Introduction

The United Kingdom Supreme Court delivered a pivotal judgment in the case of PACCAR Inc & Ors v Competition Appeal Tribunal & Ors ([2023] UKSC 28) on July 26, 2023. This case scrutinized the enforceability of damages-based litigation funding agreements under section 58AA of the Courts and Legal Services Act 1990 (CLSA 1990), as amended by the Coroners and Justice Act 2009. The core issue revolved around whether agreements between claimants and litigation funders, where the funder loans money for litigation in exchange for a share of any damages recovered, fell within the definition of "claims management services" as stipulated by section 58AA.

The parties involved included PACCAR Inc and other appellants challenging the Competition Appeal Tribunal's (CAT) decision to certify collective proceedings aimed at addressing anti-competitive practices in the truck manufacturing sector. The appellants contended that the litigation funding agreements supporting these proceedings were unenforceable under section 58AA, thereby undermining the entire litigation funding mechanism essential for access to justice in complex collective actions.

Summary of the Judgment

The Supreme Court upheld the decisions of the lower courts, affirming that the specific litigation funding agreements in question did not fall under the definition of "claims management services" as per section 58AA CLSA 1990. Consequently, these agreements remained enforceable. The court delved into the statutory interpretation of "claims management services," concluding that mere provision of financial assistance by litigation funders does not equate to managing a claim. This distinction preserved the enforceability of non-champertous funding arrangements, ensuring that litigation funders could continue to support claimants without their agreements being rendered void by section 58AA.

Analysis

Precedents Cited

The judgment extensively referenced several key cases that shaped the legal landscape of litigation funding and claims management services:

• Factortame (No 8) [2003] QB 381: Established that pure litigation funding agreements did not fall under champerty and were enforceable, highlighting the role of funders in providing access to justice.
• Arkin v Borchard Lines Ltd [2005] 1 WLR 3055: Introduced the "Arkin cap," limiting funders' liability for adverse costs to the extent of their investment.
• Lexlaw Ltd v Zuberi [2021] EWCA Civ 16: Affirmed that termination fees in damages-based agreements with lawyers did not render such agreements unenforceable.
• Meadowside Building Developments Ltd v 12-18 Hill Street Management Co Ltd [2020] Bus LR 917: Demonstrated that providing financial assistance as part of claims management services could render agreements unenforceable if they exceeded certain prescribed limits.
• Merricks v Mastercard Inc [2020] UKSC 51: Highlighted the importance and complexity of collective proceedings and the role of litigation funding in facilitating access to justice.

These precedents collectively underscored the evolving judicial approach towards litigation funding, emphasizing its contribution to access to justice while balancing it against traditional concerns of champerty and public policy.

Legal Reasoning

The Supreme Court employed a purposive approach to statutory interpretation, emphasizing the context and legislative intent behind section 58AA CLSA 1990. Key elements of the court's reasoning included:

• Definition of 'Claims Management Services': The court analyzed the definitions provided under section 419A of the Financial Services and Markets Act 2000 (FSMA 2000) and found that litigation funders do not inherently provide claims management services as defined. Merely offering financial assistance without engaging in the management of claims does not meet the statutory criteria.
• Scope of Section 58AA: The court determined that section 58AA was not intended to encompass pure litigation funding agreements. Instead, such agreements were envisaged to fall under section 58B CLSA 1990, which pertains specifically to litigation funding and was recognized as not being enforced at the time of the CAT's decision.
• Principles of Statutory Interpretation: The court applied established canons, including the presumption against absurdity and the potency of the term defined, to interpret "claims management services" in a manner that aligned with legislative intent and practical legal frameworks.
• Legislative History and Context: Consideration of the legislative history revealed that Parliament aimed to regulate conditional fee agreements and litigation funding separately, acknowledging the distinct roles and ensuring that non-champertous funding arrangements were not inadvertently rendered unenforceable.

This nuanced interpretation ensured that the legislation facilitates access to justice through enforceable funding agreements while maintaining safeguards against potential abuses.

Impact

The Supreme Court's decision has significant implications for the litigation funding industry and collective legal actions in the UK:

• Enforceability of Funding Agreements: The ruling affirms that non-champertous litigation funding agreements remain enforceable, thereby ensuring that funders can continue to support claimants without legal uncertainty under section 58AA.
• Regulatory Clarity: By distinguishing litigation funding from claims management services, the judgment clarifies the regulatory framework, emphasizing that litigation funders are not subject to the same conditions as claims managers under section 58AA.
• Access to Justice: The decision upholds the role of litigation funders in facilitating access to justice, especially in complex and expensive collective actions where claimants might otherwise be unable to pursue legitimate claims.
• Future Legislation and Regulation: The judgment highlights potential areas for legislative refinement, particularly concerning section 58B CLSA 1990, which remains unenforced. Future amendments may further delineate the boundaries of litigation funding and claims management services.

Overall, the decision balances the need to prevent abusive litigation funding practices with the imperative to support legitimate claims through accessible funding mechanisms.

Complex Concepts Simplified

Conclusion

The Supreme Court's judgment in PACCAR Inc & Ors v Competition Appeal Tribunal & Ors fundamentally clarifies the boundaries of "claims management services" within the regulatory framework of section 58AA CLSA 1990. By determining that pure litigation funding does not equate to claims management services, the court has upheld the enforceability of damages-based agreements essential for facilitating access to justice in complex collective actions. This decision reinforces the legitimacy of the litigation funding industry while maintaining necessary safeguards against potential abuses, thereby fostering a balanced legal environment conducive to fair and effective dispute resolution.

Moving forward, stakeholders in the legal and litigation funding sectors can expect greater regulatory clarity, which will likely encourage responsible funding practices and support the continued growth and stability of litigation funding as a viable means of accessing justice. Additionally, the decision underscores the importance of precise statutory definitions and the role of judicial interpretation in aligning legislative intent with practical legal outcomes.

In summary, this judgment represents a significant affirmation of the litigation funding industry's role in the UK's legal system, ensuring that while access to justice is broadened, it remains safeguarded against practices that could undermine the integrity of the judicial process.