Unsubstantiated Arguments against Third Party Litigation Funding by the U.S. Chamber of Commerce

By John Freund |

The following piece was contributed by Boris Ziser and John Schneider of law firm Schulte Roth & Zabel.

As famed British-American author and journalist Christopher Hitchens astutely observed, “exceptional claims require exceptional evidence.”[1] Alas, the U.S. Chamber of Commerce’s Institute for Legal Reform (“ILR”) overlooks Hitchens’ directive in its November 2022 paper “A New Threat: The National Security Risk of Third Party Litigation Funding” (“ILR Paper”). The ILR Paper, in short, makes an exceptional set of claims about the bad faith of American lawyers, the implied ineptness of our judges and the way our legal system functions, without providing the requisite evidence to back it up.

This most recent piece fits into a pattern in which the ILR has sought at every turn to hinder the growth of third party litigation funding.[2] In this instance, it argues in favor of a disclosure regime that would identify the presence of litigation funding as well as the beneficial owners of the relevant funds. It takes only a few pages to recognize that this latest publication is without substance. The crux of the ILR’s argument is a two-pronged syllogism: litigation funding could allow third parties to exert control over litigation, and therefore that control could be used to harm national interests. As discussed below, the problem with this formulation — aside from being conditional and tenuous — is that it rests on bad evidence and faulty assumptions.

Here’s why:

Bad Evidence

If the ILR’s contentions are true — if litigation funding increases the number of meritless claims or prolongs litigation; if litigation funding allows funders to exert control over legal decisions —  where is the proof?

The answer is there is none, at least not in the ILR Paper. Consider, for example, the ILR’s discussion of abusive patent litigation. The ILR cites no empirical evidence which would suggest that litigation funders are or have ever been likely to support meritless patent suits. Nor does the ILR Paper provide any context which would allow the reader to understand whether trends in patent litigation match trends in litigation funding, or whether funders are even likely to invest in patent suits. Rather, it merely gestures at an endemic problem in the legal system as a means of suggesting that the problem is somehow related to litigation funding.  Given the dearth of evidence, it should not be surprising that the ILR focuses on “opacity” and the fact that “it is not possible to know whether, and to what extent, non-U.S. persons or entities may be exploiting the [third party litigation funding] industry for nefarious reasons.”[3]

The little evidence the ILR does cite undercuts its position. The ILR’s claim that litigation funding could adversely impact national security rests on the notion that third-party funders could effectively control the litigation they fund, and so it sets out to find examples of litigation funding funders controlling litigation. The problem for the ILR is that the litigation it cherry-picked to substantiate this claim proves no such thing. Put another way, a few anecdotes out of a universe of thousands is paltry, but even more notable is that the examples undermine the very claim for which they were invoked to support.

Take the Chevron-Ecuador litigation (as the ILR refers to it), which the ILR considers a “prime example of substantial funder control.” The first thing to note is that the ILR fails to identify any substantive legal decisions taken at the behest of the litigation funders. Instead, the alleged control was little more than the ability to approve additional lawyers that the claimants themselves would select. Notably, the ILR omits the fact that one of the attorneys selected by the plaintiffs prior to contracting with the litigation funder (i.e., a lawyer who was not selected by the third-party funder in question) was subsequently disbarred for corrupt practices.[4] This, in fact, underscores a positive effect of litigation funding, namely, that it introduces a new level of oversight over highly complex litigation. If the funder had in fact selected the counsel, which it did not, its diligence would likely have prevented this embarrassment. With mass environmental torts, as was the case with Chevron-Ecuador, the disparate nature of the class might otherwise leave attorneys unchecked, hence third-party funders can provide additional protection for the plaintiffs.

Another example to which the ILR cites is Boling v. Prospect Funding, where a claimant sued the litigation funder with which he had contracted. What the ILR overlooks, however, is that this case actually demonstrates that claimants have adequate tools to pushback should they feel that a third-party funder is acting inappropriately. Indeed, the fact that the court recognized this as an instance where a third-party funder exercised control over litigation shows that litigation funding practices are already effectively policed by the judiciary. There’s an irony to what the ILR is trying to do, arguing that a system needs more regulation by highlighting an example where the regulatory mechanisms already in-place did their job. Moreover, that the ILR provides no other examples of similar infractions suggests that the problem is not widespread, as surely the ILR would have gladly provided them.

Faulty Assumptions

The ILR has another problem: its argument only works if one makes a set of bad assumptions. In essence, the ILR is asking readers to assume that lawyers will disregard their professional obligations, that bar associations will fail to discipline them, and that judges will fail to notice or do anything about it. None of these assumptions hold water. Is the ILR really saying that our entire legal system is incapable of monitoring its participants?

