The litigation funding industry has the ‘sword of Damocles’ hanging over its head as it awaits a solution to PACCAR, a funding leader told the Civil Justice Council’s national forum last week as he pointed to the lack of clarity over whether the CJC will tackle PACCAR in its current review of the sector.
Addressing what he described as ‘the elephant in the room’ in relation to the CJC report, Neil Purslow, chair of the International Legal Finance Association who was also speaking for the Association of Litigation Funders, said:
‘When the CJC terms of reference were set, the PACCAR issue was going to be resolved by legislation, and PACCAR was not part of the original CJC terms of reference. The government’s solution, the legislative fix, fell with the change of government, and the current government’s policy is to delay fixing PACCAR until the CJC report has come through.
‘But it’s not entirely clear whether the CJC’s report will address these points at all, certainly not directly. None of the questions posed by the CJC report address the question of PACCAR or whether it should be reversed or not. And so we don’t know to what extent the CJC’s report will contribute anything to this discussion; and in the meantime, the industry has the sword of Damocles hanging over its head on a number of cases which would seek to further aggravate the problem that PACCAR has already caused.’
Purslow was speaking at a panel session discussing the litigation funding review, which was chaired by the review’s co-chair, barrister Dr John Sorabji. Speaking to the Gazette following the session, Sorabji said that following the change of government, ‘There was a discussion with the Civil Justice Council and the Ministry [of Justice] over the terms of reference [for the review], and those terms of reference haven’t changed.’
However, Sorabji added that while consideration of a litigation funding bill falls outside the review’s remit, the CJC had been asked to review litigation funding ‘in a wide sense’, including looking at damages-based agreements and conditional fee agreements.
Sorabji indicated to the Gazette that the question of whether litigation funding agreements should be considered damages-based agreements – which was a central aspect of the PACCAR ruling – would therefore fall within the review’s existing scope. He said: ‘We’re working within our terms of reference. The interim report sets out the various areas that we’re looking at… we’re looking at the wider context as part of litigation funding. Part of that wider context is damages-based agreements, which we deal with in our final section. So looking at damages-based agreements and looking at third party funding and whether reform recommendations are needed, the issues that PACCAR would have dealt with inevitably need to be considered.’
In relation to the timing of the CJC review, Sorabji noted that the interim report had been published during the ‘dying days of summer’ on 31 October. He said the final report will be published in the summer of 2025, and while ‘not promising anything’, he hoped it would be earlier in the summer than the interim report.
As the funding industry awaits a legislative solution to PACCAR, several challenges to litigation funding agreements are currently stayed in the Court of Appeal with the potential to cause even greater problems for funders. The appeals seek to challenge the validity of agreements where the funder’s fees are calculated solely as a multiple of the sum invested, rather than also as a percentage of damages, as in PACCAR. Many funders have relied on the ‘multiple’ approach since the PACCAR ruling, and so are anxious for a legislative solution before these cases progress and potentially reach the Supreme Court, which was responsible for the PACCAR judgment.
Commenting on the CJC review more broadly during the panel discussion, Purslow said the funding industry ‘very much welcomes this report and is not afraid of regulation’.
Also on the panel, CMS partner Kenny Henderson, speaking for campaign group Fair Civil Justice which represents businesses and trade bodies, pointed to the ‘phenomenal’ rise in UK class actions, which cannot be brought without litigation funding. He said litigation funding was an ‘outlier’ in relation to consumer commerce, where you would normally see specific statutory protection due to the asymmetry between the consumer and the businesses involved.
Speaking earlier at the CJC national forum event, then justice minister Heidi Alexander said the government would not simply pick up where the last government left off with PACCAR legislation, but instead wanted to consider the issue ‘carefully and holistically’.
