PACCAR Inc & Ors, R (on the application of) v Competition Appeal Tribunal & Ors [2023] UKSC 28

Truck manufacturers challenged collective proceedings brought by purchasers claiming compensation for price-fixing. The Supreme Court held that litigation funding agreements where funders receive a percentage of damages recovered are damages-based agreements under section 58AA CLSA 1990, rendering them unenforceable without compliance with statutory requirements.

Facts

Following a European Commission decision finding truck manufacturers (including DAF) liable for anti-competitive collusion, purchasers sought to bring collective proceedings in the Competition Appeal Tribunal seeking compensation for overcharges. The proposed class representatives (UK Trucks Claim Ltd and Road Haulage Association Ltd) had entered into litigation funding agreements (LFAs) with third-party funders (Yarcombe and Therium) whereby the funders would finance the litigation in return for a percentage of any damages recovered. The truck manufacturers objected to the collective proceedings orders, arguing the LFAs were unenforceable damages-based agreements (DBAs) under section 58AA of the Courts and Legal Services Act 1990.

The Statutory Framework

Section 58AA defines a DBA as an agreement with a person providing ‘claims management services’ where payment depends on obtaining a financial benefit determined by reference to that benefit. Section 58AA(7) incorporates the definition of ‘claims management services’ from section 4 of the Compensation Act 2006 (now section 419A FSMA), which states that such services include ‘the provision of financial services or assistance’ in relation to claims.

Issues

The central issue was whether litigation funding agreements, under which funders play a passive role but receive a percentage of recovered damages, constitute ‘claims management services’ within the statutory definition, thereby making them DBAs subject to section 58AA’s requirements.

Judgment

The Supreme Court allowed the appeal by a 4-1 majority (Lord Sales giving the leading judgment, with Lord Reed, Lord Leggatt and Lord Stephens agreeing; Lady Rose dissenting).

Majority Reasoning

Lord Sales held that the statutory definition of ‘claims management services’ must be given its natural and wide meaning. The definition in section 4(2) and (3) of the Compensation Act 2006 expressly includes ‘the provision of financial services or assistance’ in relation to claims. The language used is deliberately broad because Parliament intended to confer wide regulatory powers on the Secretary of State.

The language of the main part of the definition of claims management services in section 4(2)(b) is wide and is not tied to any concept of active management of a claim. The provision says that such services mean advice or other services in relation to the making of a claim.

Lord Sales rejected the argument that ‘claims management services’ should be limited to services involving active management of claims:

These basic points are strongly reinforced by the wide language of section 4(3)(a), which stipulates that the provision of services includes a non-exhaustive list of four items stated in very broad terms, none of which has the connotation of or involves a power of management of a claim.

The majority found that the term ‘claims management services’ had no established meaning capable of qualifying the express statutory definition. The ‘potency of the term defined’ principle could not apply where no general consensus existed as to the core meaning of the term.

Dissenting Judgment

Lady Rose would have dismissed the appeal, reasoning that litigation funders are not managing claims in any ordinary sense. She emphasised the presumption against absurdity and argued that Parliament could not have intended to render unenforceable the litigation funding agreements underpinning collective actions without any express statement to that effect.

Implications

This judgment has profound implications for litigation funding in England and Wales. LFAs structured with percentage-based returns now constitute DBAs requiring compliance with section 58AA and the Damages-Based Agreements Regulations 2013. Since most existing LFAs do not comply with these requirements, they are potentially unenforceable. This particularly affects collective proceedings in the Competition Appeal Tribunal, where such funding is prevalent. The decision may necessitate legislative reform to preserve access to justice through third-party funding, or require funders to restructure their agreements to comply with the regulatory framework.

Verdict: Appeal allowed. Litigation funding agreements providing for payment of a percentage of damages recovered are damages-based agreements within section 58AA of the Courts and Legal Services Act 1990 and are unenforceable if they do not comply with the statutory requirements.

Source: PACCAR Inc & Ors, R (on the application of) v Competition Appeal Tribunal & Ors [2023] UKSC 28