A litigation funder can pay for a claim without instructing the lawyers or deciding how the case is run. In PACCAR, that distinction mattered because the funders’ fees depended on the damages recovered. The Supreme Court had to decide whether providing money alone counted as a claims management service under the legislation governing these agreements.
Why the funding agreements mattered
UK Trucks Claim Ltd and the Road Haulage Association Ltd asked the Competition Appeal Tribunal to authorise collective proceedings against truck manufacturers, including PACCAR Inc and DAF companies. The claims followed a European Commission infringement decision of 19 July 2016. Purchasers alleged that an unlawful arrangement had inflated the prices they paid for trucks.
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One applicant proposed an opt-in claim, which required people to join the group. The other proposed an opt-out claim, with an opt-in alternative. Both needed funding adequate to cover the proceedings and potential liability for the manufacturers’ costs. Each funder’s maximum return was tied to a percentage of damages. Neither had to manage the claim.
The manufacturers said that these litigation funding agreements were damages-based agreements. It was common ground that they did not satisfy the formal requirements under section 58AA of the Courts and Legal Services Act 1990 and the Damages-Based Agreements Regulations 2013. If they were damages-based agreements, section 58AA(2) made them unenforceable. Lord Sales explained that there would then be no proper basis for a collective proceedings order: the defendants should not face authorised collective proceedings without enforceable provision for their costs, and there would be no effective agreement under which the claims would be financed.
The decisions under challenge
The Competition Appeal Tribunal held on a preliminary issue that the agreements could support the proposed proceedings. It considered that passive funding was outside the statutory definition.
Sitting as a Divisional Court, the judges who heard the judicial review agreed. They understood the definition to require management of a claim. The manufacturers appealed directly to the Supreme Court.
The statutory definition
Section 58AA provides that a damages-based agreement is unenforceable unless specified conditions are met. Such an agreement is one with a person providing advocacy, litigation or claims management services. The recipient must pay if a specified financial benefit is obtained, and the amount must be determined by reference to that benefit. Claims management services has the meaning given in Part 2 of the Compensation Act 2006. A later amendment substituted the materially similar definition in section 419A of the Financial Services and Markets Act 2000. No party suggested that this change affected the outcome.
Under the 2006 Act, claims management services mean advice or other services in relation to the making of a claim. The provision of services includes, in particular, financial services or assistance. The Act did not regulate every such service immediately. The Secretary of State could prescribe which services were regulated, subject to consultation and parliamentary control. The issue was whether that definition covered a funder who supplied money towards a claim and took a share of any recovery.
Why the majority held that the agreements were covered
Lord Sales held that the funders supplied financial assistance in relation to claims. That brought them within the statutory definition, regardless of whether they exercised control. A bank loan could likewise amount to financial assistance. Whether an agreement was damages-based depended on the separate requirement that the payment be linked to the financial benefit obtained.
The purpose of Part 2 of the 2006 Act was to give the Secretary of State a broad, flexible power over a new and developing area. Regulation was to be targeted at activities as needs emerged, with Parliament retaining close control through the order-making procedure. The definition was deliberately wide and was not limited to active management of a claim or to a supposed class of claims intermediaries. Advice, representation, referrals, inquiries and financial assistance were all expressed broadly, and none inherently required a power to manage the claim. The express exclusion of merely giving evidence confirmed that the definition was wide.
Lord Sales rejected the idea that the label claims management services could colour and narrow the definition. The phrase had no established legal or generally accepted ordinary meaning. Where Parliament supplies an express definition, those defining words are the primary guide.
The majority gave little weight to subsequent assumptions in the funding market. The question was what Parliament meant when it enacted the definition. Whether percentage-based third-party funding was desirable was a policy issue outside the appeal.
The opt-out agreement
UK Trucks Claim argued that payment under its opt-out agreement depended on the Tribunal’s distribution of any unclaimed damages. The majority treated that as an additional condition of payment. The fee was still determined by reference to the proceeds.
Section 47C(8) of the Competition Act 1998 supplied a further reason for unenforceability. A damages-based agreement relating to opt-out collective proceedings is unenforceable, and compliance with the conditions in section 58AA cannot save it. That additional bar does not apply in the same way to an opt-in agreement.
The dissent
Lady Rose dissented. In her view, the list of activities explained what could be regulated when undertaken by someone managing a claim. It did not turn every provider of finance into a claims manager. She also drew support from the surrounding statutory scheme and regulations aimed at representatives acting on a client’s instructions.
Verdict: The Court allowed the manufacturers’ appeal by four votes to one. Under the legislation before it, these percentage-based agreements were unenforceable. The Court decided the funding issue and left the underlying competition claims undetermined.
