PACCAR: The Supreme Court Decision That Reshaped Litigation Funding Overnight

Background: Collective Proceedings And The Truck Cartel Claims

The dispute arose from applications to bring collective proceedings in the Competition Appeal Tribunal under section 49B of the Competition Act 1998. The Road Haulage Association and UK Trucks Claim Limited sought permission to pursue damages claims against truck manufacturers, including DAF, following the European Commission’s 2017 infringement decision (AT.39824). Both claimants had litigation funding agreements under which funders would receive a percentage of damages recovered.

DAF argued these LFAs were damages‑based agreements under section 58AA(3)(a) of the Courts and Legal Services Act 1990. They contended that LFAs amounted to “claims management services” under section 4(2) of the Compensation Act 2006, because the definition includes “the provision of financial services or assistance”. If correct, the LFAs were unenforceable because they failed to comply with statutory DBA requirements.

Procedural History

• The Tribunal rejected DAF’s argument.
• The Divisional Court upheld the Tribunal’s decision.
• The Court of Appeal lacked jurisdiction to hear an appeal.
• DAF appealed directly to the Supreme Court.

On 26 July 2023, the Supreme Court (Lords Reed, Sales, Leggatt and Stephens; Lady Rose dissenting) held that LFAs entitling funders to a percentage of damages are DBAs under section 58AA. As a result, such LFAs are unenforceable in opt‑out collective proceedings and unenforceable elsewhere unless they comply with the DBA Regulations.

Relevant Law

The core issue was whether LFAs fall within the definition of “damages‑based agreements” under section 58AA of the Courts and Legal Services Act 1990. Section 58AA(7) imports the definition of “claims management services” from section 419A of the Financial Services and Markets Act 2000, which includes “advice or other services concerning the making of a claim” and “the provision of financial services or assistance”.

The Court also considered section 4 of the Compensation Act 2006 and the legislative history of section 58B of the Access to Justice Act 1999, which was never brought into force. The Damages‑Based Agreements Regulations 2013 set out the formalities required for enforceable DBAs.

The Supreme Court’s Reasoning

1. Context And Legislative Purpose

The Court held that the language in section 4(2) and (3) of the Compensation Act 2006 is deliberately broad and not confined to “claims intermediaries”. The Secretary of State was intended to have wide regulatory powers in an evolving market. Section 58B did not provide a comprehensive regulatory scheme for funders and did not justify narrowing the meaning of “claims management services”.

2. Natural Meaning

The natural meaning of “claims management services” includes LFAs. The Court rejected attempts to limit the definition to active claim management.

3. Explanatory Memorandum And Scope Order

The Explanatory Memorandum supported a broad interpretation. The Scope Order did not imply any requirement for active claim management.

4. The “Potency Of The Term Defined” Argument

The Court dismissed the argument that “claims management services” should be limited by its ordinary meaning. The term had no established meaning that could narrow the statutory definition.

5. Presumption Against Absurdity

A broad interpretation did not produce absurd results. The Secretary of State retained flexibility to tailor regulation as needed.

6. Later Developments

Reports by Sir Rupert Jackson and the Code of Conduct post‑dated the legislation and could not influence interpretation. Section 58AA and the DBA Regulations 2013 did not help because the earlier Act contained no ambiguity.

Opt‑Out Funding Arguments

UKTC argued that opt‑out LFAs differed from standard DBAs because:

• Class members were paid first.
• The Tribunal exercised discretion under section 47C(6) of the Competition Act 1998.
• Funders shared significant risk.

The Court rejected these submissions. The LFAs remained DBAs in substance.

Dissenting Judgment

Lady Rose disagreed. She held that “financial assistance” only falls within “claims management services” when provided by someone offering claim management in the ordinary sense. She did not define what that ordinary meaning should be.

Commentary And Market Impact

The judgment acknowledges its significant impact on existing LFAs. Many current agreements provide for funders to receive a percentage of damages and are now likely unenforceable.

Early judicial responses include Therium Litigation Funding A IC v Bugsby Property LLC [2023] EWHC 2627 (Comm), where Jacobs J held that unenforceable DBA elements may be severable and granted asset preservation orders pending arbitration.

Funders may need to restructure LFAs to avoid DBA classification. Recovering historic costs may be difficult where proceedings have been ongoing for years. The decision closes the door on LFAs in opt‑out collective proceedings, where section 47C(8) prohibits DBAs.

In Alex Neill Class Representative Ltd v Sony Interactive Entertainment Europe Ltd [2023] CAT 73, the Tribunal held that a revised LFA was not a DBA because the funder fee was not tied to damages but was determined by the Tribunal or settlement terms.

The judgment may prompt legislative reconsideration of the DBA regime.