Sackman: Claimants in limbo
The government is to legislate to reverse the Supreme Court’s 2023 PACCAR ruling, which has brought huge uncertainty to the litigation funding market.
This was the urgent recommendation of June’s Civil Justice Council (CJC) report on litigation funding [1] but the Ministry of Justice has not set out its views on any other of the recommendations at this point.
The PACCAR judgment classed litigation funding arrangements (LFAs) as damages-based agreements (DBAs), meaning all those in place fell foul of the DBA regulations and future ones needed to comply with them. DBAs are also not allowed in opt-out actions in the Competition Appeal Tribunal.
Recent research said the number of collective actions filed at the tribunal has “collapsed” to only three this year, due mainly to the “chilling effect” of PACCAR [2] on funding.
The MoJ said PACCAR “has also threatened the UK’s status as global leader in dispute resolution”
The previous government sought to legislate to overturn the ruling but the bill did not make it through Parliament before last year’s election was called – and Labour decided not to reintroduce the bill [3] until the CJC had completed its review.
Since its report was published, lawyers and funders have been urging the government to act, frustrated by the delay in action.
Today the MoJ said that it would introduce legislation “when parliamentary time allows”. It will clarify that LFAs are not DBAs.
Sarah Sackman, the minister for courts and legal services, said: “The Supreme Court ruling has left claimants in unacceptable limbo, denying them of a clear route to justice.
“Without litigation funding, the sub-postmasters affected by the Horizon IT scandal would never have had their day in court.
“These are David vs Goliath cases and this government will ensure that ordinary people have the support they need to hold rich and powerful organisations to account. Justice should be available to everyone, not just those who can afford it.”
The MoJ said the government “will continue to consider the recommendations set out in the CJC review”.
These included the introduction of “light-touch regulation” of funding, while it rejected a cap on funders’ returns.
Neil Purslow, chair of the executive committee at the International Legal Finance Association, said: “We welcome the government’s recognition of the critical role litigation funding plays in enabling access to justice and investment into the UK’s world-leading legal sector.
“This commitment to legislation is an important first step. We look forward to the government setting out more detail on how and when it will restore much-needed certainty for claimants and investors.”
Jeremy Marshall, chief investment officer of Winward Litigation Finance, said: “Action to reverse PACCAR is urgent, but the statement from the MoJ suggests that legislation will be combined with light-touch regulation.
“This will certainly and regrettably add further delay to the enactment of legislation and greater uncertainty to the industry and its willingness to fund claims in the UK, which will be music to the ears of well-resourced defendants and the US Chamber of Commerce, one of the most powerful organisations in the world lobbying our government on their behalf.”
Pinar Celebi, a finance partner at City firm Macfarlanes, said the decision would provide “much-needed certainty to the litigation funding market”.
She added: “The repeal of the PACCAR judgment will allow funders to price deals in a proportionate way, and will allow counterparties to understand the funding arrangements more easily.
“It is likely that existing deals which feature multiple-based returns will be revisited, and that percentages of damages will once again be a common feature of funding arrangements.”
Ben Knowles, partner at City firm Clyde & Co, said: “In practical terms, the announcement may support a modest recovery in funder activity without altering the UK’s established litigation safeguards.
“For corporates, it is unlikely to represent a step-change in risk, though it may contribute to a gradual increase in funded claims at the margins, particularly in competition and group actions.”
Joseph Evans, partner at London firm Charles Russell Speechlys, suggested funders may actually stand to profit most of all from the change, given the “huge returns” that funding attracted.
“Although PACCAR threatened to derail the funding industry for a while, most of the uncertainty surrounding it disappeared earlier this year following unsuccessful challenges to funding arrangements [4] brought by Sony, Apple, Visa and Mastercard.”
This meant that a funder’s return could be calculated as a multiple of the investment made and not be considered a DBA.