Court of Appeal to rule on litigation funding agreements based on ‘multiple’ of sum invested

The Court of Appeal will consider the validity of litigation funding agreements (LFAs) based on a multiple of the sum invested by the end of July, it said today.

In a directions hearing, chancellor of the High Court Sir Julian Flaux and Lord Justice Green lifted the stay on a number of appeals from the Competition Appeal Tribunal in which the use of a ‘multiple’ approach by funders is under challenge by defendants.

The appeals had originally been stayed because it was clear that the previous government was moving to legislate to address the issues caused by PACCAR. But Flaux noted that since the change of government, the court had heard ‘nothing that suggests’ that any such legislation would be ‘imminent’. He said it ran contrary to principle for cases to be stayed without good reason, and that ‘there is not now a good reason’.

The Court of Appeal will list a hearing of one or two days between the end of May and the end of July to deal with the multiplier issue in a number of cases including: Alex Neill v Sony Interactive Entertainment; Apple Inc. & Apple Distribution International Ltd v Kent; Commercial and Interregional Card Claims II Ltd v Visa Inc & ors; Commercial and Interregional Card Claims I Ltd v Mastercard; and Gutmann v Apple Inc & ors.

The court requested joint skeleton arguments of no more than 35 pages covering the common ground in the parties’ arguments, with any discrete points affecting particular cases to be covered succinctly in submissions of no more than 10 pages.

While the court did not give any timescale for delivering its decision, the brief timeslot alloted for the hearing suggests that, depending on when the case is listed, a ruling could be published before the summer.

Since the Supreme Court’s July 2023 ruling in PACCAR, a funding arrangement where the fee is calculated by reference to a share of damages is classed as a damages-based agreement. DBAs must comply with the Damages-Based Agreements Regulations 2013 to be enforceable, and are not permitted in opt-out collective proceedings before the CAT. Since PACCAR, funders have largely swapped to a funding model based solely on a multiple of the sum invested, in a bid to avoid being considered a DBA.

The Court of Appeal will consider the crucial issue of whether funding that is based on a multiple should still be regarded as being calculated by reference to a share of damages, creating a DBA. The defendant parties argue that it should, because the funders’ fee cannot be more than the full amount of the damages, establishing a link between the two.

Meanwhile on 2 April another significant appeal is listed in the Court of Appeal in Gutmann, which will consider the right of funders to be paid out of undistributed damages.