In 2016 the European Commission found that a number of European truck manufacturers, including DAF, had infringed competition law. The Road Haulage Association Limited and UK Trucks Claim Limited applied to the Competition Appeal Tribunal for permission to bring collective claims for damages on behalf of acquirers of trucks from DAF and others. They did so with the benefit of litigation funding agreements under the terms of which the funders were to receive a share of the damages recovered. DAF contended that the agreements constituted damages based agreements which were unlawful and unenforceable because they did not comply with the statutory requirements governing DBAs. That argument was rejected by the Competition Appeal Tribunal and a Divisional Court. DAF appealed to the Supreme Court.
Giving the majority judgment of the court (Lady Rose dissenting), R (on the application of PACCAR Inc & ors v Competition Appeal Tribunal & ors [2023] UKSC 28, Lord Sales identified the issue as follows:
“Whether litigation funding agreements (‘LFAs’) pursuant to which the funder is entitled to recover a percentage of any damages recovered constitute “damages-based agreements” (‘DBAs’) within the meaning of the relevant statutory scheme of regulation (‘the DBA issue’). This depends on whether litigation funding falls within an express definition of ‘claims management services’ in the applicable legislation, which includes ‘the provision of financial services or assistance’. If the LFAs at issue in these proceedings are DBAs within the meaning of the relevant legislation, they are unenforceable and unlawful since they did not comply with the formal requirements for such agreements.”
The decision of the court to allow the appeal represents something of a set back to the litigation funding industry.
Most of the judgment of Lord Sales is concerned with statutory interpretation, in particular of what amounts to “claims management services” as defined in s 4 Compensation Act 2006 and elsewhere. The majority of the court agreed that a funding agreement was indeed a damages based agreement within the meaning of s 58AA Courts and Legal Services Act 1990. (The courts below had held that funders did not normally manage a claim so their agreements fell outside the scope of the definition. )
The effect of the Supreme Court’s decision is that a funding agreement providing for a return to funders fixed as a proportion of damages recovered, being a DBA, is governed by the Damages Based Agreements Regulations 2013, and if an agreement does not comply with the Regulations, it will be unenforceable. (The respondents in the appeal to the Supreme Court accepted that their funding agreements did not comply with the Regulations.)