Update: Since this article was originally published, the Government's announcement has been made public, together with the Ministry of Justice's press release. Importantly, these make clear that in addition to the reversal of PACCAR that we originally reported, the Government also intends to introduce "proportionate regulation" of litigation funding agreements. We have updated our article accordingly.
In brief
- The Government has confirmed it will introduce legislation to reverse the PACCAR decision concerning the enforceability of litigation funding agreements.
- In addition, the Government plans to introduce proportionate regulation of litigation funding agreements, although the scope and nature of such regulation remains to be seen.
- The decision to reverse PACCAR will be welcomed by funders and many litigants, but important details are still to come.
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 with prospective effect, "when parliamentary time allows" will be welcomed by both litigation funders and many litigants, particularly those for whom litigation would otherwise be prohibitively expensive. However, at the same time as announcing its decision on PACCAR, the Government also stated that it intends to take up the Civil Justice Council's recommendation to introduce proportionate regulation of litigation funding agreements. The scope and nature of such regulation is yet to be confirmed, but combining the introduction of regulation in legislation with reversing PACCAR risks further delay in implementation.