R (PACCAR Inc and others) v Competition Appeals Tribunal and others

The Supreme Court was asked whether third-party litigation funding agreements under which a funder is entitled to recover a percentage of damages constitute "damages-based agreements" (DBAs) within the meaning of section 58AA of the Courts and Legal Services Act 1990, read with the statutory definition of "claims management services" first enacted in the Compensation Act 2006 and later replicated in section 419A of the Financial Services and Markets Act 2000. The majority held that the statutory definition is wide enough to include the provision of financial services or assistance in relation to the making of a claim and therefore that the litigation funding agreements in issue fall within the definition of DBAs in section 58AA. Because the agreements did not comply with the statutory and regulatory formalities prescribed for DBAs (including the Damages-Based Agreements Regulations), they are unenforceable. The court placed weight on the language of section 4 of the Compensation Act 2006 (and Article 4 of the Scope Order), the statutory scheme, and conventional principles of statutory construction; it rejected reliance on subsequent subordinate regulations as an interpretative gloss that would narrow the original definition.

The claim arose in collective follow-on competition proceedings before the Competition Appeal Tribunal brought by UK Trucks Claim Ltd and the Road Haulage Association against truck manufacturers including PACCAR/DAF, following the European Commission's Trucks decision (Case AT.39824). Both proposed class representatives relied on third-party litigation funding agreements (LFAs) under which the funders (Therium and Yarcombe) would receive a percentage of any damages recovered. The Tribunal held those LFAs were not DBAs under section 58AA CLSA and therefore were lawful; the Divisional Court dismissed judicial review of that decision. The appellants appealed directly to the Supreme Court under the leap-frog procedure.

(i) Nature of the application: challenge to the lawfulness and enforceability of LFAs used to underwrite collective proceedings; the relief sought was a declaration that the LFAs are DBAs within the meaning of section 58AA and thus unenforceable for failure to satisfy prescribed formalities.

(ii) Issues framed:

• Whether the provision of "financial services or assistance" "in relation to the making of a claim" is captured by the statutory definition of "claims management services" such that third-party LFAs become DBAs under section 58AA;
• Whether subsequent subordinate legislation (notably the Damages-Based Agreements Regulations 2013) or later legislation could be used to resolve any ambiguity in the earlier definition;
• Subsidiary: whether an opt-out LFA falls outside the section 58AA DBA definition because of the particular distribution and Tribunal discretion that applies to opt-out collective proceedings.

(iii) Reasoning and outcome: The majority construed the definition in the Compensation Act 2006 (and its replication in section 419A FSMA) as sufficiently wide to include the provision of financial services or assistance "in relation to the making of a claim". The court reviewed the statutory language, the Scope Order, explanatory materials, and the legislative scheme and concluded Parliament intended a broad activity‑based power to permit future targeted regulation. The court rejected reliance on later subordinate regulations (DBA Regulations 2013) as a means to narrow the earlier statutory definition. It also rejected the opt-out argument that the particular mechanics of opt-out collective proceedings removed such LFAs from the DBA definition. By this construction the LFAs are DBAs under section 58AA and, because they do not satisfy the statutory/regulatory requirements, they are unenforceable. Lady Rose dissented, preferring a narrower construction that would exclude passive third-party funding from the DBA definition.

The court noted the practical significance: the decision affects the enforceability of many third-party funding arrangements used to support group and complex litigation, and highlights tension between statutory wording and commercial practice. The majority nevertheless adhered to the statutory meaning.

Appeal allowed. The majority concluded that the statutory definition of "claims management services" (as enacted in the Compensation Act 2006 and carried into section 419A FSMA) is wide enough to include the provision of financial services or assistance "in relation to the making of a claim"; therefore the LFAs at issue are damages-based agreements within the meaning of section 58AA of the Courts and Legal Services Act 1990 and, because they do not satisfy the prescribed formalities and Regulations, they are unenforceable. The court rejected that later subordinate legislation could be used to narrow the earlier definition and rejected the opt-out-specific argument advanced by UKTC. A dissenting judgment favoured a narrower construction and would have dismissed the appeal.

Decision below by the Competition Appeal Tribunal [2019] CAT 26 (preliminary ruling that the LFAs were not DBAs); judicial review in the Divisional Court (Henderson, Singh and Carr LJJ) dismissed: [2021] EWCA Civ 299; leap‑frog appeal to the Supreme Court under section 13 of the Administration of Justice Act 1969 resulted in this judgment: [2023] UKSC 28.