Stamping out PACCAR: Mr Bates, the Post Office, and funded arbitration

Litigation funders might soon be reaching for their signed photographs of Toby Jones, not because of his star turn as Dobby the house elf, but because his portrayal of Alan Bates in Mr Bates vs The Post Office sent the rank injustice suffered by Mr Bates and hundreds of others tearing into the Commons chamber last month. And one of the key reasons Mr Bates was able to pursue the claim that was dramatized is because of litigation funding.

It can be no coincidence that on 15 January 2024, the UK Government announced its intention to reverse PACCAR [2023] UKSC 28. What could this mean for third-party funded arbitration?

PACCAR

In PACCAR, the Supreme Court held that funding agreements entitling funders to a share of damages were a form of damages-based agreement (DBA) under the Courts and Legal Services Act 1990. That meant that the agreements must now meet certain statutory requirements: eg, a funder’s fee cannot exceed 50 per cent of the amount ultimately recovered by the recipient. This has, of course, sent waves of uncertainty through the funding market about funding terms and their enforceability.

PACCAR and arbitration

There remains some doubt as to whether PACCAR applies only to funding agreements in the context of court litigation, or whether it also extends to arbitration funding. Under the 1990 Act, a funding arrangement is only a DBA if it is for advocacy services, litigation services or claims management services. In PACCAR itself, the funding agreement was found to be a DBA on the basis that (among other things) it related to ‘claims management services.’

But it is not clear if arbitration funding is a ‘claims management service’ as it does not obviously relate to the making of a ‘claim.’ Arbitration is a contractual remedy. While the definitions of advocacy services and litigation services in the 1990 Act expressly include arbitration, and in fact to “any sort of proceedings for resolving disputes (and not just proceedings in a court)”, the definition of claims management services does not.

Moreover, while "advocacy services" and ‘litigation services’ extend to arbitration, they conversely do not expressly extend to third party financial assistance, such as litigation funding.

It may be, therefore, that PACCAR does not apply in the context of arbitration. Nevertheless, funders will (and should) remain cautious.

What next

As early as August 2023, the Government indicated it would look at the “available options” to bring clarity following the PACCAR judgment. In November, it tabled amendments to the Digital Markets and Consumers bill. However, this only lifted the prohibition on funding in opt-out litigation proceedings in the Competition Appeal Tribunal.

With the Post Office scandal moving the issue up the government’s agenda, and in light of the Justice Secretary’s comments in January, more radical change is likely to be on the horizon.

With thanks to Leo Salem, current trainee in the team, for their help in preparing this briefing.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, February 2024