The Litigation Funding Agreements (Enforceability) Bill (the “LFA(E) Bill”) was first introduced in March 2024 and formed an integral part of the UK government’s commitment to reversing the Supreme Court’s PACCAR ruling by clarifying that litigation-funding agreements (“LFAs”) are not “damages-based agreements” (“DBAs”). The passage of the Bill has been stymied by last week’s announcement by Prime Minister Rishi Sunak of a snap general election, some months earlier than commentators had anticipated, which resulted in parliament being prorogued on Friday. During Thursday’s ‘wash-up’, in which the Government and the Opposition agreed either to amend and pass or to reject outstanding Bills before the prorogation, the LFA(E) Bill did not make it through. This means that, once parliament resumes after the general election, it will be for the new Government to decide whether or not to re-introduce the LFA(E) Bill, or some alternative to it.
Until that point, the LFA(E) Bill had been making relatively smooth progress through the House of Lords with broad cross-party support, passing its second reading on 15 April and due to reach the report stage in early June. However, important provisions of the Bill, including in particular its intended retroactive effect (itself potential fertile ground for future disputes between funders and litigants), remained a point of debate.
The PACCAR ruling introduced uncertainty by holding that some LFAs (those which provide for the funder’s return to be calculated as a percentage of the damages awarded) constituted DBAs and were therefore required to comply with the somewhat unclear additional conditions set out in the DBA Regulations 2013, which, prior to PACCAR, most LFAs did not. There is no indication at present that the LFA(E) Bill is likely to be treated as a priority when parliament resumes. The upshot, therefore, is that the uncertainty created by PACCAR is likely to continue for the foreseeable future.
Next steps
If you require further information about these recent developments or are concerned that they may have an impact for you, please contact our Hogan Lovells team.
Authored by Ivan Shiu, Theresa Hudson, Rolando Virardi, and Vera Mayzel.
