Litigation funding agreement may be enforceable in part despite PACCAR decision

In what appears to be the first decision to consider the implications of the Supreme Court’s judgment in PACCAR Inc v Road Haulage Association Ltd [2023] UKSC 28 (considered in our previous blog post), the High Court has held that there is a “serious issue to be tried” that the element of a litigation funding agreement which provides for the funder to receive a multiple of funding remains enforceable, even though the aspect which provides for a percentage of damages is unenforceable in light of PACCAR: Therium Litigation Funding A IC v Bugsby Property LLC [2023] EWHC 2627 (Comm).

In PACCAR, the Supreme Court held that litigation funding agreements which provide for the funder to be paid a share of damages are “damages-based agreements” (or DBAs) and therefore must comply with the regulatory requirements applicable to such agreements in order to be enforceable.

In the present case, Therium argued that its funding agreement is enforceable despite providing for both a multiple of the funding committed and 5% of any damages over a specificed amount (which was not in fact achieved by the settlement in the underlying case). The court agreed with Therium that there is a serious issue to be tried that the only aspect of the agreement invalidated by PACCAR is the (inapplicable) 5% of damages, leaving Therium with an enforceable entitlement to the agreed multiple of funding, or alternatively that the offending provision can be severed from the agreement.

This decision will be of interest to financial institutions, as a common target defendant for funded claims. Importantly, it does not establish that the relevant provisions of the funding agreement are enforceable, merely that there is a serious issue to be tried to that effect and therefore the funder is entitled to an injunction preserving its position while the question is resolved.

For a more detailed analysis of this decision, please see our Litigation Notes blog post.

Note: In December 2023, the Court of Appeal refused permission to appeal.