Kerry Underwood

LITIGATION FUNDING AGREEMENTS ARE NOT DAMAGES-BASED AGREEMENTS – OR ARE THEY?

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The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

 

In

UK Trucks Claim Limited v Fiat Chrysler Automobiles N.V. and others and DAF Trucks NV and others and Road Haulage Association Limited v MAN SE and others and Daimler AG [2019] CAT 26

the Competition Appeal Tribunal ruled on a preliminary funding issue in the Collective Proceedings Order applications, dismissing the respondents’ argument that the applicants’ litigation funding agreements, which provided for the sum to be paid to the litigation funder to be determined by the amount of damages, was a Damages-Based Agreement under section 58AA of the Courts and Legal Services Act 1990.

The court ruled that the activities of a third party litigation funder do not constitute “claims management services”, and therefore do not come within the scope of the Damages-Based Agreements Regulations.

On 17 December 2019 the Competition Appeal Tribunal refused permission to appeal against this decision.

The original decision is at odds with the decision of the High Court given just 18 days earlier in the case of

Meadowside Building Developments Ltd (In Liquidation) v 12-18 Hill Street Management Co Ltd [2019] EWHC 2651 (TCC) (10 October 2019) .

Both are decisions of High Court judges and this matter needs to be determined by the Court of Appeal as a matter of urgency.

It remains a bizarre state of affairs that section 58B of the Courts and Legal Services Act 1990, inserted by section 28 of the Access to Justice Act 1999, which provided that a Litigation Funding Agreement would not be unenforceable by reason only of being a Litigation Funding Agreement, provided that it met certain prescribed conditions, including such requirements as the Lord Chancellor may set out in regulations, has never been brought into force but has not been repealed.

The prescribed conditions included a requirement that the sum to be paid by the litigant to the funder must consist of any costs payable to the litigant plus an amount calculated by reference to the funder’s anticipated expenditure, that is it could not be a Damages-Based payment.

This is all referred to in paragraph 23 of the judgment here, and on the face of it percentage based Litigation Funding Agreements are unlawful unless they comply with the Damages Based Agreements Regulations, and the court in the Meadowside case is correct.

The decision runs to 53 pages, and much of it deals with the funding requirements, in terms of adequacy, in an application for a Collective Proceedings Order, and I do not deal with that issue here.

Claims management services and Damages-Based Agreements are dealt with in section 58AA of the Courts and Legal Services Act 1990 and subsection (7) provides that ““claims management services” has the same meaning as in Part 2 of the Compensation Act 2006 (see s.4(2) of that Act)”.

Section 4(2)(b) of the Compensation Act 2006 states:

 

““claims management services” means advice or other services in relation to the making of a claim”.

Section 4(3) provides:

“For the purposes of this section-

(a) A reference to the provision of services includes, in particular, a reference to-

             (i) the provision of financial services or assistance, …”

 

By further amendment, with effect from 29 November 2018, for the definition of “claims management services” in section 58AA(7) there is substituted:

““claims management services” has the same meaning as in the Financial Services and Markets Act 2000 (see s.419A of that Act)”.

This amendment takes effect in relation to Damages-Based Agreements entered into on or after 1 April 2019.

The respondents argued that as the arrangements constituted Damages-Based Agreements they were unenforceable as it was common ground that the litigation funding agreements did not comply with the very detailed requirements of the Damages-Based Agreements Regulations 2013, made pursuant to section 58AA(4) of the Courts and Legal Services Act 1990.

It was accepted that if the litigation funding agreements were indeed Damages-Based Agreements, then that would invalidate most, if not all, litigation funding agreements that had been agreed since litigation funding began.

The court here held that “the provision of financial services or assistance” “in relation to the making of a claim” is to be interpreted as applying in the context of the management of a claim.

Litigation funders, by contrast, are engaged in the funding of a claim, not the management of the making of a claim.

On that basis, as litigation funders are not engaged in providing claims management services, a litigation funding agreement does not come within the definition of a Damages-Based Agreement in section 58AA(3) of the Courts and Legal Services Act 1990.

