In a significant decision made on 26 July 2023, the UK Supreme Court has made its stand clear on Litigation Funding Agreements (LFAs), holding them to be “damages-based agreements” (DBAs) under section 58AA of the Courts and Legal Services Act 1990. The case, R (on the application of PACCAR Inc and others) v Competition Appeal Tribunal and others, presents a new perspective on LFAs, which traditionally allow funders to be paid a share of any damages recovered. [see case details]
As per the ruling, LFAs will now be deemed unenforceable unless they meet certain compliance requirements. This is a significant development since LFAs have long been a major component of high-value litigation. The ruling, however, throws light on the importance of full compliance, with implications for the future of LFAs.
The ruling was arrived at with a majority of four to one, demonstrating a relative consensus on the matter amongst the justices. The dissenting voice, however, indicates that the ruling is not without its controversies.
In consequence, this ruling has potential repercussions not only for litigation funders but also for legal professionals, lawsuit participants, and corporate litigants. The courts’ stance now places pressure on parties to scrutiny their LFAs carefully for compliance. The decision is certain to have a cascading effect on jurisdictions beyond the UK, considering its status as a central hub for litigation funding.
Changes in the understanding of LFAs and DBAs also open up new legal avenues. Firms may now require increased due diligence and strategic forethought when forming these agreements. For specialists in corporate law, understanding this decision will be key, as it may impact how litigation funding itself is approached.