Government publishes bill to reverse impact of PACCAR ruling

House of Lords: Bill had first reading yesterday

The Ministry of Justice yesterday published a two-clause bill to overturn the Supreme Court’s ruling in PACCAR and return certainty to litigation funding agreements (LFAs).

The Litigation Funding Agreements (Enforceability) Bill restores the position that LFAs are not damages-based agreements (DBAs) and thus do not have to comply with the 2013 DBA regulations.

Making good on Lord Chancellor Alex Chalk’s announcement earlier this month, the bill had its first reading in the House of Lords yesterday.

It rewrites section 58AA of the Courts and Legal Service Act 1990 by amending the definition of a DBA to provide that that an agreement, to the extent that it is an LFA, is not a DBA.

It goes on defines an LFA for the purposes of section 58AA and accepts the Supreme Court decision that litigation funders provide claims management services.

The bill also provides that the amendments are to be treated as always having had effect and will come into force on the day it is passed.

In the explanatory notes, the government said: “The Supreme Court judgment rendered LFAs unenforceable. Uncertainty around litigation funding risks a detrimental impact on the attractiveness of the England and Wales jurisdiction as a global hub for commercial litigation and arbitration, and on access to justice more broadly.”

Mr Chalk has also written to the Civil Justice Council to ask it to review the third-party litigation funding market, it was confirmed last week, with the terms of reference yet to be published.

Gary Barnett, executive director of the International Legal Finance Association, welcomed Mr Chalk’s “recognition of the great importance of the legal finance industry to UK citizens, businesses and the continued preeminence of the UK as a global legal centre”.

He added: “This bill is a great starting point, and we hope a full reversal of PACCAR passes through Parliament at pace so citizens and businesses in the UK can continue to have access to this vital industry.”

Susan Dunn, chair of the Association of Litigation Funders, also welcomed the bill, saying she hoped it would be in place by Parliament’s summer recess. “We will work with the government to ensure the wording of the bill achieves the desired result of removing all remaining uncertainty about the use of funding for good claims.”

In a joint statement, Martyn Day and David Greene, co-presidents of the Collective Redress Lawyers Association, also welcomed the bill.

“The proposed retrospective nature of the bill is important; if passed it will mean that satellite litigation, challenging litigation funding agreements must be withdrawn,” they said. “This will be good news for consumers and access to justice.”

However, not everyone was pleased. Tamar Halevy, head of dispute resolution at City law firm Marriott Harrison, commented: “The effect of this very short bill is to remove all regulation from the £2.2bn litigation funding industry and therefore to permit funders to continue to offer onerous terms and take excessive proportions of recoveries unabated.

“The fact the bill is retrospective can only benefit funders at the expense of consumers who should be entitled to unwind those unenforceable historic agreements and seek the repayment of excessive and unreasonable returns.”

Meanwhile, the Competition Appeal Tribunal (CAT) last week approved an LFA in the collective action brought by Justin Gutmann against Apple for alleged abuse of its dominant position in relation to a software update for certain iPhone models which slowed performance.

Mr Gutmann, represented by City law firm Charles Lyndon, was certified as the class representative last November subject to the LFA being rewritten post-PACCAR and approved.

The funder is Balance Legal Capital and the revised LFA calculates its return as a multiple of the capital it has committed, rather than as a percentage of damages. With Balance have committed £18.5m and the multiple at 3.8 given the stage of the case, it could potentially reap just over £70m, subject to the CAT’s ultimate approval.

The CAT rejected Apple’s argument that there was no basis in law for creating an obligation on a class representative to pay a proportion of damages to a litigation funder to cover its fee, and that a funder was only entitled to receive its fee from unclaimed damages.

“If the legislature had intended that costs or a funder’s fee could not be paid out of damages, there is no reason why it would not have stated this,” it said.

“Moreover, section 47C(3)(b) [of the Competition Act 1998] plainly contemplates that the tribunal can order the  payment of damages to such other person as it sees fit, and we see no reason why this power could not extend to litigation funders in appropriate circumstances.

“Section 47C(3)(b) is consistent with the view that a class representative has (again subject to supervision by the tribunal) the power to agree to pay a proportion of damages to a litigation funder.”

The LFA provides that the funder will be paid before members of the class, although the claimant accepted that the CAT would have complete discretion as to the priorities and the sums to be awarded.

Given this, the tribunal said, the LFA was not inappropriate.

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