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Access to Justice maintained – The impact of the decision in Paccar Inc & Ors v Road Haulage Association Ltd

Litigation funding is a substantial industry and, for many, a necessity without which they would be denied access to justice. Third-party funders provide the resources to claimants to prosecute claims, who otherwise would not be able to.

The case of Paccarr & Others – Paccarr & Others – v – Road Haulage Associate Ltd & Others v – Road Haulage Associate Ltd & Others brought the entire litigation funding industry into question. Arguments submitted on behalf of the appellants, if deemed correct, had the potential to render all litigation funding agreements invalid.

However, in a decision that will be welcomed both by litigation funders and potential claimants with limited means, the Court of Appeal upheld an earlier decision of the Competition Appeal Tribunal (the “Tribunal”), which found that a funding agreement was not a “damages-based agreement” (“DBA”) within the scope of section 58AA of the Court and Legal Services Act 1990.

Consequently, litigation funding agreements are not subject to the relevant regulations and the decision ensures that agreements currently in place are enforceable.

Summary of the decision

DBAs are agreements by which a party (for example a firm of solicitors) provide advocacy, litigation or claims management services in exchange for a fee that is determined by reference to the financial benefit obtained through the litigation.  In many cases, this can be a percentage of the damages awarded or the settlement sum.

The appellants in this case argued that the litigation funding agreements (by which funders lend money to claimants and in return are normally entitled to a success fee, which sometimes will be calculated by reference to a final award or settlement) constituted a DBA because it fell within the definition of “claims management services” under the Compensation Act 2006.

Under the 2006 Act, claims management services are defined as “advice or other services in relation to the making of a claim.” Therefore, it was argued that litigation funding agreements fell within this broad definition and were subject to the same regulations as if they were DBAs.

The Court concluded that the construction of “claims management services” as advanced by the appellants was unreasonable and incorrect. The Court determined that such a construction would bring any provision of financial assistance for the making of a claim within the ambit of regulation. To illustrate this, the Tribunal had previously drawn an analogy with banks lending money for the purpose of funding litigation. According to the appellant’s submissions, this example would be classed as “claims management services.” The Court followed this analogy and found nothing to indicate that Parliament intended to bring such activities within the remit of the legislation, but a literal interpretation would have that effect.

Therefore, it was held that litigation funding agreements were not DBAs because it could not have been the intention of Parliament to regulate such activity. It was also noted that there has been no legislative intervention specifically for litigation funding.

Implications

The wider implications of the decision handed down by Court of Appeal sitting as the Divisional Court of the Queen’s Bench Division is that the cornerstone principal of access to justice has been preserved.  Litigation funding agreements can now continue as they always have, and provide funding to those lacking the financial resource to instigate proceedings.

The Commercial Dispute Management team at Freeths regularly works with litigation funders and can provide tailored services to ensure that lack of resources is not a barrier to justice.  If you require assistance with a potential claim, contact us and we can discuss a range of options.


The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.

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