The practice of law is highly regulated. The American Bar Association’s (“ABA”) Model Rules of Professional Conduct (“Rules”) are a set of rules and commentaries on the ethical and professional responsibilities of attorneys. Adopted in every state, these Rules and analogous regulations obligate attorneys to observe stringent ethical obligations to their clients, their adversaries and to the courts. More to the point, these Rules act as guardrails against any attempt by foreign and domestic actors alike to use litigation funding for nefarious ends. For instance:

  • Rule 1.2 establishes that a lawyer must abide by the client’s decisions concerning the objectives of litigation and settlement;
  • Rule 1.8(f) bars an attorney from accepting compensation for representation from third parties unless the client gives informed consent and unless the funding will not interfere with independent professional judgment;
  • Rule 2.1 mandates that an attorney exercise independent professional judgment;
  • Rule 3.1 makes clear that a lawyer should not bring claims unless there is a basis in law and fact for doing so that is not frivolous;
  • Rule 3.2 directs that a lawyer should make reasonable efforts to expedite litigation consistent with the interests of the client;
  • Rule 5.4(c) provides that an attorney may not allow the person paying the legal fees to direct or regulate the lawyer’s professional judgment.

These Rules work to ensure that claims supported by litigation funding are meritorious, that litigation and settlement discussions are not unnecessarily prolonged, and that clients (rather than funders) have control over cases. Indeed, a 2012 white paper on litigation funding published by the ABA noted that the industry did not raise novel professional responsibilities and that “numerous specific provisions” of the ABA’s Rules already “reinforce the importance of independent professional judgement.[5]

Any failure to abide by these ethical obligations not only threatens an attorney’s reputation, it subjects the attorney to discipline, including sanctions and possibly disbarment. Indeed, this system of professional ethics is robustly enforced. The ABA’s 2022 Profile of the Legal Profession, for example, noted that in 2019, over two thousand lawyers were disciplined for misconduct.[6] By contrast, the average number of serious disciplinary actions taken against physicians in the U.S. between 2017 and 2019 was 1,466.[7]

Claims by the ILR that litigation funding could allow foreign adversaries access to confidential or proprietary commercial information are simply without merit, and are already addressed by federal and state rules of civil procedure. For instance, Fed. R. Civ. P. 5(d) and 26 permit defendants to move to seal or exempt from filing or disclosing privileged and confidential information. On top of this, most if not all funding agreements prohibit funders from accessing anything subject to a protective order, which covers numerous trade secrets and proprietary technologies.

The point, in short, is that there exists an extensive system of ethical and professional rules that call on attorneys to be loyal to their clients and honest about the merits of their cases. The ILR ignores this system and hopes that its audience will do the same. The ILR provides no demonstrable evidence and no basis for readers to embrace its assumption that by-and-large, lawyers will disregard their professional obligations. And of course, the ILR overlooks that these Rules are not applied on an honor system. Rather, our adversarial system of law and our judiciary act as a gate-keepers, policing all aspects of litigation, enforcing the Rules as necessary and ensuring that nefarious actors cannot abuse the system.

Conclusion

In December of 2022, the U.S. Government Accountability Office published a report (“GAO Report”) on litigation funding.[8] Commissioned by three sitting members of Congress, including ranking members of national security and intellectual property subcommittees, and publicly released more than three months after the ILR Paper, the GAO Report raised no national security concerns with respect to litigation funding. It’s easy to recognize why: the litigation funding industry poses no threat to America’s safety.

The Chamber’s national security arguments in the ILR Paper are nothing more than a solution in search of a problem. Nevertheless, the Chamber’s opposition to litigation funding will march on, and its efforts to compel disclosure will undoubtedly continue. Whether the Chamber is aware of it or not, its position serves only to bolster the view held by some that legal disputes should be resolved by a war of financial attrition, rather than on the actual merits of the case. Instead of access to justice, this would prevent a large portion of the American public from obtaining a rightful remedy when they are injured.

Lastly, it’s not hard to understand the benefits of litigation funding. The lack of access to legal representation is a national problem, and litigation funding addresses this endemic by enabling meritorious claims to be vindicated when they otherwise might not be, and by serving to deter wrongful conduct. Litigation funding also levels the playing field between large corporate interests and the small companies and individuals who all too often find themselves in a courtroom without the means to pursue their case.

There’s an old adage that bad facts make bad law. Here, it seems we are at risk of no facts making bad law, as the ILR seems to have the ear of a number of attorney generals, each of whom undoubtedly has the public’s interest at heart, but remains misguided.[9] Unfortunately, passing bad law will only hurt the very constituents they serve to protect.

