In brief
- The Government has confirmed it will introduce legislation to reverse the PACCAR decision concerning the enforceability of litigation funding agreements.
- The decision will be welcomed by funders and many litigants, but important details are still to come, including whether the legislation will apply retrospectively.
Just in time for Christmas, the Ministry of Justice has delivered welcome news for litigants in England and Wales by announcing its intention to reverse the effects of the Supreme Court's judgment in R (on the application of PACCAR Inc & Ors) v Competition Appeal Tribunal & Ors (2023) UKSC 28.
In PACCAR, the Supreme Court infamously concluded that litigation funding agreements which provide for the funder to recover a percentage of damages constitute damages-based agreements (DBAs). The result was that if those agreements failed to comply with the formal requirements for such agreements set out in the Damages-Based Agreements Regulations 2013, they would be unenforceable.
The decision came as a shock to the litigation funding industry. Although not intended as a criticism of litigation funding, but rather a consequence of incorporating the definition of "claims management services" from one piece of legislation to another, it led to uncertainty, the renegotiation of pre-existing agreements, and, according to some reports, reduced confidence in England and Wales as a jurisdiction of choice for litigants.
The previous government proposed legislation to reverse the effects of PACCAR with retrospective effect, but the bill was lost in the wash-up prior to the 2024 election. Despite attracting cross-party support, rather than reintroducing that bill, the new government chose to await the results of the Civil Justice Council's review of litigation funding. That review was published earlier this year and confirmed, among other things, that legislation should be introduced to reverse the effect of PACCAR and make clear that the provision of litigation funding is not a form of claims management service.
The Ministry of Justice's confirmation that it will now introduce a new bill will be welcomed by both litigation funders and many litigants, particularly those for whom litigation would otherwise be prohibitively expensive. However, the detail of the proposed legislation, including whether it will have retrospective effect, remains to be seen. Moreover, the legislation will only be introduced "when parliamentary time allows". The Government is continuing to consider the CJC's other recommendations.