterday published an amendment to the Digital Markets, Competition and Consumer Bill that only deals with litigation funding agreements (LFAs) in opt-out class actions run before the Competition Appeal Tribunal and nothing more.

In PACCAR, the Supreme Court decided that third-party litigation funding agreements could be damages-based agreements (DBAs) that were unenforceable if they did not comply with the DBA Regulations 2013.

A DBA is defined by section 58AA of the Courts and Legal Services Act 1990 as an agreement between a person providing “advocacy services, litigation services or claims management services”.

The court held that litigation funders were providing claims management services, upending what the market had thought and raising questions over many LFAs.

The amendment, which will be debated in the bill’s report stage in the House of Commons next week, amends section 47C(9) of Competition Act 1998 and provides that a DBA is only unenforceable in opt-out collective proceedings before the Competition Appeal Tribunal if the agreement is with a provider of advocacy or litigation services.

Jonathan Barnes, a director of the Association of Litigation Funders and chief operating officer of funder Woodsford, said: “We welcome that the government has recognised the need to take urgent action to ensure that consumers and businesses continue to have effective access to justice. However, this amendment only represents a partial fix to the problem, as it does not address cases heard outside of the Competition Appeal Tribunal.

“If left unaddressed, we believe that this will have a significant impact on the UK’s attractiveness as a legal centre, and we are seeking to engage with the government to ensure that the UK remains a world leading centre for effective enforcement of consumer and competition law.”

Gary Barnett, executive director of the International Legal Finance Association, added: “We appreciate how quickly the UK government has moved to try to mitigate the uncertainty created by the PACCAR judgment.

“But for the legal finance industry, the current proposals only remedy some of the issues and not all of them. The UK legal system is one of the strongest in the world and we want to work with the UK Government to ensure it stays that way and that citizens and businesses continue to have the necessary resources to pursue justice.”

PJ Kirby KC of Gatehouse Chambers, one of the barristers who appeared before the Supreme Court, told Legal Futures: “The proposed amendment to the Competition Act will allow litigation funding agreements to be used in opt-out proceedings even if the agreement provides for the return to the funder to include a percentage of the award but that leaves us with the ridiculous situation that such an agreement in relation to opt-in proceedings will still be a DBA.

“There is nothing to address the problem that the PACCAR decision has caused funders and parties in all other types of litigation. This very limited statutory intervention addresses the immediate problem faced by some claims in the CAT but fails to address the problems faced by funders and parties in all other types of cases, both past and present.

“Funders of opt-out claims will no doubt be delighted if this measure comes into force but must also be wondering why they have been favoured over funders of all other litigation. It is a very small sticking plaster that covers only a fraction of the wound.”

Richard Pike, a partner at City firm Fieldfisher, asked why the government had not instead amended the 1990 Act.

“It’s not obvious why the government has taken this approach. I would say that it is a simple error except that the clause is specifically headed ‘Use of damages-based agreements in opt-out collective proceedings’.

“This suggests it’s intentional but I can see no sensible justification for changing the position in relation to opt-out claims and not others.”

Leading costs barrister Ben Williams KC of 4 New Square said the amendment did not address the fact the LFAs in question would still not have complied with the DBA Regulations, as it was thought they did not need to, “so they may remain unenforceable for that freestanding reason”.

He suggested that the government “will need to get back to the drawing board”.

Leslie Perrin, chairman of Calunius Capital and the founding chair of the Association of Litigation Funders to 2019, questioned why the Ministry of Justice did not act back in 2013, “when we correctly predicted precisely what has happened 10 years later”.

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