My Lords, the Litigation Funding Agreements (Enforceability) Bill will fulfil the Government’s commitment to address the impacts of the United Kingdom Supreme Court’s judgment in the case of the King on the application of PACCAR Incorporated and others v Competition Appeal Tribunal and others. The reference for the case is 2023 UKSC 28. It was handed down in July 2023. This case is colloquially known as PACCAR, taking the name of the lead applicants in the case.

First, I will address the judgment in question. It arose out of a claim against truck manufacturers regarding anti-competitive behaviour. The Supreme Court ruling rendered many third-party litigation funding agreements—LFAs—unenforceable by bringing them into scope of the regulatory regime for damages-based agreements, or DBAs. For the sake of brevity, I will refer from time to time to these vehicles by their initials.

The Supreme Court ruling has had a detrimental impact on access to justice and the attractiveness of this jurisdiction as a global hub for commercial litigation and arbitration. This is an important sector for the United Kingdom and so we must act now. Put simply, the Bill will restore the position that existed before the Supreme Court ruling in July 2023, which was that LFAs are not DBAs and hence are enforceable.

It will accomplish this by amending the definition of a DBA in Section 58AA(3)(a) of the Courts and Legal Services Act 1990. It will also ensure that claimants can continue to access litigation funding to bring big, complex cases against larger, better-resourced corporations which they could not otherwise afford.

The restoration of the previous funding position is needed urgently to reduce uncertainty for both the future of litigation funding and for LFAs that had been entered into previously. By rendering many existing LFAs unenforceable, the position post judgment risks undesirable satellite litigation, an increased burden on the courts, and creating an unfavourable market for litigation funding, which, in turn, threatens access to justice. I will go on to explain in more detail how the Bill operates, but first will address why it matters.

Third-party litigation funding plays a key role in enabling ordinary people and small and medium-sized enterprises to bring large, costly claims against better-resourced companies and institutions. Litigation funding agreements involve a third-party funder, typically an independent financial institution. The funder finances all or part of the legal costs of a claim, in return for a share of any damages awarded. Third-party litigation funding is a niche market, which operates typically in high-value commercial, arbitration or group litigation claims, including the types of claims brought in the Competition Appeal Tribunal.

A recent example of where an LFA was used is the Post Office Horizon case—Bates v the Post Office—which had the backing of a litigation funder. Some other examples of cases where LFAs have been used include equal pay cases; motorists bringing claims against car manufacturers over false diesel emissions; and consumers bringing claims against multinational companies regarding data breaches and data misuse.

In the United Kingdom Supreme Court judgment in PACCAR, the court held that LFAs between claimants and litigation funders which entitle the litigation funder to payment based on a percentage of the damages recovered from the losing party are DBAs—damages-based agreements—as defined in Section 58AA of the Courts and Legal Services Act 1990. The principal problem is that LFAs which fall within the definition of DBAs are subject to, but generally will not comply with, the DBA Regulations 2013, as was noted in the PACCAR judgment. As such, those LFAs are rendered unenforceable against the claimant.

For many claimants, LFAs are not just an important pathway to justice; they could be their only route to redress against well-resourced corporations with deep pockets. I have no doubt that all noble Lords will have been moved by the plight of the sub-postmasters affected by the Horizon scandal, and their impressive campaign for justice. It is just one example of the importance of third-party litigation funding. Alan Bates himself has noted that, as things stand today, since the Supreme Court judgment, the sub-postmasters would not be able to bring their claim had it arisen. That is why we must remove the risk and return to the position preceding the July 2023 judgment: promoting access to justice for ordinary people by making sure that it is not the preserve only of big business, powerful institutions and the moneyed few.

The new legislation, which will apply to all proceedings, will allow the Government to deliver a return to a funding regime which promotes access to justice, as well as enhance the competitiveness of the jurisdiction and the attractiveness of a thriving United Kingdom legal sector which contributes over £34 billion per annum to the UK economy.

I return to how the Bill achieves this. The Litigation Funding Agreements (Enforceability) Bill provides that LFAs are not damages-based agreements. It should be noted that the legislation applies and extends to England and Wales only. This restores the position in place before the July 2023 judgment, making affected LFAs enforceable once again and enabling ongoing and future claims to continue to be funded by LFAs.

The Bill contains two clauses. Clause 1 amends Section 58AA of the Courts and Legal Services Act 1990. Subsection (2) amends the definition of a DBA to provide that an agreement, to the extent that it is an LFA, is not a DBA. Subsection (3) defines an LFA for the purposes of section 58AA of the 1990 Act. Subsection (4) provides that the amendments are to be treated as always having had effect. The amendment only addresses the Supreme Court’s finding that LFAs are DBAs and does not seek to reverse the finding that litigation funders provide claims management services.

Clause 2 explains the extent, commencement and short title of the Bill. Subsection (1) provides the territorial extent of the Bill, expressing that the Bill extends to England and Wales only. Subsection (2) provides the commencement provision for the Bill. The Bill will be commenced upon the day of its passing. Subsection (3) gives the shortened title by which the Bill can be referred as upon passing. This is described as the Litigation Funding Agreements (Enforceability) Act 2024.

The Bill will have retrospective effect. The legality and propriety of the proposed retrospection, including its compatibility with the European Convention on Human Rights, has been considered carefully. The Bill will achieve the important policy objective of preserving the rights of individuals to challenge alleged breaches of the law. Access to justice is an essential component of the rule of law. If the Bill were prospective only, there would be uncertainty as to the enforceability of agreements entered into before the PACCAR judgment but where the claim is concluded after the Act comes into force. This could lead to undesirable satellite litigation, which would benefit no one.

Retrospective effect will also ensure that the contractual rights and obligations agreed under LFAs entered into before the Supreme Court’s judgment continue to have effect as intended. Early commencement will minimise the period of retrospection. These provisions will remove any uncertainty about the enforceability of LFAs in cases that have settled and enable litigation funders to continue to fund cases, including existing cases.

On retrospective effect, the noble Lord, Lord Macdonald of River Glaven KC, has raised a number of points for the Government to consider. I also acknowledge the engagement which I have had with my noble friend Lord Hodgson of Astley Abbotts in relation to wider risks which may arise in some circumstances out of third-party litigation funding. I first thank the noble Lord, Lord Macdonald, for sharing his expert views, and assure him that the Government will consider them in due course. In relation to the useful engagement which I have had with my noble friend Lord Hodgson, I will come on to discuss the ambit of a review of the matter which the Government have ordered.

There are a wide variety of views about litigation funding arrangements and how they should work. That is why, alongside legislative change, the Lord Chancellor has asked the Civil Justice Council—which is the body for overseeing and co-ordinating the modernisation of the civil justice system in England and Wales, under the chairmanship of the Master of the Rolls—to undertake a review of the third-party litigation funding market in England and Wales.

The review will consider questions raised during the discussions on the PACCAR judgment, including in your Lordships’ House, such as the need for greater safeguards for claimants, regulation of the sector and the possibility of caps on the returns made to funders. The CJC will publish its terms of reference and other related documents shortly. An interim report is due by this summer—2024—and a final report by the summer of 2025. The Government will consider the way forward following that final report.

By acting swiftly to restore the previous funding position via legislation, and investigating whether that position can be enhanced through a longer-term, forward-looking review, the Government will restore and improve a vital avenue to justice for all deserving claimants, not just those with the most resources. I submit that this is a much-needed Bill to address an important issue affecting access to justice. I beg to move.