Election leaves funders in PACCAR purgatory

So near and yet so far. That is what litigation funders must have been thinking as prime minister Rishi Sunak stood in the rain and announced the general election last month. It was not just Sunak who was getting decidedly damp. So too were the hopes of funders that their PACCAR problems would all be behind them by the summer.

Until that election announcement, things had been going as well as funders could have hoped on the legislative front since the Supreme Court cast doubt on the validity of funding agreements in PACCAR Inc & Ors v Competition Appeal Tribunal & Ors last July. In the short but very sweet Litigation Funding Agreements (Enforceability) Bill, the industry had managed to secure bespoke, retrospective legislation to deal with the problem – a significant achievement. That bill was progressing through parliament very nicely, and there was every hope it would be passed by the summer. But thanks to the election it has now spiralled down the plughole of the parliamentary wash-up.

So what happens now? Assuming Labour manages not to drop the famous ‘Ming vase’ of its lead in the polls, funders will most likely be looking to Sir Keir Starmer and friends to take up the mantle of ensuring that litigation funding agreements are unambiguously enforceable. Securing support for that should not be difficult, particularly given how the Post Office scandal has highlighted the importance for those with meritorious claims to be able to access the funds they need to get justice. The bigger worry is about the timing of any new legislation.

The beauty of the previous LFA bill was that such a brief and targeted law could be drawn up and introduced very quickly. But a new Labour government – and as I write, Labour’s manifesto is about to be published – would have a great number of competing priorities. Changes to litigation funding agreements might well be incorporated into much broader legislation dealing with access to justice and the rights of victims. This would inevitably take far longer to produce and to pass into law. In the meantime, the uncertainty continues and the challenges mount.

In PACCAR, the Supreme Court found that where a funder calculates their return by reference to the sum of damages – for example, 40% of the claimant’s compensation – this amounts to a damages-based agreement, and so is caught by the DBA regulations. This is particularly fatal for opt-out claims in the Competition Appeal Tribunal, where DBAs are not permitted. But it also threatens the viability of many other funding agreements, because they do not comply with the DBA regulations.

For the funding industry, however, there was an obvious solution. Funders moved quickly to amend their live funding agreements so that their fee would be calculated not as a percentage of damages, but as a multiple of the sum invested – for example, three times the amount that they put into the case. Many agreements already provided for both approaches, with the client due to pay whichever turned out to be the higher amount – the percentage or the multiple. But now post-PACCAR, funders just use the multiple.

The problem is that this use of multiples, as well as various other changes funders have made in a bid to PACCAR-proof their agreements, is being challenged by defendants. So far the CAT has rejected several such challenges and upheld the amended litigation funding agreements. But recognising the need for a conclusive ruling on whether these revised agreements are really PACCAR-compliant, the CAT has granted leave to appeal to the Court of Appeal. These appeals were waiting in the wings while the LFA bill progressed through parliament, set to make these issues redundant. But if no new legislation appears swiftly on the horizon, will these cases now move to centre stage and be heard by the Court of Appeal?

From the funders’ viewpoint, this could be a very unwelcome development. While the Court of Appeal may well agree with the CAT and approve the new-style funding agreements, the defendants will be sure to seek leave to appeal. If granted, these issues will then be put before the very forum where all the trouble began in the first place: the Supreme Court. Funders will hope that legislation is in place before that happens.

Beyond PACCAR, the other big development for funders is the Civil Justice Council’s review of litigation funding, announced earlier this year. The review is already under way. I understand it will take a broad view of the issues, encompassing the related topics of DBAs and insurance. Its first publication, expected during the summer, will set out the issues to be consulted on.

Rachel Rothwell is editor of Gazette sister magazine Litigation Funding, the essential guide to finance and costs.

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