 

“42. We consider that this result is supported by the proper construction of s.58AA itself.  When viewed in its context, we think it is clear that s.58AA was never intended to apply to LFAs.  On the contrary, in 2009 when s.58AA was introduced, there was already a distinct provision expressly designed to cover LFAs, i.e. s.58B CLSA: see para 23(2) above.  It is of course true that this provision had not then been brought into force (nor has it since).  Mr Thanki submitted that it was therefore irrelevant to the question of construction.  We do not agree.  S.58B CLSA was introduced into the statute book by the AJA, and the wording of s.108 AJA, in a form common to statutory commencement provisions, indicates the clear intention of Parliament that s.58B CLSA is to be brought into force if and when the Lord Chancellor considers it appropriate to introduce legislative regulation of LFAs: see R v Sec of State for the Home Department, Ex p Fire Brigades Union [1995] 2 AC 513 at 551, 570-571, 575.   And when Parliament introduced statutory control of DBAs, by a provision to be inserted into the CLSA immediately after ss.58-58A concerning conditional fee agreements (“CFAs”), that new section was numbered s.58AA and not s.58B.  That recognised the fact that there was already a s.58B on the statute book; that there was no intention to repeal it; and that it may in due course be brought into force.  As at 2009, when s.58AA was enacted, s.58B was a provision which had been on the statute book for 10 years. Accordingly, as Mr Kirby put it, the arguments that s.58AA should be construed as applying to LFAs “do not bear any relation to the background to the introduction of that section” and would amount to bringing in regulation of LFAs by the back-door.

43. The proper interpretation of s.58AA is further buttressed by the wording of the DBA Regulations made pursuant to s.58AA(4). It would be a curious use of language to refer to a litigation funder as a “representative”, nor would a party requesting TPF and entering into a LFA commonly be regarded as a person “instructing” the funder. But those terms are understandable and apposite when applied to a party’s lawyer or claims manager as usually understood. This indicates that the DBA Regulations, and thus s.58AA, were never intended to apply to LFAs.

44. Furthermore, an important part of the context to s.58AA was the Jackson LJ review of costs. Mr Thanki sought to argue that this was irrelevant to the construction since Jackson LJ’s final report came out after s.58AA was introduced. However, the original s.58AA covered only DBAs in relation to employment matters and, we were told that, LFAs were not really used for such cases.  Parliament returned to the question of DBAs in 2012, when s.58AA was amended to extend to all kinds of claim.  By then, any consideration of costs was made against the background of the Jackson Report.  Furthermore, the ALF Code envisaged by Jackson LJ’s recommendation had been introduced.  In those circumstances, it would have been flying in the face of Jackson LJ’s conclusion on TPF if Parliament had, by amending s.58AA, rendered LFAs subject to statutory regulation as DBAs and rendered unenforceable LFAs which complied with the new Code of Conduct.  That approach would indeed have been perpetuated when the definition of “claims management services” in s.58AA was amended in 2018 in the context of the transfer of the regulation of DBAs from the Ministry of Justice to the FCA.

45. For all these reasons, we conclude that s.58AA CLSA does not apply to LFAs with litigation funders. We note that this conclusion appears consistent with the view of Jackson LJ, with all his great expertise on the subject of civil costs, as set out in his 6th lecture in the Civil Litigation Costs Review Implementation Programme, “Third Party Funding or Litigation Funding” (23 November 2011). That lecture was delivered on the occasion of the launch of the ALF Code and while the Legal Aid, Sentencing and Punishment of Offenders Bill (which included the amendment to s.58AA so that it applied to all DBAs and to which Jackson LJ referred) was passing through Parliament. Jackson LJ observed that there was likely to be a greater role for litigation funders in the future.  And he stated that the ALF Code marked the satisfactory implementation of recommendation 11 of his report, provided that all reputable litigation funders signed up to it.  That recommendation stated that statutory regulation of TPF was not required: see para 31 above.”

Written by kerryunderwood

November 12, 2019 at 12:28 pm

Posted in Uncategorized

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