Litigation funding: Bill to reverse effect of Paccar falls in pre-election wash-up

The government's planned legislation to ensure that litigation funding agreements which provide for the funder to receive a share of damages are enforceable, despite the Supreme Court's decision in Paccar last July, will not now go ahead due to the general election called for 4 July. The Litigation Funding Agreements (Enforceability) Bill (see our blog post here) is one of many pieces of legislation that did not make it through the pre-election wash-up before Parliament was prorogued on Friday. Whether similar legislation will be introduced in the next Parliament will be a question for whichever government is then in power.

The Bill would have reversed the effects of Paccar, in which the Supreme Court held that litigation funding agreements based on 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. In light of the Bill, the government had removed the provision it had previously added to the Digital Markets, Competition and Consumers Bill (which did make it through the wash-up and is currenty awaiting Royal Assent) in order to mitigate the impact of Paccar in opt-out collective proceedings in the Competition Appeal Tribunal (CAT), where DBAs are prohibited whether or not they comply with the DBA Regulations (see our blog post here).

So the question of which forms of funding agreement are DBAs, and are therefore unenforceable unless they comply with the DBA Regulations, is once again an important issue for litigation funders, claimants who have entered into funding agreements, and those defending claims brought with the support of litigation funding - particularly, but not exclusively, in opt-out proceedings in the CAT. That question is to be considered by the Court of Appeal, following the grant of permssion to appeal against various decisions of the Competition Appeal Tribunal which have held that funding agreements based on a multiple of funding were not DBAs (see for example this blog post). Those appeals would have been rendered academic if the Litigation Funding Bill had become law, but have now taken on renewed interest.

Note: It is now clear that the government does not intend to re-introduce legislation on the question of litigation funding until after the Civil Justice Council has completed its review into the sector. In a response to a written parliamentary question on 1 August 2024, Lord Ponsonby (parliamentary under-secretary of state for Justice) said that the Government is "keen to ensure access to justice in large-scale and expensive cases, whilst also setting up adequate safeguards to protect claimants from unfair terms". He referred to the CJC review, which is expected to report in summer 2025, and said the Government would "take a more comprehensive view of any legislation to address issues in the round once that review is concluded".