The enforceability of litigation funding agreements (LFAs) in England & Wales has faced serious questions following a decision of the Supreme Court last summer. In the PACCAR case (brought in the Competition Appeal Tribunal, or CAT, and relating to compensation for cartel behaviour in the truck sector), the court decided that LFAs in competition claims in which the funder’s return is based on a percentage of damages recovered were unenforceable because they did not satisfy technical costs regulations introduced as part of the Jackson reforms of 2013. 

Cleary, if funders cannot enforce their agreements then they are hardly going to finance claims at the outset, which would have a detrimental effect on access to justice if potential clients had no other ways of bringing cases. In addition, the PACCAR decision also caused ripples of uncertainty for different types of LFAs used to pursue other types of case (i.e. outside the competition law and CAT setting of PACCAR).

A narrow solution via a current Bill (and its limitations)

The government had quickly signalled that it was alive to this problem and at the end of 2023 amended the Digital Markets, Competition and Consumers (DMCC) Bill as it completed its proceedings in the House of Commons in order to reverse PACCAR, albeit only within its particular context, i.e. in respect of LFAs in competition claims in the CAT. The government argued that it is restricted to this narrow approach because the scope of the Bill is formally set out, for our purposes, as being “to amend the Competition Act 1998 … and to make other provision about competition law; to make provision relating to the protection of consumer rights”

We provided further detail about the decision and the government amendment in earlier articles dated 28 November and 7 December 2023.

Even with the government amendment in place, it appears that the ripples of uncertainty referred to above will not be addressed in the short term.

When speaking during recent debates in the Lords, several influential Peers, including Lord Thomas, the former Lord Chief Justice, clearly remain troubled by this narrow approach and continue to push, in quite direct terms, for a broader resolution to the enforceability of LFAs generally. This tension is expected to come to a head at the DMCC Bill’s Report stage, which will take place shortly after this week’s brief recess.

Lord Thomas has indicated he will strongly press the government at Report stage to widen the narrow scope of its LFA amendment. He invoked Magna Carta’s pledge that no-one will be refused justice but characterised the government’s narrow solution for LFAs in the CAT as being to “provide access to justice to those who fall within the definition of consumer or who can bring their claims before the CAT, but the rest of you, no”.

Lord Thomas added that he may take the very unusual step of seeking to challenge the scope of the Bill. Another firm supporter of a wider solution for enforceability of LFAs, Lord Sandhurst (former Bar Council Chair, Guy Mansfield KC), intervened with the understated observation that “something will have to be delivered by the time we get to Report, or it will be a very interesting day out”.

An independent review that could offer wider solutions

That “something” could very well be the government announcing a formal review of the regulation of the litigation funding sector. This possibility was aired by the Minister when responding to Lords Thomas and Sandhurst, saying that “The Civil Justice Council may be asked to undertake such a review [and I] expect colleagues from the justice department to update this House once that review is agreed.”

The government’s narrow solution will be carried at Report stage, but in formally announcing the CJC review - assuming it does so - it would then also be providing a forum, potentially time-limited, in which wider solutions to enforceability of LFAs and structural regulation of the litigation funding sector could be developed.

Not only would such a review directly address Peers’ current concerns, but it could also revive the Jackson-era recommendation that statutory regulation of the litigation funding sector should be considered. The way(s) forward for the sector - and for those who face claims funded by LFAs - should be clearer in a few short weeks.