Government proposes legislation to permit funder DBAs in opt-out competition class actions

The government has tabled an amendment to the Digital Markets, Competition and Consumers Bill to allow the use of damages-based agreements (DBAs) with litigation funders in opt-out collective proceedings in the Competition Appeal Tribunal (CAT). DBAs with solicitors and barristers would still be prohibited for such actions.

The amendment is a response to the high-profile decision in Paccar in July (considered in our previous blog post). The Supreme Court held that litigation funding agreements which provide for the funder to be paid a share of damages are DBAs within the meaning of the legislation which regulates such agreements, and must therefore comply with the relevant regulatory regime (in particular the 2013 DBA Regulations) to be enforceable. The government announced shortly after the decision that it was “looking at all available options to bring clarity to all interested parties”, and it was widely understood that litigation funders were lobbying for legislative change to address the decision.

The proposed amendment does not, however, go as far as funders might have liked. Assuming the amendment is passed, it will solve one of the problems for litigation funders arising out of Paccar, namely that funding agreements in opt-out proceedings in the CAT are unenforceable if they fall within the definition of a DBA. However, it does not remove the need for funding agreements to comply with the DBA Regulations if they fall within that definition, whether in opt-out proceedings or in other proceedings in the CAT or in other courts and tribunals. In other words, in all UK cases, funders will need to either ensure that their funding agreements are not DBAs or ensure that they comply with the DBA Regulations. Otherwise they will be unenforceable.

For more information, please see our Litigation blog post.