Authored by Boris Ziser and John Schneider.
Schulte Roth & Zabel
New York | Washington DC | London
www.srz.com

This communication is issued by Schulte Roth & Zabel LLP for informational purposes only and does not constitute legal advice or establish an attorney-client relationship. In some jurisdictions, this publication may be considered attorney advertising. ©2023 Schulte Roth & Zabel LLP.

All rights reserved. SCHULTE ROTH & ZABEL is the registered trademark of Schulte Roth & Zabel LLP.

[1] Hitchens, Christopher. God Is Not Great: How Religion Poisons Everything. 1st trade ed. New York, Twelve Hachette Book Group, 2009.

[2] John Beisner, Jessica Miller & Gary Rubin, Selling Lawsuits, Buying Trouble: Third-Party Litigation Funding in the United States, U.S. Chamber of Commerce Institute for Legal Reform, Oct. 2009; John H. Beisner, Jessica Davidson Miller & Jordan M. Schwartz, Selling More Lawsuits, Buying More Trouble: Third Party Litigation Funding A Decade Later, U.S. Chamber of Commerce Institute for Legal Reform, Jan. 2020.

[3] Michael E. Leiter, John H. Beisner, Jordan M. Schwartz, James E. Perry, A New Threat: The National Security Risk of Third Party Funding, U.S. Chamber of Commerce Institute for Legal Reform, Nov. 2022, at 2.

[4] Michael I. Krauss, Steven Donziger is Disbarred, Forbes, Aug. 13, 2020, https://www.forbes.com/sites/michaelkrauss/2020/08/13/steven-donziger-is-disbarred/?sh=21ecbc7c771a (“Today the infamous Steven Donziger was, in the words of New York’s Appellate Division, ‘disbarred, retroactive to the date of his July 10, 2018 suspension, and his name is stricken from the roll of attorneys and counselors-at-law in the State of New York.’ This column has exhaustively detailed the saga of Mr. Donziger’s misdeeds while representing indigenous Ecuadoreans suing Chevron Corp.”)

[5] ABA Comm. on Ethics 20/20, White Paper on Alternative Litigation Finance at 4 (Feb. 2012), https://www.americanbar.org/content/dam/aba/administrative/ethics_2020/20111212_ethics_20_20_alf_white_paper_final_hod_informational_report.pdf

[6] ABA Profile of the Legal Profession 2022, American Bar Association, at 84, https://www.abalegalprofile.com/discipline.php.

[7] Dr. Sidney Wolfe, Dr. Robert E. Oshel, Ranking of the Rate of State Medical Boards’ Serious Disciplinary Actions, 2017-2019, Public Citizen, Mar. 31, 2021, https://www.citizen.org/wp-content/uploads/2574.pdf.

[8] U.S. Gen. Accounting, Office, GAO-23-105210, Third-Party Litigation Financing: Market Characteristics, Data, and Trends, 12(2022), https://www.gao.gov/products/gao-23-105210.

[9] Sara Merken, Republican State AGs Sound Alarm over Foreign Litigation Funding, Reuters, Dec. 22, 2022, https://www.reuters.com/legal/legalindustry/republican-state-ags-sound-alarm-over-foreign-litigation-funding-2022-12-22/; Hon. Christopher M. Carr, Hon. Steve Marshall, Hon. Jason Miyares, Hon. Leslie Rutledge, Threats Posed by Third-Party Litigation Funding, https://fingfx.thomsonreuters.com/gfx/legaldocs/movakkoybva/12.22.22%20TPLF%20Letter.pdf.

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PACCAR’s tidal wave effects: Understanding the Legal, Financial and Policy impacts of a highly controversial ruling

By Ana Carolina Salomao |

The following is a contributed piece by Ana Carolina Salomão, Leila Zoe-Mezoughi, Micaela Ossio Maguiña and Sarah Voulaz, of Pogust Goodhead.

This article follows our previous publication dated 10 October 2023 regarding the Supreme Court ruling in PACCAR[1] on third-party litigation funding agreements which, very simply put, decided that litigation funding agreements (“LFAs”), permitting funders to recover a percentage of damages, amounted to (“DBAs”) damages-based agreements by virtue of s.58AA of the Courts and Legal Services Act 1990 (the “1990 Act”). As such, all LFAs (including those retrospectively drafted) were consequently required to comply with the Damages-Based Agreements Regulations 2013 (the “2013 Regulations”) or be deemed, unenforceable.

