By Matthew Pascall, Legal Director – Head of Commercial
(Estimated reading time: 4 minutes 13 seconds)
On the 4th of March the Rt. Hon. Alex Chalk MP, the Lord Chancellor and Secretary State for Justice, made a statement in the House of Commons announcing the Government’s intention to introduce legislation to “… address the impacts of the UK Supreme Court judgment in PACCAR, …” Read on for our in-depth analysis.
The legislation has now been published and introduced in the House of Lords – The Litigation Funding Agreements (Enforceability) Bill.
The Bill is commendably short and simply amends section 58AA of the Courts and Legal Services Act 1990 by an adding a new Section 58AA (3) (aa) that states “an agreement is not a damages-based agreement if or to the extent that it is a litigation funding agreement.” A litigation funding agreement is then defined by adding a new section 58AA (3A):
“(3A) For the purposes of this section a litigation funding agreement is an agreement which provides that—
(a) a person providing claims management services (“the funder”) is to fund (in whole or in part)—
(i) the provision of advocacy or litigation services (by someone other than the funder) to the recipient of the claims management services (“the litigant”), or
(ii) the payment of costs that the litigant may be required to pay to another person by virtue of a costs order, and
(b) the litigant is to make a payment to the funder in circumstances specified in the agreement.”
A new section 58AA (4) will provide that “The amendments made by this section are treated as always having had effect.” The changes will thus be retrospective and make agreements executed in the past enforceable.
Notwithstanding the rather sweeping terms used in the MOJ’s briefing, the decision in PACCAR did not render all funding agreements unenforceable, only those which provide for payments to the funder in the event of success that are calculated by reference to the damages the successful funded party recovers.
Nonetheless, the decision left many funders unsure about the agreements they had in place and there was a significant risk that investors, who are the lifeblood of funders, might walk away from the litigation funding sector. They will be greatly relieved by the Bill.
It is interesting to note the emphasis in the Lord Chancellor’s statement and in his department’s briefing on the role funding can play in supporting individuals or groups of individuals pursuing claims against large and well-resourced businesses and organisations. The Lord Chancellor made a point of referring to the sub-postmasters’ funded civil claim against the Post Office:
“Lord Chancellor, Alex Chalk, said:
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.
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.”
Whilst funding, alongside ATE insurance, can play a vital role in helping the Davids of this world take on the Goliaths, it would be interesting to see what statistics might say about the profile of the typical funded litigant.
It is important to note that the MOJ’s briefing also announced that:
“The government is also considering options for a wider review of the sector and how third-party litigation funding is carried out. This could consider whether there is a need for increased regulation or safeguards for people bringing claims to court, particularly given the growth of the litigation funding sector over the past decade.”
The Temple Perspective
The funding sector, working alongside ATE insurers, need to think carefully about how they should respond to any review. Accepting a degree of statutory regulation may not be such a bad thing.
- Temple’s disbursement funding arm has always accepted regulation by the FCA. The administrative cost is worth the security our clients have knowing that they are working with an FCA registered lender.
- A set of simple and practical rules that might, for instance, require a degree of transparency so that funded litigants will always know how much they might have to pay in any given outcome in the funded litigation would not be a bad thing.
- It might also be sensible to provide for a higher degree of statutory regulation for consumers or groups of consumers taking out litigation funding whilst taking a much lighter touch approach for businesses.
- Whether a review would lead to the recoverability of ATE premiums, CFA up-lifts and funding costs strikes me as doubtful but as Tets Ishikawa at LionFish Litigation Finance has recently suggested, this issue ought to be addressed in any review carried out.
In any view, the Lord Chancellor’s recognition of the value of litigation funding is important and Temple looks forward to continuing to work alongside funders in the interests of our mutual insured and funded clients.
If you have any questions on this topic, please contact us on 01483 577877 or send an email to matthew.pascall@temple-legal.co.uk
Matthew Pascall
Legal Director – Head of Commercial
01483 514428
Matthew Pascall
Matthew was called to the Bar in 1984 and joined Guildford Chambers two years later. Spending more than 30 years in practice there, he was listed as a Legal 500 Tier One barrister.
He joined the commercial team at Temple Legal Protection as Senior Underwriting Manager in 2017.
Matthew was appointed to Temple’s Board in December 2022 as Legal Director and Head of Commercial.
His knowledge of the commercial legal sector and litigation practice is invaluable to the business and our clients, providing specialist experience to lead the commercial litigation insurance team.
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