Time for Parliament to act? The PACCAR decision of the UK Supreme Court

Litigation funding has become an essential ingredient in collective actions for breaches of competition law brought in the Competition Appeal Tribunal (CAT). In the recent PACCAR proceedings, the Supreme Court was asked to rule on the nature and enforceability of litigation funding agreements (LFAs) between third-party litigation funders and group representatives where the success fee is determined as a percentage of the damages award. The Court held with a 4:1 majority (Lady Rose dissenting) that the LFAs in question are damages-based fee agreements (DBAs) and, as such, unenforceable. This judgment has wide-ranging consequences, as the CAT is unlikely to allow collective actions to proceed if the funding agreements cannot be relied on. The decision has caused uncertainty and upheaval in the funding market as a considerable number of funding agreements in collective proceedings contain DBAs. It also triggered legal challenges in collective proceedings where funders are seeking to amend the funding agreements to deal with the Supreme Court ruling. The fall-out from the decision suggests that funding rules for collective actions may need more legislative attention – litigation funding was given some thought during the drafting of the opt-out action regime, but the legal framework for litigation funding remains fragmented and open to interpretation.