Due to the recent general election, there have been a number of changes to bills in progress in litigation funding and arbitration sectors.
There have been a number of recent, and perhaps telling, updates in the litigation and arbitration sectors. In the former, the continued uncertainty surrounding Litigation Funding Agreements (LFAs) in English law and in the latter, there have been amendments to carve international treaties out of the bill to amend the English Arbitration Act 1996.
LFAs
LFAs are intended to fund parties who could not otherwise afford typically expensive litigation fees, giving them the opportunity to take action. The Supreme Court's 2023 decision in PACCAR to categorise LFAs as Damages Based Agreements (DBAs) left the litigation funding sector shrouded in uncertainty.
As explained in Part I and Part II of our informative litigation funding series, as well as our look at the litigation funding market, subsequent judgments of the courts have provided some clarity and the impact of the sub-postmaster scandal provoked a promise from Mr Sunak's government to reverse PACCAR. However, the uncertainty was prolonged by Parliament's dissolution in the build up to the recent 4 July general election.
Due to the election, the Litigation Funding Agreements (Enforcement) Bill that would have reversed the judgment was abandoned after the committee stage. It was not mentioned in the King's Speech on 17 July.
What is the significance of the PACCARdecision?
The consequence of PACCAR's continuing authority is serious and far reaching for the litigation funding market. It rendered a large portion of existing LFAs invalid and unenforceable, as the funders' recoveries or potential recoveries under those LFAs fell outside the limits imposed by the Damages-Based Agreements Regulations 2013.
LFAs provide an essential channel for access to justice, a crucial principle that ought to underpin legal decision making. Indeed, key sub-postmaster campaigner Alan Bates has said that the class action against the Post Office was made possible through litigation funding and that the PACCAR ruling could have excluded any action at all.
Where to from here?
When the Litigation Funding Agreements (Enforcement) Bill was not mentioned in the King's Speech, there was some speculation that PACCAR's reversal may be embedded in the Crime and Policing Bill or in the Victims, Court and Public Protection Bill, both having relatively broad scopes.
However, the Labour government has recently quashed this speculation. In response to a question tabled in the House of Lords, parliamentary under-secretary for the Ministry of Justice Lord Ponsonby confirmed that the government would not take any further action until after the conclusion of a review of the litigation funding market and its regulation in England and Wales, currently being undertaken by the Civil Justice Council. This review is unlikely to conclude before the summer 2025.
Amendments to the Arbitration Act 1996
In contrast, the Arbitration Bill, another disputes-related bill that fell as a result of the call for a general election, was re-introduced in the King's Speech.
An original version of this amendment Bill stated that where the law applicable to a possible arbitration is not expressly agreed, the law of the seat of the arbitration would be applied. For instance, where an agreement does not explicitly state that English law will apply but does note that the arbitration will take place in London, English law would be applied. However, the scope of the original Bill stretched beyond its intended remit and would have applied to international treaties, where to apply the law of the seat would raise concerns. This Bill has been amended to resolve this issue and now excludes bilateral treaties through a carve out clause.
Save for this amendment, which is a correction rather than a policy change, the government plans to enact the Arbitration Bill in short course.
Why the difference?
As a major employer and the power behind the National Health Service, the government is probably the most frequently sued defendant in the UK. However, given the nature of those claims, it is rarely a respondent in arbitration proceedings.
Cynics might point to Mr Starmer's government favouring the Arbitration Bill over the Litigation Funding Agreements (Enforcement) Bill as evidence that it wishes to improve access to justice selectively. Only time, and the results of the Civil Justice Council's review, will tell.
This article was co-authored by Summer Placement Student Roya Power.
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