Last year we discussed the impact of funding insolvency litigation following the Supreme Court decision in PACCAR where the court found that litigation funding agreements (LFAs) were damaged based agreements. This meant that unless LFAs complied with the Damages Based Agreements Regulations 2013 (DBA Regulations), they were unenforceable.
Although concluding that the outcome of the decision was unlikely to be significant in the context of the insolvency market, because the majority of insolvency claims are assigned (and therefore are unaffected by this decision) – those claims that were supported by LFAs were potentially impacted.
Players in the litigation funding market spent much of the second half of last year discussing work arounds, such as amending the affected funding agreements (which no doubt will have been actioned, where possible, in the interim). However, without legislative intervention the enforceability status of existing LFAs was uncertain, and the usual method for calculating returns (based on a percentage of damages received) appeared to be indefinitely off-the-table. The litigation funding industry may well now be preparing to breathe a sigh of relief as new legislation to reverse the PACCAR decision is on the horizon.
