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Litigation Funding Agreements - an update

We wrote last year, about the Supreme Court judgment in Paccar which held that litigation funding agreements (LFAs), under which funders are entitled to recover a percentage of damages, amount to damages-based agreement (DBAs) within section 58AA of the Courts and Legal Services Act 1990 (CLSA). 

The result of the Paccar judgment was that, in order to be enforceable, such LFAs must comply with the Damages Based Regulations 2013 (the "DBA Regulations").

The decision caused widespread consternation across the litigation funding industry, given the effect of the judgment was to render many existing LFAs unenforceable. This led to a widespread industry lobby to address the issue.

In response, the Government announced in a press release on 4 March 2024 that it would introduce legislation effectively reversing the Paccar decision. The stated grounds for the introduction of such legislation were said to be based on a need to ensure claimants’ have adequate access to justice, and the recent Post Office Horizon scandal was cited as an example of a case which required litigation funding in order to bring the legal action.

The Government have now introduced the Litigation Funding Agreements (Enforceability) Bill (“the Bill”) to the House of Lords. 

The draft Bill, as currently worded, amends section 58AA of the Courts and Legal Services Act 1990, such that it specifies litigation funding agreements are not damaged-based agreements. Litigation funding agreements are defined in the Bill, as (in effect) agreements under which a funder funds the provision of advocacy or litigation by a litigant, or the payment of another’s costs by virtue of a costs order, under which the litigant is to make a payment to the funder as per the agreement.

The Bill is stated to be treated as though it has always been in effect regardless of when the litigation funding agreement was entered into.

Of additional relevance to the litigation funding industry is the potential wider regulation of the industry. House of Lords scrutiny of the proposed previously proposed amendment to the Digital Markets, Competition and Consumers Bill had led to the tabling of an amendment requiring a review. That amendment was rejected. However, the Government has confirmed that the Lord Chancellor has written to the Civil Justice Council, inviting it to undertake a review of the sector. The stated aim of this review is to “ensure that claimants can get the best deal” with regulation or safeguards to be expressly considered.