Clifford Chance

On 4 July 2025, the Court of Appeal dismissed appeals challenging the enforceability of litigation funding arrangements which were revised following the Supreme Court's decision in PACCAR. The judgment affirmed a series of decisions by the Competition Appeal Tribunal finding that the revised litigation funding agreements were not damages-based agreements and were therefore enforceable.

Background

In July 2023, the Supreme Court handed down its landmark decision in PACCAR ^[1] holding that litigation funding agreements ("LFAs") typically used in UK collective proceedings (whereby funders are entitled to recover a percentage of damages recovered) were "damages-based agreements" ("DBAs"). In practice, the decision meant that most LFAs then in use were unenforceable as they did not comply with the Courts and Legal Services Act 1990 ("CLSA") and corresponding DBA regulations. 

In March 2024, the previous Government introduced draft legislation that would have reversed the effect of PACCAR, but the draft bill was ultimately relegated into political limbo due to the 2024 General Election.

In June 2025, the Civil Justice Council ("CJC") issued a report on litigation funding in England and Wales, recommending that PACCAR be reversed and that the Government introduce "light-touch regulation" for litigation funding. The Court of Appeal hearing took place just a few days after the publication of the CJC's recommendations.

The appeals

As set out in a previous blog post (link here), many litigation funders have responded to PACCAR by revising their LFAs so that their fees are calculated by reference to either the greater or lesser of:

• a multiple of costs provided to the class representative subject to a cap (whether express or implied) by reference to the total damages or some part thereof ("Capped Multiple of Costs"); or
• a percentage of the damages but only to the extent enforceable and permitted by law ("Contingent Percentage of Proceeds").

The Competition Appeal Tribunal ("CAT") in a series of decisions found that agreements which included such clauses were not DBAs and were therefore enforceable. In reaching these findings, the CAT certified various collective proceedings that were mostly brought on an opt-out basis.

The appellants brought a linked appeal relating to seven proceedings in which they were defendants.^[2] The appellants argued that LFAs which included the clauses were DBAs and were therefore unenforceable.^[3] The appeal focused on two forms of provision which had been added to the LFAs, arguing that:

• the introduction of a Capped Multiple of Costs provision meant that the amount payable to the funder was "to be determined by reference to the amount of financial benefit obtained" by the claimants, such that the LFAs were DBAs; and
• the contingent nature of the Contingent Percentage of Proceeds provision did not save the LFAs from being DBAs.

The decision

The Court of Appeal unanimously dismissed both arguments, concluding that the revised LFAs were not unenforceable (see full judgment here).

Capped Multiple of Costs

Sir Julian Flaux C (with whom Lord Justice Green and Lord Justice Birss agreed) commented that the "logical consequence" of the appellants' argument was that almost any LFA would be unenforceable. The appellants effectively argued that an express or even an implied cap on a funder's return by reference to the amount of proceeds or undistributed damages would make an LFA a DBA. Sir Julian Flaux observed that, as a matter of "practical reality", it is difficult to envisage scenarios where there would not be an implied cap by reference to damages "[s]ince the entire system of funding is predicated upon the return which the funder makes being paid out of damages". He added that litigation funding is required for the "entire landscape" of collective actions in the CAT. The Court clearly had in its mind the important role of litigation funding in opt-out class actions in the CAT and was concerned to ensure a result that did not undermine that role.

The Court accepted the respondent's arguments that the restriction in section 58AA(3)(a)(ii) CLSA focused on the primary contractual entitlement of the funder. Here, the primary contractual entitlement was the multiple of costs and not a percentage of damages and the mere fact that the multiple of costs was subject to an express or implied cap on the level of damages/proceeds recovered did not mean it was "determined by reference to the financial benefit obtained" and caught by the statute.

The Court also made the point that it would be an "absurd result" if an uncapped multiple of costs clause would be enforceable whereas a capped multiple of costs clause would be unenforceable. In the Court's view, the purpose of the cap is to protect the class representative and represented class by limiting the returns to the funders yet, on the appellant's argument, that cap would render the LFA unenforceable.

The Court also highlighted that Explanatory Notes and Memoranda from the passage of the CLSA and the DBA regulations referred to DBAs as agreements where the recovery is a percentage of the damages recovered, which further supported the view that Capped Multiple of Costs clauses were not DBAs.

Contingent Percentage of Proceeds

The Court accepted the respondent's argument that in the absence of a change in the law, such as the reversal of PACCAR, the Contingent Percentage of Proceeds provisions were of no contractual effect and did not engage the CLSA.

The Court rejected the appellant's interpretation of the clause (i.e., that even though it had no contractual effect, it satisfied the requirements of the CLSA, making the agreement an unenforceable DBA). It held that the clear intention of the parties to the LFAs was to avoid having to enter into a new LFA if PACCAR was reversed. Sir Julian Flaux added that even if the appellant's interpretation was viable, the Court should favour the interpretation which upheld the parties' intentions (over one which made the agreement unenforceable).

Finally, the Court dismissed the appellant's arguments regarding public policy (which lacked evidence) and concerns about the clauses giving rise to elevated risks of conflict of interest between the funder and class representative (which were held to lack merit given the various safeguards within the CAT collective proceedings legal framework).

What next?

It remains to be seen whether this decision will be appealed to the Supreme Court but, if it is not, the proceedings will continue to progress in the CAT.

More generally, litigation funders will welcome this decision, which provides some clarity as to the forms of LFAs that are currently enforceable and enables parties to include provisions in LFAs which contemplate a change to the current legal landscape, in particular, the reversal of PACCAR.

Further changes to the current legal landscape may follow when the Government responds to the recent CJC review on litigation funding, which the Court acknowledged early in its judgment but did not comment on. For more on the CJC report, see our blog (link here).

For now, the funding industry will be relieved that Sir Julian Flaux has tidied up what he described during the hearing as a "right royal mess" but, with the possibility of a Supreme Court challenge and further legislative reform on the horizon, this story may not yet have run its course.

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[1] R (on the application of PACCAR Inc and others) v Competition Appeal Tribunal and others [2023] UKSC 28.

[2] The seven linked appeals were: (1) Alex Neill Class Representative Ltd (claimant/respondents) v Sony Interactive Entertainment Europe Ltd & anr (defendants/appellants) ; (2) Apple Inc. & Apple Distribution International Ltd (defendants/appellants) v Kent (class representative/respondent); (3) Visa Inc & ors (defendants/appellants) v Commercial & Interregional Card Claims II Ltd (applicant/respondent); (4) Commercial & Interregional Card Claims I Ltd (applicant/respondent) v Visa Inc & ors (defendants/appellants; (5) Commercial & Interregional Card Claims I Ltd (applicant/respondent) v Mastercard & ors (defendants/appellants); (6) Commercial & Interregional Card Claims II Ltd (applicant/respondent) v Mastercard & ors (defendants/appellants); (7) Gutmann (respondent) v Apple Inc & ors (appellants).

[3] For completeness, the Court of Appeal also considered one further issue relating to severability. The Court of Appeal ultimately did not decide this issue as it was not necessary to determine the appeals.