Litigation Funding Agreements (Enforceability) Bill clears another hurdle

The Litigation Funding Agreements (Enforceability) Bill continued its journey through the Lords on Tuesday with its Second Reading. The Bill aims to address the impact of the Supreme Court judgment in R (PACCAR) v Competition Appeal Tribunal [2023] UKSC 28 (PACCAR) which held that litigation funding agreements (LFAs) that remunerate the litigation funder by reference to a proportion of the damages ultimately recovered constitute damages-based agreements (DBAs). The effect of that decision is that many LFAs currently in existence are likely to be unenforceable unless they satisfy additional stringent conditions in subsidiary legislation. The Bill will restore the position to that which prevailed before the decision of the Supreme Court (that LFAs are not DBAs and hence are enforceable) by amending the definition of a DBA in section 58AA(3)(a) of the Courts and Legal Service Act 1990 (CLSA).

Tuesday’s debate focused upon all aspects of the Bill, as well as on the wider review of the litigation funding sector to be undertaken by the Civil Justice Council (whose interim report is expected this Summer). While the Bill was generally supported, concerns were raised on the following issues which will need to be dealt with in the coming weeks.

• Access to justice: in the absence of legal aid, third-party funding is currently the only way in which some individual Claimants can have the means to litigate against larger and more well- resourced corporations. However, recent high-profile cases have highlighted the imbalance between the sums ultimately received by litigants and those realised by the entities that fund them. The Government noted that it was acutely aware of this issue and that more needs to be done in this regard.
• Retrospective effect: concerns were also raised about the consequences of the proposed amendment to s.58AA CLSA having retrospective effect. The example was given of Claimants who had replaced unenforceable funding agreements with enforceable funding agreements following PACCAR and who may soon find themselves faced with two funding agreements on different terms. Whilst it remains to be seen whether this is a significant concern (particularly where funding agreements have been amended and restated rather than replaced) it was agreed that this point would need to be considered further to ensure that it works properly and fairly in practice.
• Regulation of litigation funders: there was much support in favour of regulating litigation funders. This is likely to involve re-visiting the draft DBA Regulations produced in 2019, which were never introduced. It is not clear how quickly the Government will move to progress this.

The Bill will now advance to the Committee Stage for further debate.