The PACCAR case continues to shake up the third party litigation funding market in the UK
For litigation funding operators, the UK market is obviously a key market, in which financial giants have been operating for many decades. However, such an important market has been completely called into question by a recent decision of the Supreme Court of London, the so-called “PACCAR case”.
What is the PACCAR case?
The case concerns a class action brought against PACCAR Inc, a truck manufacturer, for an alleged cartel that inflated vehicle prices. The central issue concerns the litigation funding agreements used to finance the lawsuit and whether these agreements constituted so-called “damages-based agreements” (“DBAs”) under the Courts and Legal Services Act of 1990.
The Supreme Court ruled that funding agreements that provide for a percentage of damages obtained are DBAs and, therefore, must meet strict requirements. Many funding agreements currently used in the UK do not meet these requirements, making them potentially unenforceable.
The impact of the Paccar case on litigation funding in the UK
The PACCAR ruling has caused an “earthquake” in the litigation funding sector in the UK, leading to greater uncertainty and forcing operators to review their business models. In fact, since many third-party funding contracts provide for a percentage fee on the damages awarded, they could be considered DBAs and – as such – invalid due to failure to meet the requirements of English law.
Litigation funding operators were forced to completely revise their remuneration models to comply with the 1990 law, generating many uncertainties and making it more difficult to finance class actions, with a potential negative effect on consumers’ access to justice.
The reactions from the British government
In immediate response to the PACCAR ruling, in March 2024 the government introduced the “Litigation Funding Agreements (Enforceability) Bill”. This bill aimed to explicitly exclude litigation funding agreements from the definition of “Damages-Based Agreements” (DBA), thus restoring the situation prior to the PACCAR ruling. However, the bill was not passed before the general election in July 2024 and was subsequently abandoned.
After the election, the new Labor government indicated that it would not immediately reintroduce the bill. Instead, it decided to wait for the conclusion of the review of the “Civil Justice Council” (CJC) on the litigation funding market in England and Wales, with a final report expected in the summer of 2025. The government has stated its intention to adopt a more comprehensive view of possible legislation after the publication of the CJC report.
The reactions of litigation funding operators in the UK
The absence of immediate legislative action has generated concerns in the legal sector. Some professionals fear that the uncertainty may push companies to seek alternative jurisdictions for dispute resolution, potentially damaging the UK economy and workforce. Legal experts and law firms have urged the government to act quickly to remove these barriers.
In response to the ruling, many funders have amended their funding agreements to avoid falling under the DBA definition. For example, some have restructured their fees by calculating them as a multiple of the funds provided rather than as a percentage of the damages recovered. These changes aim to ensure that the agreements comply with current law and remain enforceable.
Possible future developments
The litigation funding industry is awaiting with interest the conclusions of the Civil Justice Council (CJC) review, whose final report is expected in summer 2025. Operators hope that the government will adopt a legislative initiative to clarify the legal position of financing agreements and restore certainty in the market. However, there is concern that further delays may continue to negatively affect litigation funding activity in the UK.
