Insights

Chris Ward

Published 4 October 2023
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Are Litigation Funding Agreements Still Enforceable?

A recent Supreme Court decision in the case of PACCAR Inc & Ors v Competition Appeal Tribunal & Ors found that agreements with third-party litigation funders are Damages Based Agreements (DBAs). The impact of this decision is that most existing Litigation Funding Agreements are now likely to be invalid and therefore unenforceable.

What is a Litigation Funding Agreement?

A Litigation Funding Agreement is an agreement that enables your solicitor’s fees (and disbursements) to be paid for you. This might be a “no win no fee” basis or by way of a third-party that provides funding in exchange for a share in the outcome.

What are Damages Based Agreements?

A Damages Based Agreement (DBA) is a private funding arrangement between a representative and a client whereby the representative’s agreed fee is contingent upon the success of the case and is determined as a percentage of the compensation received by the client. DBAs replaced Conditional Fee Agreement in 2013.

A DBA is defined by section 58AA of the Courts and Legal Services Act 1990 as an agreement between a person providing “advocacy services, litigation services or claims management services”.

The case of PACCAR Inc & Ors v Competition Appeal Tribunal & Ors

PACCAR Inc & Ors v Competition Appeal Tribunal & Ors was brought in the Competition Appeal Tribunal by the Road Haulage Association and other hauliers alleging competition breaches against DAF and other truck makers. The proceedings were supported by litigation funding agreements.

Four out of five justices ruled that such agreements fall within the statutory definition of Damages Based Agreements and in particular within the definition of  ‘claims management services’ – which includes ‘the provision of financial services or assistance’. As the agreements did not meet the conditions required for a DBA, they were therefore unenforceable. 

The implications of this decision

The decision is likely to have significant ramifications and many funding agreements are now unenforceable. Considerable work will need to be done to restructure such agreements.

Other concerns are that a number of smaller funding operators will go out of business and that access to justice (where state funding is not available) will be further eroded.

However, in a joint statement, the International Legal Finance Association and the Association of Litigation Funders of England and Wales have stated it will not deter them from financing certain claims.

Of course, the full impact of this decision remains to be seen, but if you are likely to be affected, please get in touch with Chris Ward on 020 3988 0170 or at chris@rswlaw.co.uk.

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