Litigation funding has become a flashpoint in English courts following the Supreme Court’s decision in PACCAR Inc v Competition Appeal Tribunal. The ruling classified many funding agreements as damages-based activities, rendering them unenforceable under current law. This decision created immediate uncertainty for the industry and threatened the ability of claimants to pursue complex claims.
The Uncertainty of PACCAR
The underlying issue stems from a 2016 price-fixing cartel involving major truck manufacturers. These companies conspired to inflate prices, causing harm to numerous clients and competitors in the market. Victims sought redress through collective proceedings orders in the Competition Appeal Tribunal. Funders provided the necessary capital, receiving a share of any damages awarded. The Respondents argued these funding agreements violated regulations governing damages-based activities.
The Supreme Court agreed with this interpretation. Most existing contracts assumed they were outside the scope of these regulations, but the ruling invalidated them. The industry faced procedural limbo, with many lawsuits hanging in the balance as lawyers scrambled to renegotiate terms. This classification was not merely semantic; it exposed a fundamental gap in the legal framework that supports the broader litigation ecosystem.
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Access to Justice Concerns
The reversal impacts more than just funders. Litigation funding acts as a financial equalizer for individuals and small businesses facing corporate giants. Without this access to capital, claims might never be brought against powerful entities that otherwise enjoy significant advantages in the legal system.
The Post Office scandal litigation serves as a stark example. In that matter, litigation funding was widely recognized as the claimants’ savior, allowing them to establish the truth and obtain redress which would otherwise have been impossible given the defendants’ vast resources. The settlement involved £58 million. With legal teams and funders claiming a substantial portion of that payout, this situation highlights a significant tension in the system.
Similarly, the Municipio de Mariana v BHP Group litigation involved over 600,000 people. Such large-scale disasters create costs that far exceed the means of individual victims. The cost of advancing these claims is significant and prohibitive for victims who are already in financial ruin due to the wrongdoing of their counterparty.
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Fixing the Regulatory Gap
The Civil Justice Council conducted a review after the judgment. It recommended legislation to clarify that funding agreements are not damages-based activities. The government intends to introduce laws to restore certainty, though the exact timing remains unclear. This move aims to signal that England and Wales remains a predictable jurisdiction open for business.
While the government’s plans to reverse the judgment are necessary, they may not go far enough. The Council recommended a retrospective fix, but the current approach will likely be prospective only. This distinction matters because existing contracts remain tainted by the PACCAR ruling. Without implementing these changes retroactively, there remains a significant number of potentially unenforceable agreements. This leaves a significant volume of litigation vulnerable to strike out and satellite litigation over funding arrangements, creating a confusing patchwork for the courts to manage.
Beyond the legal classification, the report suggests moving from self-regulation to formal oversight. This would require funders to meet capital adequacy standards and improve transparency. Such measures are needed to ensure that the Post Office scandal does not repeat, where legal teams and funders received a large portion of the settlement while victims received a fraction.