R (on the application of PACCAR Inc. and Others) v Competition Appeal Tribunal and Others

Heard on 16 February 2023

Lord Sales ( with whom Lord Reed, Lord Leggatt and Lord Stephens agree):

The question which arises on this appeal is whether a form of arrangement for the financing of litigation by third party funders is lawful and effective. This depends on the interpretation of an express definition of a term as set out in a statute. The case concerns the proper interpretation of a definition first used in one statutory context and then adopted and used in another context.

It is necessary to consider the meaning of the definition in the first context. Lord Neuberger of Abbotsbury explained the proper approach in Williams v Central Bank of Nigeria [2014] AC 1189, at para 50:

“Where a term in a later statute is defined by reference to a definition in an earlier statute, it seems to me self-evident that the meaning of the definition in the later statute must be the same as the meaning of the definition in the earlier statute. Hence, the meaning of the term in the later statute is determined by the definition in the earlier statute. Further, the adoption of the definition in the later statute cannot somehow alter the meaning of the definition in the earlier statute. It accordingly follows that one has to determine the meaning of the term in the later statute simply by construing the definition in the earlier statute.”

We also have to consider whether later legislation throws any light on the proper interpretation of the earlier legislation.

The specific issue for determination is whether litigation funding agreements (“LFAs”) pursuant to which the funder is entitled to recover a percentage of any damages recovered constitute “damages-based agreements” (“DBAs”) within the meaning of the relevant statutory scheme of regulation (“the DBA issue”). This depends on whether litigation funding falls within an express definition of “claims management services” in the applicable legislation, which includes “the provision of financial services or assistance”. If the LFAs at issue in these proceedings are DBAs within the meaning of the relevant legislation, they are unenforceable and unlawful since they did not comply with the formal requirements for such agreements.

The DBA issue arises in the context of applications to bring collective proceedings for breaches of competition law under section 49B of the Competition Act 1998. The second respondent (“UKTC”) and the third respondent (“the RHA”) each sought an order from the Competition Appeal Tribunal (“the Tribunal”) to enable them to bring collective proceedings on behalf of persons who acquired trucks from the appellants (collectively, “DAF”) and other truck manufacturers. The proposed proceedings take the form of follow-on proceedings in which compensation is sought for loss caused by an unlawful arrangement between DAF and other manufacturers in breach of European competition law, as found in an infringement decision by the European Commission dated 19 July 2016 ( Case AT.39824 – Trucks). It is alleged that the prices paid for trucks were inflated as a result of the infringement.

The RHA's application was for “opt-in” collective proceedings, whereby persons wishing to participate in any award would have to opt in to the class represented by the RHA. UKTC's application was for “opt-out” proceedings, whereby an order would be made for it to represent a specified class of persons who would have the ability to opt out if they did not wish to be represented. UKTC made an application for opt-in proceedings in the alternative.

In order to obtain a collective proceedings order from the Tribunal, each of UKTC and the RHA needed to be able to show that it had adequate funding arrangements in place to meet its own costs and any adverse costs order made against it. For this purpose the RHA relied on an opt-in LFA and UKTC relied on an opt-in LFA and an opt-out LFA. The funders under the RHA LFA are entities which together I will call “Therium”. The funder under the UKTC LFAs is Yarcombe Ltd (“Yarcombe”). Under each LFA the funder's maximum remuneration is calculated with reference to a percentage of the damages ultimately recovered in the litigation. UKTC and the RHA maintain that these LFAs do not constitute DBAs within the meaning of the relevant legislative provision, section 58AA of the Courts and Legal Services Act 1990 as amended in 2013 (“section 58AA” and “the CLSA 1990”, respectively), and accordingly are lawful and effective funding agreements.

The appellants, truck manufacturers who are defendants in the proceedings in the Tribunal, maintain that the LFAs in this case constitute DBAs within the meaning of section 58AA. On that basis, the appellants say the LFAs are unenforceable by virtue of section 58AA because they did not comply with formality requirements made applicable by that provision. If this is right, the practical consequence would be that there is no proper basis on which a collective proceedings order could be made by the Tribunal in favour of UKTC or the RHA. The arrangements which have to be in place to support the making of a collective proceedings order include provision for payment of any costs order made in favour of the defendants in the proposed proceedings, and it would not be fair to authorise collective proceedings against them without proper and enforceable funding in that regard. More fundamentally, if the funding arrangements are not enforceable there is no effective agreement in place pursuant to which the funders will provide the financing necessary for the claims to be brought at all.

The Tribunal (Roth J, Dr William Bishop and Professor Stephen Wilks) ordered that the DBA issue be determined as a preliminary issue to be heard together in both sets of proceedings. In determining that preliminary issue, the Tribunal ruled that the LFAs at issue are not DBAs within the meaning of section 58AA, and consequently found that they are lawful and enforceable funding arrangements such as could justify the making of collective proceedings orders in favour of UKTC and the RHA: [2019] CAT 26.

The appellants sought to appeal to the Court of Appeal, but also challenged the Tribunal's ruling by way of judicial review in case the Court of Appeal did not have jurisdiction to entertain an appeal. A constitution of the Court of Appeal was convened (Henderson, Singh and Carr LJJ) which could also sit as a Divisional Court to hear the judicial review claim if necessary. The court decided that it had no jurisdiction to entertain an appeal: this is not an issue which arises in the present appeal to this court. Instead, they proceeded as a Divisional Court to grant permission for the appellants' judicial review claim in relation to the DBA issue, which it then dismissed: [2021] EWCA Civ 299; [2021] 1 WLR 3648. The Divisional Court agreed with the Tribunal's interpretation of section 58AA. Henderson LJ gave the sole substantive judgment, with which Singh and Carr LJJ agreed.

The appellants now appeal directly to this court against that determination of their judicial review claim under the leap-frog procedure set out in section 13 of the Administration of Justice Act 1969. The Association of Litigation Funders of England & Wales has intervened, with permission granted by this court, to make written submissions.

The common law was historically hostile to arrangements for third parties to finance litigation between others. According to the doctrines of champerty and maintenance, such arrangements were generally regarded as unenforceable as being contrary to public policy according to the test identified in British Cash and Parcel Conveyors Ltd v Lamson Store Service Co Ltd [1908] 1 KB 1006: see the discussion in Giles v Thompson [1994] 1 AC 142 and R (Factortame Ltd) v Secretary of State for Transport, Local Government and the Regions (No 8) [2003] QB 381 (“ Factortame (No 8)”). But over the last 30 years there have been substantial changes to litigation funding in England and Wales. Legislation has been passed which has affected the courts' assessment of the extent to which public policy supports the conclusion that particular funding arrangements are unenforceable: see Factortame (No 8). As Henderson LJ observed, funding of litigation by third parties is now a substantial industry which, although driven by commercial motives, is widely acknowledged to play a valuable role in furthering access to justice. The old common law restrictions on the enforceability of third party funding arrangements have been relaxed in various ways, with the result that this industry has developed.

In particular, the effectiveness of group litigation may depend on the use of third party funding, since such litigation often involves high numbers of claimants who have individually suffered only a small amount of loss, where the pursuit of claims...