Supreme Court ruling forces litigation funders to redraft agreements

Supreme Court Ruling Forces Litigation Funders to Redraft Agreements

In a groundbreaking ruling by the Supreme Court this morning, litigation funders have been left scrambling to redraft the terms of their agreements. The case, PACCAR Inc & Ors v Competition Appeal Tribunal & Ors, saw four out of five justices declare that such agreements fall under the statutory definition of damages-based agreements (DBAs) and are therefore unenforceable.

The case revolved around collective proceedings against truck manufacturers following a European Commission decision that five companies had operated a cartel. Litigation funding agreements were utilized, where the funder’s remuneration is based on a share of the damages recovered.

Truck manufacturer DAF argued that these agreements should be considered DBAs, but their claim was initially rejected by lower courts. The case was eventually escalated to the Supreme Court for a final decision.

In the lead judgment, Lord Sales ruled that litigation funding falls within the definition of ‘claims management services’ under the Compensation Act 2006. This decision was supported by three other justices, while one dissented.

Legal experts have warned that this ruling will have significant implications for the litigation funding industry. Glenn Newberry, head of costs and litigation funding at Eversheds Sutherland, stated that the decision could lead to smaller operators going out of business and may impact the government’s efforts to bridge the gap in state-funded legal assistance.

Despite the setback, funders have expressed confidence in the industry’s ability to adapt. The International Legal Finance Association and the Association of Litigation Funders of England and Wales issued a joint statement expressing disappointment in the ruling but affirming their commitment to financing meritorious claims.

Steven Friel, chief executive of Woodsford, emphasized that the decision will not halt the momentum of access to justice efforts. He assured that the industry is prepared to navigate this challenge and continue supporting claimants in their pursuit of justice.

As litigation funders work to revise their agreements in compliance with the ruling, the legal landscape is set for a period of adjustment and transformation.