The UK government has unveiled plans to introduce legislation to nullify the impact of a Supreme Court judgment on litigation funding agreements that threw the sector into uncertainty.

In a ministerial announcement today, the Lord Chancellor, Alex Chalk, said the new law for England and Wales would make it easier for the public to secure third-party financial support for complex claims against “moneyed corporations with sizeable legal teams which they could otherwise ill-afford”.

He also said the government was considering a “wider review” of the litigation funding sector given its growth over the past decade. 

The Supreme Court’s PACCAR ruling last July found that litigation funding agreements (LFAs) which handed funders a share of the damages would amount to Damages-Based Agreements (DBAs) and would therefore need to comply with the relevant regulations to be enforceable.

The ruling not only barred LFAs from being used in collective proceedings before the Competition Appeals Tribunal (CAT), but also challenged assumptions about their wider use, leading to a shift in the drafting of agreements and satellite litigation against funders. 

In November, the government added an amendment to the Digital Markets Competition and Consumer Bill to allow LFAs in the CAT. 

A briefing published by Herbert Smith Freehills today (4 March), predicted “a more fundamental legislative change, restoring the position that existed before PACCAR when it was assumed that litigation funding agreements were not DBAs and so did not need to comply with the DBA regulations, whether or not they allowed for the funder to receive a percentage share of damages”. 

Announcing the plans for legislation, Chalk cited the role funding played in supporting the group claim against the Post Office which in 2019 exposed the Horizon IT scandal, which saw 900 sub-postmasters and postmistresses (SPMs) prosecuted on the basis of information provided by the faulty Horizon accounting system.

“It’s crucial victims can access justice – but it can feel like a David and Goliath battle when they’re facing powerful corporations with deep pockets,” he said.

“This important change will mean more victims can secure vital third-party funding to level the playing field and support their fight for justice. The sub-postmasters were able to secure third-party funding in their legal action against the Post Office. Now others will too.”

The decision was welcomed by Law Society president Nick Emmerson who said: “Too frequently it is said that justice is not a priority for this government, but we would hope recent events will call for reflection on how it supports access to justice through the court system for all those without independent financial means.” 

From the claimant side, Martyn Day, name partner of Leigh Day and co-president of the Collective Redress Lawyers Association, called the news “a very sensible and welcome development” which would bring “much-needed clarity to claimants, the courts and those funding claims”.

The legislation, he said, would ensure that claimants “will be able to focus on bringing claims without those corporations tying up court time and money in trying to unpick the funding agreements that make the claims possible”. 

He added: “Any reform of the collective redress sector must build on today’s welcome announcement and not undermine it.”

BCLP partner, Andrew Leitch said the news would provide welcome certainty, triggering “creatively worded clauses… which provide for damages-based returns ‘only to the extent enforceable and permitted by appliable law’”, in opt-out CAT actions, where DBAs had otherwise been expressly prohibited.

However, he said the funding of similar claims to the Post Office litigation was arguably never directly threatened by the Supreme Court’s ruling as most funding agreements were compliant with the 2013 DBA regulations or had been amended to be compliant without meaningfully altering their commercial terms. 

Gus Sellitto, co-founder of Byfield Reputation Counsel, said funders often received bad press due to their potential to “commercialise” justice and the high returns made when cases succeeded but were “behind many of the David v Goliath type class actions that we are now seeing growing in the UK and throughout Europe, and which have the protection of consumers at their core”.