March 12, 2021 | 3 minute read

Court of Appeal Affirms Litigation Funding Model

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Brown Rudnick

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Brown Rudnick

On 5 March 2021 the Court of Appeal upheld the decision of the Competition Appeal Tribunal in the trucks cartel litigation, finding that agreements with third-party litigation funders are not ‘damages-based agreements’ for the purposes of the Courts and Legal Services Act and therefore do not need to comply with the associated regulatory requirements.

Background

In July 2016 the European Commission fined European truck manufacturers in excess of €2.9 billion for price fixing and other cartel activities which took place between 1997 and 2011. The addressees of this decision were members of various corporate manufacturing groups: MAN, DAF, Daimler, Iveco and Volvo/Renault.

Two applications were subsequently issued before the Competition Appeal Tribunal (the Tribunal) by UK Trucks Claim Ltd and the Road Haulage Association for a collective proceedings order pursuant to section 47B of the Competition Act 1998 in respect of damages claims resulting from what the Commissioner for Competition had described as a cartel.

During these Tribunal proceedings, objections were raised that the applicants’ litigation funding agreements constituted debt-based agreements (DBAs) for the purpose of the Courts and Legal Services Act 1990 (CLSA) and that the funding agreements were therefore unenforceable and unlawful as they did not comply with the requirements relevant to DBAs set out in the CLSA. In October 2019 the Tribunal handed down its unanimous judgment on this issue that the litigation funding agreements in question did not amount to DBAs, and therefore did not need to comply with the CLSA regime.

The Tribunal’s decision was appealed to the Court of Appeal, which handed down its judgment on 5 March 2021.

Judgment

The Court of Appeal unanimously agreed with the Tribunal’s judgment that litigation funding agreements were not DBA’s for the purpose of statutory regulations. The Court of Appeal’s decision hinges on statutory interpretation, particularly the meaning of the phrase ‘claims management services’, as used in CLSA. The Court’s judgement focused on the following principles of interpretation:

Statutory construction: On an acontextual, literal reading of the relevant definitions, the Court noted that the extended definition of ‘claims management services’ included “the provision of financial services or assistance” “in relation to the making of a claim”, which could be interpreted as including the provision of litigation funding by an independent third-party. However, the Court of Appeal stressed that context should be employed when undertaking statutory interpretation, and particularly that the “defined term itself may colour the meaning of the definition”. In this case, the defined term at issue is ‘claims management services’, and therefore the reference to ‘claims management’ should inform the latter definition which would suggest an exclusion of litigation funding arrangements.
Statutory intention: The Court of Appeal was influenced in its decision by the fact that Parliament has already enacted a comprehensive scheme for the regulation of litigation funding agreements, which is currently on the statute books at s58B of the CLSA. Section 58B has not been brought into force pursuant to the relevant statutory commencement provisions, and is therefore not applicable. However, the fact that Parliament has legislated for a separate regulation to apply to litigation funding was considered by the Court to be evidence that that Parliament’s intention had not been that litigation funding agreements should be drawn into the claims management services regulation contained at s58AA CLSA.
Statutory purpose: The Court of Appeal noted that the relevant provisions of the CLSA had been passed into law in order to regulate the activities of ‘claims intermediaries’ in order to improve consumer protection in an area where the growing market practice of claims farming had been a cause for concern. The Court contrasted this industry with “non-champertous funding of litigation by professional third party funders in return for a reasonable share of the client’s recoveries”, as being a distinct area of activity, and not part of the mischief that the provisions of the CLSA sought to address.

Comment

It was acknowledged by the Court that to uphold the appeal would have had the effect of invalidating the vast majority of existing litigation funding agreements. Instead, the Court’s approval of the Tribunal’s decision in this case maintains the status quo within the litigation funding market, affirming current practices. Litigation funders may be encouraged by the apparent public-policy approval of their industry informing the Court of Appeal’s approach in this case, as the Court noted that litigation funding “is widely acknowledged to play a valuable role in furthering access to justice”.