Lawyers, funders and academics have called for urgent legislation to reverse the effects of the PACCAR ruling as the Civil Justice Council’s litigation funding consultation closed this week.
Litigation firm Stewarts, the Collective Redress Lawyers Association (CORLA), academics from the University of Oxford and funding industry bodies were among those pressing for urgent action in their submissions to the CJC.
Stewarts warned that the broad remit of the CJC’s review should not delay ‘immediate action’ on the two most pressing issues: the need for ‘corrective legislation’ to ‘reverse and end the uncertainty and ongoing satellite litigation caused by Paccar’; and the introduction of ‘long overdue’ changes to the regulations covering damages-based agreements (DBAs). The law firm also argued that rather than capping funders’ returns, a better way to control their fees would be to ‘require’ lawyers to ‘fully engage’ when advising funded parties, including considering whether to approach multiple funders for rival quotes.
CORLA called for ‘immediate corrective legislation’ to reverse PACCAR as the ‘ongoing uncertainty’ is impacting both the availability and price of funding; adding that action on PACCAR ‘should not be lost in the equally important but less urgent reforms’ that form part of the CJC’s review.
Addressing the high cost of funding, CORLA said the ‘voluntary and unclear nature’ of self-regulation of the sector ‘does little’ to help reduce costs. ‘Funders are essentially able to set terms that serve their own commercial interests first and, given the limited alternatives available, those seeking funding have little bargaining power to level the playing field,’ it said.
CORLA added that during litigation, funders may be incentivised to delay providing the funding they have committed until the last possible moment, to minimise the amount of time they must borrow from investors.
It said: ‘The current regulatory arrangement is insufficient to protect funded parties and those who do work for them. In practice, legal teams may have to operate unfunded and be exposed to claims from / disputes with third parties where funders do not make funding readily available. If a funder does not provide funding, then alternative sources of funding would need to be sought – however, such sources are generally not available.
‘[These issues] would be greatly reduced if law firms were allowed to self-fund and take returns similar to those of a funder. If law firms are in effect partially funding litigation through “work in progress” and paying disbursements, there are very good reasons for this to be formally recognised and for law firms to take funder style returns.’
A joint CJC submission by Andrew Higgins and Adrian Zuckerman, professors in the law faculty at Oxford University and Ravi Nayer, partner at Bryan Cave Leighton Paisner, said there was ‘a compelling and urgent need’ to reverse the effects of PACCAR, adding: ‘If our country is going to rely on private funding as an alternative to public funding of collective redress actions, it is crucial that there is certainty over the enforceability of funding agreements.’
The Association of Litigation Funders (ALF) and the International Legal Finance Association (ILFA) made a joint submission to the CJC, arguing that the forthcoming Court of Appeal ruling in Alex Neill v Sony presented an urgent need for action on PACCAR. The CA is due to rule on whether litigation funding agreements based on a multiple of the sum invested, rather than a percentage of damages, still fall within the DBA Regulations, rendering them invalid.
ILFA chair Neil Purslow told the Gazette that in the CJC review submissions publicly published so far, ‘there’s one point that comes out very clearly, which is that PACCAR needs to be reversed, and that the government should have done it already. And it’s having an impact.’
He said: ‘We’ve called for it to be done as soon as possible, because of Alex Neill v Sony coming through. That Court of Appeal case is very significant. It shouldn’t go wrong, but if it does, it’s “Paccar 2” and risks causing irreparable harm to the funding industry and the availability of litigation funding in this jurisdiction.’
Purslow added: ‘The CJC could write to the government and take it out of sequence with the rest of the review and say we’ve read the responses, this is what we think needs to be done, and it needs to be done now. That will bring the position back to where we were, and then we can continue with what has been a sensible discussion so far about the future of the sector.’
ALF chair Susan Dunn added that some international funders are now shifting away from UK, while ‘funders across the piece are finding it challenging to raise money’, as a result of PACCAR-related uncertainty.
In its CJC submission, the Law Society said it would support a reversal of PACCAR if evidence showed this would increase certainty for consumers and funders. On the issue of regulation, it said there was ‘merit’ in a ‘stronger self-regulatory framework’, with funders compelled to join an umbrella organisation such as ALF, ‘with tighter principles, codes of conduct and complaints procedures’.
The Society added that sanctions for non-compliance with the code should be increased, and ‘a system of self-regulatory checks and audits could be established to monitor ongoing compliance’. It said it also saw ‘merit’ in strengthening the requirements around capital adequacy.
Meanwhile the Legal Services Board has called for regulation of litigation funding.
The CJC is due to publish its recommendations this summer.
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