In the latest legal development from the United Kingdom, the UK Supreme Court delivered a significant verdict in R (PACCAR Inc & ors.) v Competition Appeal Tribunal & ors [2023] UKSC 28 that bears great implications on litigation funding.
The court pronounced that litigation funding agreements, referred to as “LFAs”, are in fact a provision of “claim management services”, yoking these services with “the provision of financial services or assistance”.
Therefore, in cases where the funder’s recovery is rooted in a percentage of the damages awarded to the claimants, it is necessary for these setups to be classified as damages-based agreements, known as “DBAs”. Consequently, DBAs are subject to specific regulations. This ruling primarily impacts litigation funders, who provide finance to claimants in return for a share of any damages awarded.
Historically, LFAs have been legally distinguished from DBAs. LFAs have been the lucrative gravy train or truck for litigation funders as they allowed a transaction at arm’s length. This ruling, however, appears to have derailed that train, potentially altering the risk and reward expectations for litigation funders.
This verdict draws attention to the malleable socio-legal context in which laws and precedence are enacted and interpreted. The future of third-party litigation finance, especially as it relates to LFAs and DBAs, now hangs on the interpretation and response of regulatory bodies and the wider legal community.
Given these new developments, all stakeholders in third-party litigation finance, including companies, law firms and their respective clients, are recommended to assess the impact of this recent ruling on their ongoing and prospective cases. The legal and financial implications of the ruling are likely to shape the delivery and funding of legal services in thte future.
You can read the full details of the case and its legal ramifications at the following here.