Litigation Funding Agreements (Enforceability) Bill [HL]

Committee

Clause 1: Enforceability of litigation funding agreements

Amendment 1

1: Clause 1, page 1, line 14, at end insert— “(ia) where the litigant is a litigant in person, expenses incurred by that litigant, or”Member's explanatory statement This amendment ensures that the definition of litigation funding agreements includes agreements under which a funder agrees to fund expenses incurred by a litigant in person.

My Lords, I will address Amendment 1 alongside government Amendment 2 in one moment. I need not repeat in detail why this Bill is important, as we debated it so recently, just two weeks ago at Second Reading, but I want to address some of the points raised. I wrote to noble Lords—and to noble and learned Lords—but thought it important to put those matters on record here as well.

Clause 1 makes it clear that the Bill will have retrospective effect. The Government have carefully considered the point and decided that the Bill should have retrospective effect, meaning it will apply to litigation funding agreements in place before the PACCAR judgment and to any that may have been made between the judgment and the Bill becoming law. I thank noble Lords for their contributions, particularly my noble friend Lord Wolfson of Tredegar, King’s Counsel, who is not in his place today.

There were concerns about the possibility of claimants who negotiated new funding agreements following the PACCAR decision, having believed their first agreement to be unenforceable, facing the prospect of two funding agreements that could be enforced once the Bill comes into effect. In addition, reference was made by the noble Lord, Lord Carlile of Berriew, King’s Counsel, to a suggestion that the Bill’s retrospective effect may interfere with the Government’s obligations under the European Convention on Human Rights. That was raised in the context of the opinion of the noble Lord, Lord Macdonald of River Glaven, King’s Counsel, which was shared among noble Lords ahead of Second Reading. On behalf of the Lord Chancellor, I thank noble Lords for raising this issue and assure them that the Government are looking into the questions raised and hope to provide a further update on Report.

I regret that I cannot say much more than that at this stage, to allow the Government to review the matter, but I welcome the continued engagement from across the House, of which this Committee is a part.

My Lords, I will speak now because I have tabled the only non-government amendment before the Committee. It is a probing amendment.

The Minister, the noble and learned Lord, Lord Stewart, mentioned briefly the discussion about this Bill since the Second Reading debate—mostly in the context of the letter that he and the Secretary of State helpfully circulated—and the publication of the terms of reference for the review. That has been part of a wider discussion, and questions have been asked by a number of briefings. The briefing process for this Bill in relation to members of the public and interested or affected parties has been late; that has been a feature of the discussion, which has centred largely around questions on the need for regulation of the litigation funding market generally and on the issue of retrospectivity for the principal provision of the Bill, which the Minister mentioned.

I hope I will be forgiven for running through some of the arguments that were canvassed at Second Reading, largely in the light of the lateness of the briefings that we have had and the expressions of concern that there have been. A powerful argument has been advanced by some clients of litigation funders. They make the point—I foreshadowed it at Second Reading—that, in an unregulated market, litigation funders can effectively impose their terms on clients. This can mean that successful clients end up with only a very small part of the damages awarded to them, with the litigation funders taking the lion’s share; indeed, in one case that was brought to my attention and that of other noble Lords, funders have been in a position, following a case that they have funded, under their contracts of not only retaining all the damages awarded to the claimants but actively pursuing those claimants—their clients, in effect—for substantial costs that they incurred over and above the damages that were recovered. The clients say that that is most unfair; one can see their point.

However, the PACCAR decision threatened to undermine the litigation funding market generally because the undenied and inescapable fact was that that market developed on the back of a belief that the DBA Regulations did not apply to LFAs. That was because a clear view had been taken that LFAs were not providing case management services. The Government’s view and the justification for the Bill—and, I believe, the overwhelming view expressed at Second Reading—was that litigation funding provides an avenue to access to justice in many cases where the litigants, or potential litigants, could not afford to fund representation or advice themselves.

