Litigation funders must have been ripping their hair out last month when the government said it would not be legislating to address PACCAR-related issues until after the Civil Justice Council has completed its review of litigation funding.
The parliamentary response by justice minister Lord Ponsonby, in reply to a written question from Conservative peer Lord Sandhurst (Guy Mansfield KC) asking what the new government would be doing to mitigate the impact of the Supreme Court’s ruling in R (on the application of PACCAR Inc others) v Competition Tribunal and others [2023] UKSC 28, appears to have crushed any hope of a swift legislative solution.
If there is to be no legislation until after the CJC review, that will be a very long wait. The advisory body’s interim report, which will set out the various issues it will seek feedback on, is likely to be published at the end of next week. But the CJC is not due to file its full report on litigation funding until the summer of 2025. The government will then have a further six months to consider this and respond. This means we would be unlikely to see any PACCAR-related legislation until 2026.
Until then, we have a growing access to justice issue. Without a legislative solution, there is a question mark over the enforceability of litigation funding agreements (LFAs). Even carefully drafted agreements based on the seemingly ‘safer’ option of a multiple of the sum invested, rather than a percentage of the client’s damages, are under attack. Several important challenges to the ‘multiple’ approach have been rejected by the Competition Appeal Tribunal (CAT) but are now waiting to be heard by the Court of Appeal.
These appeals were on ice while the previous government’s LFA Bill was on the cards. But now, with no clear prospect of imminent legislation, surely they will need to proceed to a hearing. If rejected in the Court of Appeal, they may ultimately end up in the Supreme Court – perhaps even with the same judicial lineup as PACCAR.
All this uncertainty is very difficult for litigation funders, and for potential claimants with strong cases who need financial support to take on deep-pocketed defendants. As things stand, funders are struggling to find a drafting solution that guarantees to bulletproof their LFAs against future attacks. So we are beginning to see a shift in the way the market operates. There is one route through which funders can completely sidestep any technical traps over the validity of LFAs: by funding the law firm, not the case. This is where the market is heading, with funders increasingly looking to invest in law firms, or to lend them money.
However, assessing whether a law firm is a good investment is very different to analysing the merits of a litigation case, or even a book of them. What’s more, litigation funders are not the only ones keen to invest in law firms, with hedge funds and other operators also muscling into the space – with more experience than litigation funders at assessing the strength of a business. Meanwhile, the backdrop to all this is a new investment landscape in which higher interest rates mean investors may think twice about putting cash into a litigation funder when they can now make good returns elsewhere, at less risk, without tying up capital for as long – and without the chaos of PACCAR.
All this points to the need for the government to move more quickly to ensure that LFAs are clearly enforceable. The number of businesses and individuals who will be denied justice as a result of the PACCAR ruling is difficult to quantify. But if, for example, figures from the CAT show a significant drop-off in cases since PACCAR, that would be a clear sign that swifter action is needed; 2026 will be far too long to wait.
Rachel Rothwell is editor of Gazette sister magazine Litigation Funding, the essential guide to finance and costs.
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