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UK top court's ruling on litigation funding spurs reform calls

Wed, 26th Jul 2023 11:33

LONDON, July 26 (Reuters) - Litigation funders are seeking new rules governing funding for mass lawsuits, after Britain's Supreme Court on Wednesday decided that funding agreements in a multi-billion-pound lawsuit were unenforceable.

Truckmaker DAF challenged funding pacts entered into by the Road Haulage Association (RHA), which is bringing a mass lawsuit against DAF and other manufacturers over their involvement in a 14-year price-fixing cartel.

DAF's lawyers argued in February that the RHA's agreement with its litigation funder was unlawful because it did not comply with rules governing so-called damages-based agreements.

The UK's highest court ruled by a 4-1 majority on Wednesday that the RHA's funding agreement was unenforceable, raising questions about the future of the RHA's case.

The ruling could impact many funding arrangements, litigation funders and lawyers said, and lead to the disruption of collective proceedings, roughly equivalent to class actions in the United States.

The International Legal Finance Association and the Association of Litigation Funders said in a joint statement that they were disappointed.

Gary Barnett, the ILFA's executive director, and ALF Chair Susan Dunn said the ruling was not expected to impact the economics of legal finance and will "only affect how legal finance agreements are structured".

However, they said it "could undermine the enforcement of competition law" as damages-based agreements (DBAs) are not allowed in collective proceedings where potential claimants are included in the case unless they opt out.

Barnett and Dunn added that "technical amendments are needed to reclarify the government's intent when it introduced DBAs and ensure the proper funding of opt-out cases".

Tim West, a partner at law firm Ashurst, said the Supreme Court's ruling meant that litigation funders and claimants in opt-out cases will need to "review and potentially replace their funding arrangements" or risk their cases being dismissed.

Mohsin Patel, director of litigation finance broker Factor Risk Management, said the ruling will have a "significant and immediate negative impact on the funders in this case and more generally". (Reporting by Sam Tobin Editing by Bernadette Baum)

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