The Litigation Funding Agreements (Enforceability) Bill [HL] is due to have its second reading in the House of Lords on 15 April 2024. The bill would confirm in legislation that litigation funding agreements (LFAs) are not damages-based agreements (DBAs) in England and Wales. This would return the position to that which existed before July 2023 when the UK Supreme Court ruled that LFAs could be DBAs if the funder’s renumeration was based on a percentage of the damages recovered. 

LFAs are a type of financial agreement whereby a third-party funder pays for a litigant’s legal costs in return for a share of damages if the case is won. There are several ways a funder’s fee can be calculated if the case is won, including as a percentage of the damages awarded to the litigant. This type of litigation funding is often used in high value commercial, arbitration or group litigation claims. A recent example where litigation funding was used was the Post Office Horizon case. Prior to the Supreme Court ruling, LFAs and the litigation funding industry were self-regulated. DBAs are a type of ‘no-win, no fee’ agreement between a client and their representative, usually their lawyer or claims management company. DBAs must adhere to the statutory and regulatory requirements set out in the Courts and Legal Services Act 1990 (CLSA 1990) and the Damages-based Agreements Regulations 2013.

In July 2023, the Supreme Court ruling in R (PACCAR Inc) v Competition Appeal Tribunal [2023] UKSC 28 held that LFAs could constitute DBAs if the funder’s remuneration was based on a percentage of the damages recovered. The government and the litigation funding industry both expressed concern that many LFAs would be deemed unenforceable because they did not comply with the legislative requirements for DBAs. The government said this uncertainty risked impacting access to justice and could damage the attractiveness of the England and Wales jurisdiction for commercial litigation and arbitration. The government committed to introducing legislation to reverse the effect of the Supreme Court ruling.

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