In this article, we explore the three main industry-wide changes that have arisen as a direct result of the PACCAR ruling:

  1. The diverse portfolio of LFA reformulation strategies deployed by litigation finance stakeholders.
  2.  The government response, both in terms of official statements and policy changes, which have ultimately led to the draft bill of 19 March 2024.
  3.  The wave of litigations subsequent to the PACCAR ruling, giving insight into the practical market consequences of the ruling.

Ultimately, the PACCAR impact and its proposed reversal has not undermined the UK litigation finance market, in fact the contrary; it has promoted visibility and adaptation of a litigation finance market that continues to gain significant traction in the UK. As a result, despite the concern shown by most UK industry stakeholders about the negative impacts of the PACCAR ruling, this article argues that proper regulation could indeed be highly advantageous, should it incentivise responsible investment, whilst protecting proper access to justice. However, the question does remain, will we ever get there?

The LFA reformulation storm.

As expected, the first reaction to PACCAR came from the litigation finance market. As anticipated, LFAs (those with an investor return formula based on a percentage of the damages recovered) are being amended by parties to avoid their potential unenforceability.

The majority of amendments being implemented are aimed to design valuation methodologies for the amount recovered, which are not directly related to the damages recovered, but are rather a function of some other metric or waterfall, therefore involving a process of alteration of pricing. The intention is for the agreements to fall out of the scope of the definition of ‘claims management services’ provided by section 58AA of the Courts and Legal Services Act 1990 (CLSA), which stipulates two main criteria: (i) the funder is paid if the litigation succeeds, and (ii) the amount paid back to the funder is a function of the amounts recovered by the claimant in damages. As such, novel pricing structures such as charging the amount granted in third-party funding with accrued interest; a multiple of the funded amount; or even a fixed pre-agreed amount recovered in the form of a success fee, would not meet both criteria and would hence fall outside of the legal definition of claims management services. These options would avoid the risk of an LFA being bound to the same requirements of a DBA and potentially rendered unenforceable.[2]

Another option to render LFAs enforceable following PACCAR is of course to make these compliant to the definition of DBA provided in s.58AA(2) of the 1990 Act. As such, LFAs would be subjected to stringent statutory conditions as per the Damages-Based Agreements Regulations 2013 (the “2013 Regulations”). This option has however not been the most attractive for funders, firstly due to funders not necessarily conducting claims management services and, secondly, because LFAs would automatically become subject to highly stringent rules to structure the agreements and pursue recovery. For example, such LFAs would need to comply with the cap requirements outlined in the 2013 Regulations such as: 25% of damages (excluding damages for future care and loss) in personal injury cases, 35% on employment tribunal cases and 50% in all other cases.

Ultimately, it can be argued that the choice for restructuring a single LFA or a portfolio of LFAs will vary on a case-by-case basis. Those parties who find themselves at more advanced stages of proceedings will be disadvantaged due to the significant challenges they are likely to face in restructuring such LFAs. From the perspective of the legal sector, on the one hand, we can see an increase in law firms’ portfolio lending, whereby the return to funders is not directly related to damages recovered by the plaintiff. On the other hand, there are certain actors who are remaining only superficially affected by the ruling, such as all funding facilities supporting law firms which raise debt capital collateralised by contingent legal fees.

The introduction of the proposed bill by the government (which is discussed below), is a reflection of the enormous burden the Supreme Court ruling has placed on critical litigation funder stakeholders who are likely to have invested disproportionate sums to amend their LFAs and restructure their litigation portfolios. However, the bill has also given momentum to the sector and is helping to highlight the importance of diversification in litigation funding to protect the interests of low-income claimants. The medium-term net balance of the regulation might be rendered positive if redirected at perfecting and not prohibiting third-party funding agreements to protect access to justice.

The UK Government Intervention.

The UK government has raised concerns regarding the legal and financial impacts of PACCAR relatively swiftlyfollowingthe 26 July 2023 judgement. Their first response to PACCAR came from the Department of Business and Trade (DBT) at the end of August 2023. The DBT stated that, being aware of the Supreme Court decision in PACCAR, it would be “looking at all available options to bring clarity to all interested parties.[3]

In the context of opt-out collective proceedings before CAT, the government proposed in November 2023 amendments to the Digital Markets, Competition and Consumers Bill (DMCC) through the introduction of clause 126, which sought to implement changes to the Competition Act 1998 (CA) to provide that an LFA would not count as a DBA in the context of opt-out collective proceedings in the CAT. This proposal came from the understanding that after PACCAR opt-out collective proceedings would face even greater challenges considering that under c.47C(8) of the CA 1998 DBAs are unenforceable when relating to opt-out proceedings. Proposals for additional amendments to the DMCC soon followed, many of which await final reading and approval by the House of Lords. However, in December 2023 Lord Sandhurst (Guy Mansfield KC) noted that while amendments to the DMCC would mitigate PACCAR’s impact on LFAs for opt-out collective proceedings in the CAT, “the key issue is that the Supreme Court’s PACCAR ruling affects LFAs in all courts, not just in the CAT, and not just, as this clause 126 is designed to address, in so-called opt-out cases.”

