In depth: Post-PACCAR plans - lit funding sector enters critical period

If there is any doubt about just how big the litigation funding industry is, you need only look at the numbers who showed up to law firm Brown Rudnick’s third annual European litigation funding conference at The Langham hotel in London. With 400 funding devotees in the room, it was standing room only at the back.

As one might expect, the big talking point was lord chancellor Alex Chalk’s announcement that legislation would be brought in to reverse the Supreme Court’s controversial ruling in R (on the application of PACCAR Inc) v Competition Appeal Tribunal [2023] UKSC 28, which threw into question the enforceability of litigation funding agreements. Following the conference, a short Litigation Funding Agreements (Enforceability) Bill was introduced into the Lords on Wednesday to do just that, with retrospective effect.

To convince the government to act so promptly with primary and retrospective legislation was no mean feat for the funding industry, no doubt significantly helped by recent public support from former subpostmaster Alan Bates. But the new law is by no means a fait accompli. It will be fiercely resisted by funding’s traditional opponents, plus anyone else concerned about the implications of overturning a decision of the Supreme Court in this way. It is also notable that, contrary to what funders had expected, the legislation is not being expedited and will progress to the next stage ‘when parliamentary time allows’.

Chalk has also announced a ‘review’ of the litigation funding sector, with the potential for stronger regulation. At last week’s conference, professor Rachael Mulheron KC of Queen Mary University noted that given the levels of funding activity, regulation was now ‘on the horizon’. She identified two potential strands: ‘credential’ and ‘conduct’.

She said: ‘The credential strand is very much about public confidence that there is capital adequacy, that it is safe, and funders will be good for the money. But the conduct aspect is about the nuts and bolts of how funding works. For example, should there be a cap on this success fee or not? If so, should expenses be outside the cap? It sounds terribly dull, but it’s terribly important’.

'People have this misplaced notion that we make out like bandits on everything that we do – and we don’t. One of the things that’s still not really understood… is quite how much crap we put up with'

Susan Dunn, Harbour Litigation Funding

For new rules to be workable, funders will need to be fully engaged as they are drawn up. That is the best way to avoid a repeat of the notoriously badly drafted and unworkable Damages-Based Agreement Regulations 2013, which led to solicitors shunning the DBA regime.

Funders at the conference seemed fairly relaxed about the topic of regulation, except when it came to the prospect of any cap on fees. Susan Dunn, chair of the Association of Litigation Funders, warned that imposing such caps would lead to cases becoming uneconomic and funding no longer being offered. She cited Germany, where funders’ fees have been capped at 10% for some types of case, as a prime example of caps leading to funding becoming unavailable.

‘People have this misplaced notion that we make out like bandits on everything that we do – and we don’t,’ she said. ‘One of the things that’s still not really understood… is quite how much crap we put up with, from defendants, some errant claimants, etc. I don’t think people fully understand all the twists and turns in the road that we have to the journey to recovering monies: the reduced claim values; the budgets that overrun; the way people try to renegotiate our terms as the money is coming in… So the capping of fees would have a very detrimental effect.’

Meanwhile, funders will seize the funding review to push for positive changes, such as legislation to allow the cost of funding to be recoverable in appropriate civil cases, as it already is in arbitration thanks to the High Court’s decision in Essar Oilfields Services Ltd v Norscot Rig Management PVT Ltd [2016] EWHC 2361 (Comm). Neil Purslow, chief investment officer at Therium, which funded the subpostmasters’ civil litigation, said: ‘We see defendants running up costs to put pressure on claimants and turn litigation into a zero-sum game. So we need a rule change which allows, in certain cases, the courts to make defendants liable for the funding costs. This would take away the benefits for the defendants of running this strategy, and it would protect the claimants’ recovery.

‘The Post Office case is a paradigm example of where this should have happened. You had huge inequality of arms between the Post Office on the one side, a public-backed company; and individual postmasters [whose] impecuniosity [was] caused by the defendant; and you had the unusual litigation conduct of the Post Office driving up costs. So if we do get to a review of litigation funding, I hope this will be a central issue in the debate.’

Whatever the review may hold in store for the sector, there are certainly plenty of arguments ahead.

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