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Shockwaves sent through UK Litigation Funding Industry

Legal Costs Litigation funding

The decision of 26 July 2013 in R (on the application of PACCAR Inc and others) v Competition Appeal Tribunal and others has caused turmoil in the UK litigation Finance industry on the basis of the interpretation of what constitutes a “damages based agreement”.

In Australia, such agreements are generally outlawed as falling under a “champerty or maintenance” definition where a law practice is unable to be renumerated by taking a percentage of the damages awarded to their client for their fees.  For example, s183(1) Legal Profession Uniform Law states:

A law practice must not enter into a costs agreement under which the amount payable to the law practice, or any part of that amount, is calculated by reference to the amount of any award or settlement or the value of any property that may be recovered in any proceedings to which the agreement relates.

The exception to this rule in Australia dealt with by the recent amendment to the Supreme Court Act 1986 (Vic) relating to class actions which states (in part) at 33ZDA that the court may order

“that the legal costs payable to the law practice representing the plaintiff and group members be calculated as a percentage of the amount of any award or settlement that may be recovered in the proceeding, being the percentage set out in the order”

The difficulty in the UK arises from the wording of S. 58AA(3)(a) of the Courts and Legal Services Act 1990 (‘CLSA 1990’) defining Damages Based Agreements (“DBA”) which states that

“a damages based agreement is an agreement between a person providing advocacy services, litigation services or claims management services and the recipient of those services…”

The Supreme Court found that that litigation funders provide “claims management services” because this includes “financial services or assistance” in isolation as opposed to being in conjunction with the actual management of a claim by lawyers.

The implications are that where the funder is entitled to a percentage of the recovery, such an arrangement may be termed a DBA and that the disclosure requirements for a DBA were likely unforeseen and therefore unmet at the making of the agreement (or the matter being conducted in a jurisdiction where DBA’s are not allowed) resulting in the agreement being unenforceable. Questions remain as to whether a funding agreement that allows for a multiple of the funding amount would fall into the same trap.

This model of funding arrangements has operated in the UK for over 10 years.  A real concern now in addition to ongoing matters proceeding on this basis and access to justice issues for matters moving forward relates to completed matters where be claimants who have paid a percentage of their damages to a litigation funder may be able to return to the transaction and seek a payback of monies paid under these now unenforceable agreements.  As such agreements are often utilised by the likes of liquidators and insolvency practitioners, such unwelcome actions may be unavoidable.

One implication of this may be that UK funders look to move outside of that jurisdiction and seek investment in greener pastures such as Australia.

If you require the assistance of a legal costs expert in respect of legal costs disputes whether party party costs or solicitor client costs then please contact Pattison Hardman.


Charles Ackroyd