As a response to this, the Ministry of Justice announced last March that the government intended to extend the approach taken for opt-out collective proceedings in the CAT to all forms of legal proceedings in England and Wales by removing LFAs from the DBAs category entirely. The statement promised to enact new legislation which would “help people pursuing claims against big businesses secure funding to take their case to court”and“allow third parties to fund legal cases on behalf of the public in order to access justice and hold corporates to account”.[4]

Following this announcement, the Litigation Funding Agreements (Enforceability) Bill was published and introduced to the House of Lords. As promised by the government’s previous statements, the primary purpose of the Bill is to prevent the unenforceability of legitimate LFAs fitting into the amended DBA definition of PACCAR. Indeed, the bill aims to restore the status quo by preventing litigation funding agreements from being caught by s.58AA of the 1990 Act.[5]

The litigation wave.

As parliamentary discussions continue, all eyes are now in the Court system and the pending decisions in litigations arising from PACCAR. Despite the government’s strong stance on this matter, the bill is still in early stages. The second reading took place in April 2024, where issues such as the retrospective nature of the Bill, the Civil Justice Council’s (CJC) forthcoming review of litigation funding, and the need to improve regulations on DBAs, were discussed. Nevertheless, despite the arguable urgency of addressing this issue for funders and the litigation funding market, there is no indication that the bill will be expedited; hence the next step for the bill passage is the Committee stage. The myriad of cases arising from PACCAR may need to stay on standstill for a while, as Courts are likely to await the outcome of the proposed bill before deciding on individual matters.

The UK has a longstanding history of tension between the judiciary power and the two other spheres of the government, the Executive and Parliament. Most of these instances have sparked public debate and have profoundly changed the conditions affecting the market and its players. For example, in the case of R (on the application of Miller and another) (Respondents) v Secretary of State for Exiting the European Union (Appellant) [2017] UKSC 5, Gina Miller launched legal proceedings against the Johnson government to challenge the government’s authority to invoke Article 50 of the Treaty of European Union, which would start the process for the UK to leave the EU, without the Parliament’s authorisation. The High Court decided that, given the loss of individual rights that would result from this process, Parliament and not the Executive should decide whether to trigger Article 50, and the Supreme Court confirmed that Parliament’s consent was needed.

Another example is the more recent case of AAA (Syria) & Ors, R (on the application of) v Secretary of State for the Home Department [2023] UKSC 42 regarding the Rwanda deportation plan. In this case the Supreme Court ruled unanimously that the government’s policy of deporting asylum seekers to Rwanda was unlawful – in agreement with the Court of Appeal’s decision which found that the policy would pose a significant risk of refoulement.

Nevertheless, rushing the finalisation of a bill reversing PACCAR would probably be a counterproductive move. The recent developments suggest that policy makers should focus on deploying a regulatory impact assessment on any regulations aimed at improving access to finance in litigation. Regulators and legislators should ensure that, before designing new regulatory frameworks for litigation finance,  actors from the litigation finance industry are consulted, to ensure that such regulations are adequate and align with the practical realities of the market.

As the detrimental impacts of PACCAR become ever more visible, public authorities should prioritise decisions that favour instilling clarity in the market, and most importantly, ensuring proper access to justice remains upheld in order to “strike the right balance between access to justice and fairness for claimants”.  

A deeper look into the post-PACCAR’s litigations and their domino effects

Even though the English court system is yet to rule on any post-PACCAR case, it is important to understand the immediate effects of the decision by looking at a few landmark cases. We provide in this section of the article an overview of the impacts of the rulingin perhaps the three most important ongoing post-PACCAR proceedings: Therium Litigation Funding A IC v. Bugsby Property LLC (the “Therium litigation”), Alex Neill Class Representative Ltd v Sony Interactive Entertainment Europe Ltd [2023] CAT 73 (the “Sony litigation”) and the case of Alan Bates and Others v Post Office Limited [2019] EWHC 3408 (QB), which led to what has been known as the “Post Office scandal” (also referred to as the “Horizon scandal”).

