R (on the application of PACCAR Inc and others) v Competition Appeal Tribunal and others

Litigation funding constitutes the provision of “claims management services” where it supplies financial assistance in relation to making a claim. The statutory definition is deliberately broad and does not require the funder to manage or control the claim.

An agreement under which such a funder receives remuneration calculated by reference to the damages recovered is a damages-based agreement under section 58AA of the Courts and Legal Services Act 1990. It is unenforceable unless the statutory conditions are satisfied. Additional conditions governing payment, including court control over undistributed damages, do not remove that character. A damages-based agreement relating to opt-out competition proceedings is unenforceable in any event.

R (on the application of PACCAR Inc and others) v Competition Appeal Tribunal and others concerned proposed collective competition proceedings arising from an alleged overcharge for trucks. UK Trucks Claim Ltd sought primarily to bring opt-out proceedings, while the Road Haulage Association sought opt-in proceedings. Each relied on third-party litigation funding agreements under which the funder’s maximum remuneration was calculated by reference to a percentage of recovered damages.

The Competition Appeal Tribunal held that the agreements were not damages-based agreements: [2019] CAT 26. A Divisional Court dismissed the manufacturers’ judicial review claim and agreed that passive litigation funding fell outside “claims management services”: [2021] EWCA Civ 299; [2021] 1 WLR 3648.

The central issue was whether providing litigation finance amounted to “claims management services”, and therefore made the agreements damages-based agreements under section 58AA of the Courts and Legal Services Act 1990. A subsidiary issue concerned the distinctive payment arrangements under the opt-out agreement.

1. Appeal allowed by a majority of four to one. Lord Sales, with whom Lord Reed, Lord Leggatt and Lord Stephens agreed, held that the funding agreements were damages-based agreements. Because they did not satisfy the applicable statutory requirements, they were unenforceable.

2. Where later legislation adopts a definition from an earlier statute, the definition bears the meaning it had in the earlier statute. Its adoption cannot alter that earlier meaning. The court therefore had to construe “claims management services” as originally defined by sections 4(2) and 4(3) of the Compensation Act 2006.

3. The definition was deliberately broad. “Other services in relation to the making of a claim” expressly included financial services or assistance. Neither those words nor the other listed services imported a requirement that the provider manage or control the claim. The statutory scheme regulated activities rather than a particular class of claims intermediaries. Parliament entrusted the Secretary of State, subject to parliamentary supervision, to select which activities required regulation.

4. The expression being defined had no established legal or generally accepted ordinary meaning capable of narrowing the express definition. The contemporaneous Scope Order and its explanatory memorandum supported the broad construction. By contrast, the Damages-Based Agreements Regulations 2013 were not broadly contemporaneous with the Compensation Act 2006 and could not be used to construe it. The broad definition was not absurd merely because it could include ordinary bank lending. The breadth allowed regulation to be targeted through subordinate legislation.

5. The funders provided financial assistance in relation to making the collective claims. Their agreements provided for payment upon obtaining a specified financial benefit, with remuneration determined by reference to that benefit. They therefore satisfied section 58AA(3) of the Courts and Legal Services Act 1990. Their acceptance at common law as non-champertous arrangements did not displace the statutory consequences of section 58AA.

6. The opt-out agreement retained the character of a damages-based agreement. The risks that damages might all be distributed to class members, or that the Tribunal might refuse payment from undistributed damages, were merely additional conditions affecting recovery. They did not alter the funder’s primary percentage-based entitlement. Section 47C(8) of the Competition Act 1998 supplied an additional and unconditional reason why that agreement was unenforceable.

7. Lady Rose dissented. She would have held that the listed ancillary services became claims management services only when provided as part of an overall claims-management business. On that construction, passive litigation funding alone was not a claims management service, and she would have dismissed the appeal.

• United Kingdom Supreme Court: By a majority of four to one, allowed the appeal and held that the litigation funding agreements were damages-based agreements and were unenforceable: [2023] UKSC 28 .
• Divisional Court of the High Court: Sitting after determining that the Court of Appeal lacked appellate jurisdiction, granted permission for judicial review but dismissed the claim. It upheld the Tribunal’s construction: [2021] EWCA Civ 299 ; [2021] 1 WLR 3648 .
• Competition Appeal Tribunal: Determined the preliminary issue in favour of UK Trucks Claim Ltd and the Road Haulage Association. It held that the agreements were not damages-based agreements and were therefore lawful and enforceable: [2019] CAT 26.