Challenge to British litigation-funding fails
The Court of Appeal in England and Wales has dismissed a challenge to litigation-funding agreements (LFAs) taken by four major companies.
The Law Society Gazette of England and Wales said that the unanimous ruling would provide relief to the country’s funding industry.
The judges were ruling in a joint appeal being brought by the defendants in relation to several class actions currently being brought in Britain’s Competition Appeal Tribunal (CAT).
Damages-based agreements
Sony, Visa, Mastercard, and Apple argued that the various claimants’ funding arrangements were invalid because their LFAs amounted to damages-based agreements (DBAs), which are not permitted in the CAT.
In the judgment, Sir Julian Flaux said that DBAs were agreements under which funders’ fees were calculated or determined as a percentage of the damages recovered.
An LFA under which the funder’s fee was calculated as a multiple of its outlay, he stated, was not a DBA.
“The fee is determined by reference not to the damages recovered, but by reference to the amount of funding provided. The fact that the source of the fee paid is the damages does not turn it into a DBA, nor does the fact that there is an upper limit or cap on the funder’s fee recoverable by reference to the amount of damages recovered,” the judge added.
PACCAR ruling
“Given that the entire landscape of collective proceedings in the CAT is one where third-party litigation funding of claims is required … the effect of the appellants’ argument is to produce the absurd result that funding under LFAs in the CAT would become practically impossible,” Flaux said.
The Gazette says that the Court of Appeal ruling will be warmly welcomed by the broader funding industry.
Since a key Supreme Court ruling in PACCAR, the vast majority of LFAs now provide for payment based on a multiple of the capital deployed or committed.
Had the appeal succeeded, the Gazette adds, such agreements would have been rendered invalid, causing chaos for the industry.
The ruling could still be appealed to the Supreme Court.