What's Happening?
The UK Court of Appeal has provided clarity on the enforceability of litigation funding agreements (LFAs) in the case of Sony v. Neill. The court ruled that LFAs, which calculate a funder's return as a multiple of the investment rather than a percentage
of damages, do not qualify as damages-based agreements (DBAs). This decision follows the 2023 UK Supreme Court ruling in PACCAR, which had disrupted the litigation funding industry by classifying certain LFAs as DBAs. The Court of Appeal's decision brings stability to the sector, pending legislative reforms promised by the UK government.
Why It's Important?
The ruling is crucial for the litigation funding industry, which supports access to justice by enabling parties to pursue legal claims without upfront costs. The decision alleviates concerns about the enforceability of LFAs, which are vital for funding large-scale litigation and arbitration cases. The outcome also impacts international arbitration proceedings, as the statutory DBA framework applies to various dispute resolution processes. The ruling provides temporary relief to funders and litigants, but the sector remains in a state of flux until the UK government enacts new legislation.
What's Next?
The UK government has indicated plans to legislate on the issue, aiming to exclude LFAs from the DBA definition and introduce proportionate regulation. However, the timing and specifics of the legislation remain uncertain. The Civil Justice Council has recommended a light-touch regulatory model, but the final legislative framework will depend on government priorities and parliamentary schedules. Stakeholders in the litigation funding industry will need to stay informed about legislative developments and adjust their funding models accordingly.
