New UK law to clarify class action litigation funding
Hausfeld Partner, Simon Bishop, spoke to Gail Moss from IPE about the Government’s announcement to introduce legislation to clarify the legal status of litigation funding agreements (LFAs) following the Supreme Court decision in PACCAR. They discuss how this might impact investor class actions.
The UK Supreme Court’s ruling in July 2023 in the PACCAR case created uncertainty as the Court held that certain third-party LFAs – those where funders receive a return linked to the damages awarded - constitute damages-based agreements (DBAs). Because most LFAs do not comply with the 2013 DBA Regulations, the ruling rendered many of them unenforceable and disrupted the litigation funding market.
The proposed legislation aims to restore certainty by confirming that LFAs are not DBAs, thereby reducing enforceability risks and encouraging funders to re-enter the UK market. Industry participants expect this to increase competition among funders, improve funding terms, and an interest from funders to back investor redress which in turn could lead to a rise securities litigation.
Commentators note that the reform could strengthen the UK’s position as a global dispute resolution hub and support a legal sector valued at over £42 billion annually. However, there is no time table yet and the legislation is expected to apply only prospectively rather than retrospectively, meaning existing cases must rely on amended post-PACCAR funding structures.
