Litigation funding in jeopardy in England? A Scottish perspective

The Supreme Court recently handed down its judgment in PACCAR Inc & Ors, R (on the application of) v Competition Appeal Tribunal & Ors [2023] UKSC 28, deciding that litigation funding arrangements which entitle funders to payment based on the amount of damages recovered are damages-based agreements and therefore must comply with the requirements of the Damages Based Agreement Regulations 2013 in order to be valid and enforceable in England.

South of the border, it has been suggested that this decision could create a chilling effect on the litigation funding market – which is well established in England. This is because the litigation funding agreements typically do not comply with the relevant requirements for damages-based agreements (“DBAs”), for example if the proportion of damages paid to the funder exceeded 50%. However, others seem comfortable that litigation funding arrangements can be amended to ensure their compliance.

The PACCAR decision largely turns on a narrow issue of statutory interpretation in the context of the Courts and Legal Services Act 1990 and Damages Based Agreement Regulations 2013 – neither of which apply in Scotland. So what impact, if any, does this judgment have on litigation funding in Scotland?

DBAs in Scotland

Scotland has its own regime permitting success fee arrangements (which includes speculative fee arrangements and DBAs) and setting out the necessary criteria for such agreements to be valid and enforceable, namely the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018 (the “2018 Act”), and the (snappily titled) Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018 (Success Fee Agreements) Regulations 2020 (the “2020 Success Fee Regulations”).

The 2018 Act and 2020 Success Fee Regulations were introduced some years later than the equivalent English legislation and brought Scotland broadly in line with the position south of the border in respect of DBAs. However, perhaps because litigation funding was a more established practice by 2018, the drafting in the Scottish legislation is arguably less ambiguous than the English equivalent and may more clearly include agreements for the provision of litigation funding in certain circumstances. It remains to be seen whether this issue will come before the Scottish courts and, if so, whether the Supreme Court’s reasoning in PACCAR would be persuasive in support of such an interpretation.

Of course, it does not necessarily follow that all litigation funding agreements in place in Scotland are in fact compliant with the 2020 Success Fee Regulations. In light of PACCAR, litigation funders and parties seeking funding will no doubt bear this in mind. The decision also raises interesting strategic considerations regarding funding requirements and potentially adds a string to the bow of a party defending a claim backed by a funder.

A growing bag of litigation tools

The 2018 Act constituted a major development in civil litigation reform in Scotland.

In addition to permitting success fee arrangements (including DBAs), the 2018 Act was the primary legislation underlying a new group/collective action procedure which was brought into force in 2020. The Scottish Group Procedure is now very much in full swing with several actions up and running and others seemingly waiting in the wings. However, the rules are flexible and not comprehensive, and their interpretation continues to evolve.

Further, the 2018 Act is the primary legislation underpinning new regulations around disclosure of litigation funding arrangements, which have not yet been brought into force. This will be another novel aspect of litigating in Scotland, where practice differs north and south of the border.

Five years on from the 2018 Act being brought into force, the PACCAR judgment provides another interesting context to reflect on the Scottish litigation regime as compared with the position south of the border.

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