Therium litigation

The Therium litigation is one of the first cases in which an English court considered questions as to whether an LFA amounted to a DBA following the Supreme Court decision in PACCAR. The case concerned the filing of a freezing injunction application by Therium Litigation Funding I AC (“Therium”) who had entered into an LFA with Bugsby Property LLC (“Bugsby”) in relation to a claim against Legal & General Group (“L&G”). The LFA stipulated between Therium and Bugsby entitled Therium to (i) return of the funding it had provided; (ii) three-times multiple of the amount funded; and (iii) 5% of any damages recovered over £37 million, and compelled Bugsby’s solicitors to hold the claim proceeds on trust until distributions had been made in accordance with a waterfall arrangement set out in a separate priorities’ agreement.

Following a settlement reached between Bugsby and L&G, Bugby’s solicitors transferred a proportion of settlement monies to Bugsby’s subsidiary, and notified Therium of the intention to transfer the remaining amount to Bugsby on the understanding that the LFA signed between Therium and Bugsby was unenforceable as it amounted to a DBA following the PACCAR ruling. Therium applied for an interim freezing injunction against Bugsby under s.44 of the Arbitration Act 1996 and argued that, as the payment scheme stipulated by the LFA contained both a multiple-on-investment and a proportion of damage clauses, and the minimum recovery amount to trigger the damage-based recovery had not been reached, no damage-based payment was foreseen.

This meant that the DBA clause within the LFA could be struck off without changing the nature of the original LFA, so that it constituted an “agreement within an agreement”. As legal precedents such as the Court of Appeal ruling in Zuberi v Lexlaw Ltd [2021] EWCA Civ 16 allowed for parts of an agreement to be severed so as to render the remainder of the agreement enforceable, the High Court granted the freezing injunction, affirming that a serious question was raised by Therium regarding whether certain parts of the agreement could be severed to keep the rest of the LFA enforceable.

By declaring that there was a serious question to be tried as to whether the non-damage clauses, such as the multiple-based payment clauses, are lawful or not, the High Court opened the possibility of enforceability of existing LFAs through severability of damage-based clauses in instances where PACCAR may also apply. The Therium litigation presents an example of another possible structuring strategy to shape LFAs to prevent them from becoming unenforceable under PACCAR. Nonetheless, as the freezing injunction will now most likely lead to an arbitration, a final Court ruling on the validity of these non-damage-based schemes appears to be unlikely.

Sony litigation

The Sony group litigation is another example of one of the first instances where issues of compliance of a revised LFA have been addressed in the aftermath of PACCAR, this time in the context of CAT proceedings. In this competition case, Alex Neill Class Representative Limited, the Proposed Class Representative (PCR), commenced collective proceedings under section 47B of the CA 1998 against Sony Interactive Entertainment Network Europe Limited and Sony Interactive Entertainment UK Limited (“Sony”). The claimant alleged that Sony abused its dominant market position in compelling publishers and developers to sell their gaming software through the PlayStation store and charging a 30% commission on these sales.

The original LFA entered between Alex Neill and the funder as part of the Sony litigation amounted to a DBA and would have therefore been unenforceable pursuant to PACCAR. On this basis, the PCR and funder negotiated an amended LFA designed to prevent PACCAR enforceability issues. The LFA in place was amended to include references for funders to obtain a multiple of their total funding obligation or a percentage of the total damages and costs recovered, only to the extent enforceable and permitted by applicable law. The LFA was also amended to include a severance clause confirming that damages-based fee provisions could be severed to render the LFA enforceable.

The CAT ultimately agreed with the position of the PCR and confirmed that the revised drafting “expressly recognise[d] that the use of a percentage to calculate the Funder’s Fee will not be employed unless it is made legally enforceable by a change in the law.” In relation to the severance clause, the CAT also expressly provided that such clause enabled the agreement to avoid falling within the statutory definition of a DBA and referred to the test for effective severance clauses.

The CAT’s approach in recognising the PACCAR ruling and yet allowing for new means to render revised LFAs enforceable in light of this decision provides a further example of a Court’s interpretation of the decision, allowing another route for funders to prevent the unenforceability of agreements. Allowing these clauses to exempt litigation funders from PACCAR will in fact allow for such clauses to become market standard for LFAs, and in this case particularly for those LFAs backing opt-out collective proceedings in the CAT.

Post Office scandal  

Although the Post Office scandal occurred in 2019, this case was only recently brought back to light following the successful tv series ‘Mr Bates vs The Post Office’ which recounts the story of the miscarriage of justice suffered by hundreds of sub-postmasters and sub-postmistresses (SPM’s) in the past two decades. In short, the Post Office scandal concerned hundreds of SPM’s being unjustly taken to court for criminal offences such as fraud and false accounting, whilst in reality the Horizon computer system used by Post Office Ltd (POL) was found to contain errors that caused  inaccuracies in the system.

