UK to reverse ‘PACCAR’ ruling on litigation funding

In a statement, the Ministry of Justice said the step will address the “uncertainty” that those seeking to bring claims against “a well-resourced opponent” face over “whether they can secure funding from third parties” in order to do so.

In 2023, the Supreme Court held that third party litigation funding agreements (LFAs) that provide for the funder to receive a fee calculated by reference to the damages those they are funding are awarded in respect of their claims constitute damages-based agreements (DBAs). This had the effect that such LFAs, which included many LFAs then in place in the market, were completely unenforceable in opt-out collective proceedings before the UK’s Competition Appeal Tribunal; and unenforceable in other matters unless they complied with requirements set out in the DBA Regulations 2013, which many LFAs did not.

The previous Conservative-led government sought to reverse the judgment, dubbed the PACCAR ruling, but the bill it introduced for that purpose fell when parliament broke up for the 2024 UK general election. Shortly after it came to power, the Labour government confirmed that it would wait for the outcome of a review into litigation funding undertaken by the Civil Justice Council (CJC) before deciding on next steps.

In the summer, the CJC recommended that the effects of the PACCAR ruling be reversed through new legislation. Now the MoJ has confirmed that it will act on the CJC’s recommendation.

The MoJ said: “The PACCAR judgment … made it harder to access to third-party funding and has resulted in a drop in collective action lawsuits. Today, the government is confirming that it will take action to remove this barrier to justice by clarifying that litigation funding agreements are not damages based agreements, protecting victims and claimants.”

Sarah Sackman KC, minister for courts and legal services, added that the Supreme Court ruling had left those pursuing claims “in unacceptable limbo, denying them of a clear route to justice”.

The MoJ has said it will bring forward new legislation “when parliamentary time allows”.

In its final report following its review, the CJC, which advises the government and judiciary, also recommended that new light-touch regulation be introduced to govern third-party litigation funding arrangements in civil cases in England and Wales, with funders so far having operated under a voluntary regime administered by the Association of Litigation Funders. The MoJ has confirmed that it will put in place “a new framework” to “ensure that agreements are fair and transparent, so that third-party litigation funding actually works for all those involved”. The government is still considering other recommendations made by the CJC, it added.

Gemma Erskine, litigation expert at Pinsent Masons, said: “Notably, the EU has announced it will not follow suit with any regulation of funders, highlighting a stark contrast in approach. It remains to be seen whether this divergence will influence business growth and the UK’s ambition to position itself as a litigation powerhouse, while some may welcome the certainty that regulation will bring to the sector for defendants, claimants and funders alike.”