Supreme Court ruling means many Litigation Funding Agreements are unenforceable
IPA Insolvency Practitioner newsletter, August 2023
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- IPA exclusive industry update from Insolvency Insider
As a result of the recent Supreme Court decision of R (on the application of PACCAR Inc and others) (Appellants) v Competition Appeal Tribunal and others (Respondents) (supremecourt.uk) [2023] UKSC 28, litigation funding agreements (“LFAs”), pursuant to which the funder is entitled to recover a percentage of any damages recovered by their client, constitute damages-based agreements (“DBAs”) and so are unlawful and unenforceable unless they comply with certain conditions of the Damages Based Regulations 2013.
The implications of this decision are significant. The Supreme Court was told that “the likely consequence in practice would be that most third party litigation funding agreements would by virtue of [s.58AA of the Courts and Legal Services Act 1990] be unenforceable as the law currently stands even if the third party funder had played no active part in the conduct of the litigation.
The court observed that those involved in the third party funding market may have wrongly assumed that LFAs were not DBAs, nonetheless, the court’s statutory interpretation of the legislative scheme has the result that the particular litigation funding agreements being considered were unenforceable. It is likely that many other litigation funding agreements will similarly be unenforceable.
The IPA considers that the enforceability of each litigation funding agreement will depend on its own wording. Insolvency Practitioners who have entered into litigation funding agreements should consider seeking legal advice on their enforceability and on the extent of any remedial steps required.