Litigation funding: Bill introduced to reverse effect of Paccar and Civil Justice Council invited to review the sector

On 19 March, the Litigation Funding Agreements (Enforceability) Bill was introduced to Parliament, following on from the government's announcement on 4 March that it would introduce legislation to reverse the effect of the high profile decision in Paccar last July. In that case, as is well known, the Supreme Court held that litigation funding agreements that provide for the funder to receive a share of damages are Damages-Based Agreements (or DBAs) and are therefore unenforceable unless they comply with the restrictive regulatory regime that applies to such agreements.

The new Bill is very short. It amends s.58AA of the Courts and Legal Services Act, ie the legislation which defines a DBA and which the Supreme Court interpreted in Paccar. The amendment provides that an agreement is not a DBA if and to the extent that it is a "litigation funding agreement", which is in turn defined (in effect) as an agreement where a funder funds a litigant's legal fees or the payment of an adverse costs order in return for some form of payment to the funder. The amendment is to have retrospective effect, so it would remove existing litigation funding agreements from the definition of a DBA – thus rendering academic the question of whether particular forms of funding agreement are or are not DBAs and therefore unenforceable, a point on which there are various appeals currently pending following decisions of the Competition Appeal Tribunal (see for example this blog post).

The wholesale reversal of Paccar also renders unnecessary the government's previous amendment to the Digital Markets, Competition and Consumers Bill aimed at mitigating the impact of Paccar in opt-out collective proceedings in the CAT, where DBAs are prohibited (see our blog post here). That legislation has now been further amended to omit the provision that had been added for that purpose.

The other aspect of the government's announcement on 4 March, which could ultimately represent the longer term fallout from the Paccar decision, was that it was considering options for a wider review of the litigation funding sector. It is now clear from the House of Lords debate on 11 March that the Justice Minister has written to the Civil Justice Council inviting it to undertake that review, which would aim "to ensure that claimants can get the best deal", and that the review will expressly consider the need for further regulation or safeguards.