- within Litigation and Mediation & Arbitration topic(s)
The UK government has confirmed that it intends to bring forward legislation to reverse the effect of the Supreme Court's 2023 decision inPACCAR1and to clarify in statute that litigation funding agreements (LFAs) should not be treated as damages-based agreements (DBAs).
WhatPACCARChanged
InPACCAR, the Supreme Court held that certain LFAs, where the funder's return is calculated by reference to damages recovered, fell within the statutory definition of a DBA. The decision created significant uncertainty for the litigation funding market, as many standard LFAs became vulnerable to enforceability challenges, most acutely in opt-out collective proceedings before the Competition Appeal Tribunal, and more broadly in cases where LFAs did not satisfy the DBA Regulations 2013 (which many LFAs did not).
The Government's Rationale
The Ministry of Justice has presented the proposed legislation as an access to justice measure, aimed at addressing the uncertainty faced by claimants about the availability of third-party funding, particularly those bringing claims against well-resourced defendants. The Minister of State for Courts and Legal Services, Sarah Sackman KC MP, described the post-PACCARposition as leaving claimants in "unacceptable limbo".
The government has also linked the reform to the UK's competitiveness as a centre for legal services and dispute resolution, noting concerns that ongoing uncertainty could undermine England and Wales' standing as a leading forum for complex commercial litigation.
Timing and the Wider Framework
No firm parliamentary timetable has been provided. The Ministry of Justice has stated that legislation will be introduced"when parliamentary time allows".
Alongside the statutory reversal ofPACCAR, the government has indicated that it is considering a wider framework for litigation funding, intended to ensure that funding agreements operate fairly and transparently. This includes ongoing consideration of recommendations made by the Civil Justice Council following its review of the litigation funding market.
Market Reaction and Remaining Uncertainty
The announcement has been welcomed by claimant lawyers, funders and representative bodies, while also prompting calls for greater clarity on timing and scope. As legislative detail emerges, debate is likely to continue, including concerns raised by parts of the business community about the potential impact of reform on defendants' exposure to collective and funded claims. For now, the government's confirmation marks an important step towards solving the post-PACCARuncertainty, but full certainty will depend on the content and passage of the legislation itself.
Footnote
1 R (on the application of PACCAR Inc and others) v Competition Appeal Tribunal and others[2023] UKSC 28.
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