A bump in the road: R(on the application of PACCAR Inc) v Competition Appeal Tribunal 
On 26 July the Supreme Court handed down its judgment in R(on the application of PACCAR Inc) v Competition Appeal Tribunal , a decision which may render unenforceable English law funding agreements where the funder’s return is linked to the level of damages awarded. Some commentators’ instant reaction was to sound the death-knell of litigation funding in the UK, though others were, probably rightly, more sanguine.
Looking beyond the technical niceties, Erso’s view, having – crucially – talked to our counterparties and the market more widely, is that in the short term the judgment poses no more than a bump in the road. More troubling (unless new legislation addresses the issue) is where litigation funding will be headed in the longer term. By restricting the structure of investments funders can make, certain parts of the litigation market may be adversely and disproportionately affected.
The short term bump
Will successful claimants refuse to pay the funder’s fee if the agreement is unenforceable? Could funders withdraw further tranches of funding, stymying the case? In reality Erso is finding that both parties to the LFA are interested in continuing the deal – and the claim- which brought them together in the first place. They are therefore taking a commercial approach in agreeing to amend the returns structure to remove and replace any % element.
Fortuitously, many of Erso’s investments in England & Wales are still in the early or mid-life cycle of the dispute. There may be greater challenges for funders with % based investments if a case is post-judgment/award, has an imminent mediation, or perhaps if a splintering in the funder/claimant relationship had arisen prior to the judgment. We are also already seeing a short-term flurry of applications as some claimants use the opportunity to exit their incumbent funding deal in favour of a new arrangement.
The longer term outlook
The % return has always had an important part to play in structuring certain investments. Returns based on multiples of the investment can erode damages if an award is less than expected. By contrast a % of damages keeps a funder’s reward proportionate to the claim’s outcome. That has particular importance for certain types of claims, such as those pursued by SMEs or individuals – for whom litigation finance is vital for access to justice rather than a risk-mitigation choice. With less flexibility over the structure of funding, there will ultimately be less choice for precisely the type of claimants for whom funding can have the most marked impact. Unless remedied by future legislation, the PACCAR decision may work to the detriment of access to justice.
There may also be unintended consequences for the much-heralded litigation industry in England & Wales. Existing certified CAT claims – PACCAR itself included- may be vulnerable to further attacks by defendants even if the offending % returns in LFAs are removed. The perceived risk of a defendant community willing and able to run ever-more technical points to stymie claims may persuade claimants – for competition claims but also more generally – to look for alternative and more favourable forums.
PACCAR is as unwelcome for litigating parties and their lawyers as it is for funders. However the (limited) short term impact will be addressed by the industry which has always been known for innovation. Indeed, Erso is shortly launching its second fund, with another substantial capital commitment ready for investing in suitable opportunities. Accordingly, we’re quite literally putting our money where our mouth is to demonstrate that PACCAR has not hindered our appetite to invest.