Latest judgment in Therium litigation funding case sheds light on enforceability of litigation funding agreements post PACCAR.
In a groundbreaking legal development, the case of Therium Litigation Funding A IC v Bugsby Property LLC[1],decided on 20 October 2023, has shed light on the enforceability of litigation funding agreements in the aftermath of the controversial Supreme Court ruling in R (PACCAR) v Competition Appeal Tribunal[2].This landmark judgment sent shock waves through the legal world by challenging the very essence of litigation funding agreements (LFAs) following the Supreme Court's classification of LFAs as Damages-Based Agreements (DBAs). The outcome has far-reaching implications, but a surprising twist in the courtroom has left room for debate.
On 26 July, the Supreme Court ruled that LFAs, which entitled funders to payment based on the amount of damages recovered, were DBAs within the meaning of Section 58AA of the Courts and Legal Services Act 1990. As a result, such LFAs would be unenforceable unless they complied with the stringent Damages-Based Agreements Regulations 2013.
Since then, industry professionals have held their breath in anticipation of the potential ramifications but, perhaps somewhat surprisingly, Jacobs J in Therium found it arguable that parts of litigation funding agreements are indeed enforceable. In that case, litigation funder Therium made an urgent application for an asset preservation order in respect of settlement monies received by the Respondent, Bugsby, following a Commercial Court claim they had funded. The application was made pursuant to section 44 of the Arbitration Act 1996, as the LFA in question contained a provision for the resolution of disputes by way of arbitration. The LFA made provision for three types of payment to be made to Therium in the event of success: (i) a return of the funding provided, (ii) a multiple of three times that amount, and (iii) 5%of any recovery above a certain threshold.
In response to the applications,Bugsby argued that, following the recent decision in PACCAR, Therium’s LFAwas unenforceable, and as such there was no ‘serious issue to be tried’.
The judge was referred to Zuberiv Lexlaw Ltd[3]a Court of Appeal decision that was referred to the Supreme Court in PACCARbut was not overturned. In that case, the court considered whether the existence of a DBA clause invalidated the entire contract. It was found that itdid not, and Jacobs J applied the same reasoning in Therium. In particular, he noted that the judgment of Lewison LJ gave rise “to a principled argument on the part of Therium which raises a serious issue to be tried. The argument, in essence, is that the only unenforceable DBA element of the Therium LFA is that part of the LFA which entitles Therium to recover a percentage of the recoveries. Thus, the DBA regime is not engaged by the provisions which entitled Therium to recover the amounts which it has paid out,and the 3 times multiple of that amount.” He concluded that Therium was entitled to the proprietary injunction which it sought, with the result that the substantive dispute will now proceed to arbitration.
Practitioners and funders alike will no doubt welcome this result, although they would be advised to proceed with caution. Indeed, Jacobs J was quick to acknowledge that this is “a developing area of the law” and one where “it is appropriate to tread carefully.”
Further information
For further information regarding the enforcement of LFA’s, contact Oliver Cain or our UK team of Litigation experts.
[1] TheriumLitigation Funding A IC v Bugsby Property LLC [2023] EWHC 2627 (Comm)
[2] R(PACCAR) v Competition Appeal Tribunal [2023] UKSC 28
[3] Zuberiv Lexlaw Ltd [2021] EWCA Civ 16
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