Litigation funding after PACCAR, what is the next chapter?

It was the moment litigation finance firms secretly dreaded, but left legal commentators and industry critics rubbing their hands with glee.

There were few surprises when the Supreme Court finally handed down its judgment in PACCAR with a ruling that most would say was a blow to litigation finance firms in the UK. To describe the decision as disruptive for the industry would be putting it mildly.

On the morning of the judgment, the Financial Times ran the headline ‘UK Supreme Court deals blow to litigation funding industry’. Interested parties could be forgiven for wondering, as others have asked: is this the end of the road for the industry?

What now?

Since the decision, both the International Legal Finance Association (ILFA) and the Association of Litigation Funders (ALF) have been quick to reassure the market, as have several funders, ranging from describing the result as ‘unsurprising’ to being ‘confident’ around business models. One Australian funder went as far to say it might even help them grow their market share.

Yet, it is impossible to ignore the fact that the decision has created a great deal of uncertainty and concern for the industry. All litigation funding agreements (LFAs) are now under review, and it is accepted that not all funders will survive this upheaval, with market shifts already underway. There have been further twist and turns, including the first known challenge in court to an LFA involving one major funder and a former client, and calls on the government to step in to provide clarification over the future of funding and over the statutory position of one key point in the ruling (damages-based agreements, DBAs).

The biggest impact is undoubtedly expected to be on 20 or so class action-style collective proceedings lodged with the Competition Appeal Tribunal (CAT), which have been brought by consumer groups backed by litigation funding, but the impact will be more far reaching than this and far more widespread.

Background

Modern-day litigation funding emerged from the ashes of the 2008 financial crash. That litigation was inherently expensive, entrepreneurial lawyers, and some non-lawyers, spotted an opportunity.

Even now, the industry is still perhaps best known for its original business model, funders financially back a claimant case, usually against a much larger entity, and receive a share of the damages if that single case is successful.