Post-PACCAR law ‘unlikely to be hurried’ after latest ruling

Emily Cox of Pinsent Masons was commenting after the Court of Appeal in England and Wales confirmed that revised litigation funding agreements (LFAs) underpinning separate class action-style competition claims raised against Apple, Sony, Mastercard and Visa are enforceable, dismissing appeals the companies raised against earlier decisions by the Competition Appeal Tribunal (CAT).

Originally, the LFAs put in place in each case made provision for the ‘funder’s fee’ to be calculated as a percentage of the proceeds which the class representative would recover if the proceedings were successful. In the so-called PACCAR case in 2023, the UK Supreme Court confirmed, however, that such LFAs constitute damages-based agreements (DBAs). DBAs are completely unenforceable in opt-out collective proceedings before the CAT.

Post-PACCAR, the LFAs underpinning the cases brought against Apple, Sony, Mastercard and Visa before the CAT were revised.

The revised LFAs provide for the funder’s fee to be calculated as a multiple or multiples of the funder’s outlay in the proceedings, although it is still paid out of the proceeds, and either expressly or by implication, the amount of the funder’s recovery is capped at the level of the proceeds recovered, or some possible subset thereof.

Apple, Sony, Mastercard and Visa argued that, the cap on recovery being tied to damages, the revised LFAs still constitute DBAs and should therefore be deemed unenforceable. The CAT disagreed with that assertion previously and now the Court of Appeal has dismissed the companies’ appeals against those decisions.

Earlier this summer, the UK government was advised by the Civil Justice Council (CJC) to reverse the effects of the so-called PACCAR ruling through new legislation. The CJC advises the government and judiciary in England and Wales and had been tasked, by previous lord chancellor Alex Chalk, with undertaking a review of litigation funding. The CJC said in its final report that the new law it has recommended “should be both retrospective and prospective in effect”.

Gemma Erskine of Pinsent Masons said: “The Court of Appeal was unanimously of the view that the post-PACCAR ‘multiple of investment’ LFA model is not an unenforceable DBA. One of the judges, Sir Julian Flaux, considered the companies’ primary argument – that such LFAs contain an express or implied cap tied to the level of damages, as the funders’ fees cannot exceed the available damages, and so are DBAs – produced the ‘absurd result’ of rendering LFAs unenforceable despite caps being intended to protect the class from excessive returns for funders.”

Cox added: “I suspect this decision will mean less urgency on the government’s side to legislate to reverse PACCAR because it will view the regime as still functioning. The fact that funders will tend to recover less on a ‘multiple of investment’ basis than on the pre-PACCAR ‘percentage of damages’ basis will not be a compelling argument for the government – quite possibly the reverse,” she said.