Of particular importance in this context are class actions, such as that of the sub-postmasters against the Post Office. I know that the House as a whole was particularly persuaded by the point that the noble Lord, Lord Arbuthnot, made at Second Reading: that without litigation funding, the sub-postmasters would not have been able to bring their case before the courts at all. To use his memorable phrase: the bloody doors would not have been blown off, had it not been for the availability of litigation funding. That would have disabled, or made highly unlikely, all the welcome political consequences that have flowed from the decision of Mr Justice Fraser in that case.

However, class actions are not the only area where litigation funding is important. It plays, as we heard, a significant part in funding commercial litigation generally and has an important role in creating something of a balance by enabling smaller organisations or groups of individuals to fund litigation against more powerful opponents, public bodies or others who have deeper pockets than those who might be claimants. It also enables potential litigants to spread the risk of litigation over time and between themselves and litigation funders. It was in those circumstances and against that background that the PACCAR decision came as a great shock to litigation funders and the market generally and threatened to undermine it wholesale.

That brings me to the argument on retrospectivity because the other area of disquiet expressed in the briefings that we have had and the discussions that there have been has concerned the retrospectivity provision that the noble and learned Lord identified as being in Clause 1(4). The general principle is that special justification has to be demonstrated for the retrospectivity of legislation. That justification is found in the case of Finance Acts, where the Budget announces decisions that will take effect from Budget Day and the Finance Bill comes later but takes effect from the date of the announcement in the Budget. Everybody accepts that that is special justification within the terms of that principle.

The principle behind that view is that it is wrong to change the law retrospectively where such a change affects individuals or corporations who have arranged their affairs and made decisions or contracts on the basis of the law as it was, or was believed to be, and then find that law changed over their heads, in the worst case, so that what they thought was lawful when they entered into contracts or undertakings has now been found to be unlawful. It is also the case that concern has been expressed about interference with established property rights being a contravention of the European convention.

I completely appreciate that the Minister, the noble and learned Lord, Lord Stewart, has made the point that the Government are considering this matter with care—I await the results of that consideration—but I have come to the conclusion that that argument on retrospectivity is difficult to run. The case of LFAs that were entered into pre PACCAR is that pre-PACCAR LFAs were on the basis that LFAs were not DBAs and were therefore enforceable. Post commencement of this Bill, without retrospectivity, LFAs would be in the same position. Others may disagree but I have come to the conclusion that there is special justification for ensuring that, in the case of LFAs between the PACCAR decision and the commencement of this Bill, such LFAs should be in the same position as LFAs entered into in the interregnum or in the interim period. Otherwise, there would be confusion and uncertainty.

I quite take the point made by the noble and learned Lord, Lord Wolfson of Tredegar, about the difficulty of double LFAs and clients with two LFAs. In those circumstances, it is perfectly right that the Government should deal with that.

My amendment, which I described in the explanatory statement as a probing amendment, follows a number of questions that I asked at Second Reading. I am bound to say that it has been comprehensively and well answered by the letter from the Secretary of State and the noble and learned Lord, Lord Stewart, to which I referred and which was dated 24 April, as well as by the publication of the terms of reference for the review that had been announced in principle before Second Reading on 23 April.

I also make the point that I am pleased that the timetable is a speedy one: we are to have an interim report from the review in the summer of 2024 and a final review in the summer of 2025. My amendment said that the review must be completed by 31 August 2025. I do not claim that my amendment or my suggestion that the summer of 2025 should be the date for the final report influenced the Government in any way, but I am pleased to see that the Government realise that this is urgent and that the whole question of looking at the field of litigation funding is both important and urgent.

I was particularly pleased to see in the terms of reference that the questions to be addressed included whether there should be regulation and how, if there is to be regulation, it should be framed. In particular, there was the question of the funder’s return—this comes to the Post Office case, where such a derisory proportion of the overall damages went to the sub-postmasters—and whether there should be a cap. This will have to recognise the point made by the noble Lord, Lord Arbuthnot, about the risk taken by litigation funders; that risk has to be recognised and raises interesting, difficult questions.