Mr. Bates, leading claimant in the case, brought the case on behalf of all the SMP’s which had been unfairly treated by POL. The issuing of the claim was only made possible thanks to a funding arrangement between litigation funders and the SPM’s, used as a basis for investors to pay up front legal costs. As outlined in a publication by Mr Bates in January 2024, such financing, combined with the strength and defiance of Mr. Bates’ colleagues, allowed the case to be brought forward, a battle which in today’s circumstances the postmaster believes would have certainly been lost.[6]

The sheer scale of the Post Office scandal, and the fact that traditional pricing vehicles for legal services would have negated the claimants access to justice, placed the case near the top of the government’s agenda and called again into question the effect of PACCAR on access to justice. Justice Secertary Alex Chalk MP relied on the example of Mr Bates and the Post Office scandal to affirm that that “for many claimants, litigation funding agreements are not just an important pathway to justice – they are the only route to redress.”[7]In light of this recent statement more radical changes to legislation on litigation funding and the enforceability of LFAs appear to be on the horizon.

Conclusion

Assessing the long-term impact of PACCAR will ultimately need to wait until the dust in the litigation finance market settles. Nonetheless, the immediate impacts of the decision have brought four key considerations to light.

First, the relevance of the litigation funding industry in the UK is substantial and any attempt to regulate it impacts not only those who capture value from the market but also the wider society. Regulation of litigation funding could inadvertently affect wider policy questions such as equal access to justice, consumer rights, protection of the environment and human rights.

Second, there is an undeniable intention of the regulators to oversee the litigation finance market, which could reflect in stability and predictability that would be much welcomed by institutional investors and other stakeholders. However, this conclusion assumes that regulatory efforts will be preceded by robust impact assessment and enforced within clear guardrails, always prioritising stability and ensuring proper access to justice.

Third, PACCAR serves to bring awareness that attempts to regulate a market in piecemeal can lead to detrimental outcomes and high adapting costs, far offsetting any positive systemic effects brought by the new framework. Any attempts to regulate a market so complex and relevant for the social welfare should be well-thought-out with the participation of key stakeholders.

Fourth, despite the recent headwinds, the market and government reaction further prove that the litigation finance market continues its consolidation as an effective vehicle to drive value for claimants and investors. The fundamentals behind the market’s growth are still solid and the asset class is consolidating as a strategy to achieve portfolios’ uncorrelation with normal market cycles. As private credit and equity funds as well as venture capitalists, hedge funds and other institutions compete to increase their footprint in this burgeoning market, it is safe to expect a steady increase of market size and investors’ appetite for the thesis.

In conclusion, despite a first brush view of the PACCAR decision, the reactions to this decision and the subsequent developments have evidenced how litigation finance continues to be a promising investment strategy and an effective tool to drive social good and access to justice.


[1] Ana Carolina Salomao, Micaela Ossio and Sarah Voulaz, Is the Supreme Court ruling in PACCAR really clashing with the Litigation Finance industry? An overview of the PACCAR decision and its potential effects, Litigation Finance Journal, 10 October 2023.

[2] Daniel Williams, Class Action Funding: PACCAR and now Therium – what does it mean for class action litigation?, Dwf, October 25, 2023.

[3] Department for Business and Trade statement on recent Supreme Court decision on litigation funding: A statement from the department in response to the Supreme Court's Judgement in the case of Paccar Inc. and others vs. Competition Tribunal and others. Available at: <https://www.gov.uk/government/news/department-for-business-and-trade-statement-on-recent-supreme-court-decision-on-litigation-funding>.

[4] Press release, ‘New law to make justice more accessible for innocent people wronged by powerful companies’ (GOV.UK, 4 March 2024) Available at <https://www.gov.uk/government/news/new-law-to-make-justice-more-accessible-for-innocent-people-wronged-by-powerful-companies>.

[5] Litigation Funding Agreements (Enforceability) Bill (Government Bill originated in the House of Lords, Session 2023-24) Available at <https://bills.parliament.uk/bills/3702/publications>.

[6] Alan Bates, ‘Alan Bates: Why I wouldn’t beat the Post Office today’ (Financial Times, 12 January 2024) <https://www.ft.com/content/1b11f96d-b96d-4ced-9dee-98c40008b172>.

[7] Alex Chalk, ‘Cases like Mr Bates vs the Post Office must be funded’ (Financial Times, 3 March 2024) <https://www.ft.com/content/39eeb4a6-d5bc-4189-a098-5b55a80876ec?accessToken=zwAGEsgQoGRQkc857rSm1bxBidOgmFtVqAh27A.MEQCIBNfHrXgvuIufYajr8vp1jmn9z9H9Bwl0FC-u96h8f4LAiBumh82Jxp30mqQsGb71VSoAmYWUwo9YBO2kF5wuMP5QA&sharetype=gift&token=7a7fe231-8fea-4a0d-9755-93fc3e3689aa>.

