Litigation Funding: A New Era?

• Published date: 13 February 2024
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution, Trials & Appeals & Compensation
• Law Firm: K&L Gates
• Author: Ian Meredith, Maya C. Ffrench-Adam and Emma Lidstr'm

THE PACCAR JUDGMENT

The Supreme Court of the United Kingdom's (Supreme Court) ruling in R (on the application of PACCAR Inc and others) (Appellants) v Competition Appeal Tribunal and others (Respondents) [2023] UKSC 28 (PACCAR), handed down on 26 July 2023, has been a subject of keen interest in the past six months by both litigation funders and their clients.

By a majority of 4-1, the Supreme Court held that litigation funding agreements (LFAs), which entitle funders to payment based on the amount of damages recovered, would be classified as damages-based agreements (DBAs). LFAs adopting this form of funding structure would therefore have to comply with the regulatory regime in place for DBAs (The Damages-Based Agreements Regulations 2013) or otherwise risk being deemed unenforceable. The practical effect of the ruling was that many LFAs could be unenforceable in their current form.

INDUSTRY REACTION TO PACCAR AND SUBSEQUENT LITIGATION

The initial reaction from the PACCAR defendants and some funders was that the decision could threaten the business model of the UK litigation funding industry. The decision opened the door to a potential sea of litigation against funders concerning past and current LFAs.

Subsequent uncertainties also arose around the ability of funders to rely on severance clauses in existing LFAs to remove offending clauses. In one of the first High Court of Justice judgments to consider the implications of PACCAR, Therium Litigation Funding v Bugsby Property [2023] EWHC 2627 (Comm), Mr. Justice Jacobs considered the issues of severability and enforceability of existing funding arrangements. Therium and Omni Bridgeway had previously funded Bugsby's '366 million lawsuit against Legal & General Group over the sale of the Olympia Exhibition Centre in London. Following an appeal, the case settled with Bugsby being awarded '27 million.

In light of PACCAR, Bugsby argued that its LFA with Therium and Omni Bridgeway was unenforceable. The funders, meanwhile, applied to the Supreme Court for a freezing order in aid of arbitration (as the LFA contained provision for the resolution of disputes by arbitration). Under the LFA, the funders were to be paid (i) a sum equivalent to a multiple of the litigation costs paid out, and (ii) an additional sum being 5% of any damages awarded above circa '36 million (the DBA provision).

Mr. Justice Jacobs held there was a serious question to be tried in respect of the funder's argument that the DBA provision did...