The Supreme Court’s PACCAR ruling in July 2023 held that, contrary to industry practice, litigation-funding agreements (“LFAs”) by which a third-party funder finances litigation costs in return for a percentage of any damages successfully recovered, did fall within the definition of “damages-based agreements” (“DBAs”). The upshot of the ruling was that these LFAs, which included numerous extant agreements pursuant to which funding was being provided for active proceedings, were unenforceable unless they complied with the additional conditions set out in the DBA Regulations 2013. Many LFAs did not.
The uncertainty created by the ruling has left parties to existing LFAs with little option but to revise the terms mid-contract and is potentially deterring litigants and litigation funders from entering into new, English law-governed LFAs. More broadly, the ruling creates uncertainty around the litigation funding model, potentially hindering access to justice.
The UK Government’s introduction of the Litigation Funding Agreements (Enforceability) Bill, which aims to reverse the position and resolve the uncertainty has been much awaited. If implemented, the Bill will reverse the PACCAR ruling with retrospective effect, restoring the position that LFAs are not DBAs and thus need not comply with the DBA Regulations. The Bill will apply to LFAs entered into before it comes into force, as well as to LFAs entered into in the period since the PACCAR ruling.
The Bill will not follow an expedited process, but has passed its first reading, with a second reading scheduled for 15 April 2024.
Next steps
If you require further information about the Bill or are concerned that it may have an impact for you, please contact our Hogan Lovells team.
Authored by Ivan Shiu, Theresa Hudson, and Rolando Virardi.