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Fernando Gragera joins Aon to lead the litigation and contingency insurance practice in Iberia

By Harry Moran |

Aon strengthens its M&A and Transaction Solutions team and pioneers a local team specialising in the management of these risks

Aon plc (NYSE: AON), a leading global professional services firm, has appointed Fernando Gragera as Director of Litigation and Contingent Risks for Spain and Portugal. Fernando will join the Iberia M&A and Transaction Solutions (AMATS) team led by Lucas López Vázquez, and globally in Aon's international Litigation Risk Group. His role will be to develop the litigation insurance practice and assist Aon's clients in transferring risks arising from litigation and contingent situations.

Fernando Gragera, a Spanish lawyer and solicitor of England and Wales with more than 13 years of professional experience, comes from PLA Litigation Funding, a litigation funder specialising in the Iberian market. Previously, he worked as a lawyer in the litigation and arbitration department of Cuatrecasas and as in-house counsel at Meliá Hotels International, where he was responsible for the group's litigation and arbitration.

This appointment responds to the growing interest from investment funds, corporations and law firms in covering contingent and litigation-related risks and makes Aon the first professional services firm with a local team specialising in contingent and litigation solutions in Iberia.

Miguel Blesa, head of Aon Transaction Solutions in Iberia: "Fernando's appointment is a major milestone for the industry and embodies a commitment we have been working on for years. In this way, we reinforce our commitment to continue to support our clients and help them make the best decisions to protect and grow their business”.

About Aon

Aon plc (NYSE: AON) exists to shape decisions for the better — to protect and enrich the lives of people around the world. Through actionable analytic insight, globally integrated Risk Capital and Human Capital expertise, and locally relevant solutions, our colleagues provide clients in over 120 countries and sovereignties with the clarity and confidence to make better risk and people decisions that help protect and grow their businesses.

Follow Aon on X and LinkedIn. To learn more visit our NOA content platform. 

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Altroconsumo Secures Impressive 50 million Euro Settlement for 60,000 Participants to Dieselgate Class Action in Italy

By Harry Moran |

Altroconsumo and VW Group have reached a ground-breaking agreement, providing over 50 million euro relief to over 60,000 Italian consumers affected by the emissions fraud scandal. Celebrating this major win for Italian consumers, Euroconsumers calls on Volkswagen to now also compensate Dieselgate victims in the other Euroconsumers countries. 

The settlement reached by Altroconsumo, arising from a Euroconsumers coordinated class action which commenced in 2015 ensures that Volkswagen will allocate over 50 million euros in compensation. Eligible participants stand to receive payments of up to 1100 euros per individual owner.

This brings an end to an eight year long legal battle that Altroconsumo together with Euroconsumers has been fiercefully fighting for Italian consumers and marks a significant milestone in seeking justice for those impacted by the ‘Dieselgate’ scandal.

We extend our massive congratulations to Altroconsumo for reaching this major settlement in favor of the Italian Dieselgate victims. Finally, they will receive the justice and compensation they deserve. This milestone underscores the importance of upholding consumer rights and the accountability of big market players when these rights are ignored, something Euroconsumers and all its national organisations will continue to do together with even more intensity under the new Representative Actions Directive” – Marco Scialdone, Head Litigation and Academic Outreach Euroconsumers

Together with Altroconsumo in Italy, Euroconsumers also initiated Dieselgate class actions against the Volkswagen-group in Belgium, Spain and Portugal. While the circumstances are shared, the outcomes have been far from consistent.

Euroconsumers was the first European consumer cluster to launch collective actions against Volkswagen to secure redress and compensation for all affected by the emissions scandal in its member countries. After 8 years of relentless pursuit, we urge the VW group to finally come through for all of them and give all of them the compensation they rightfully deserve. All Dieselgate victims are equal and should be treated with equal respect.” – Els Bruggeman, Head Policy and Enforcement Euroconsumers

Consumer protection is nothing without enforcement and so Euroconsumers and its organisations will continue to lead important class actions which benefit consumers all across the single market. 

Read the full Altroconsumo press release here.

About Euroconsumers 

Gathering five national consumer organisations and giving voice to a total of more than 1,5 million people in Italy, Belgium, Spain, Portugal and Brazil, Euroconsumers is the world’s leading consumer cluster in innovative information, personalised services and the defence of consumer rights. Our European member organisations are part of the umbrella network of BEUC, the European Consumer Organisation. Together we advocate for EU policies that benefit consumers in their daily lives.

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