A dispute arose over whether certain LFAs constitute “damages-based agreements” (DBAs), which must satisfy certain statutory conditions under the 1990 Courts and Legal Services Act and 2013 DBA Regulations in order to be lawful and enforceable. Both UKTC and RHA’s LFAs were entered into without satisfying these DBA conditions, which led to uncertainty over their enforceability.
In the case before the Supreme Court, whether the LFAs were classed as DBAs turned on whether they involved the provision of “claims management services”, as defined in the 2006 Compensation Act and 2000 Financial Services and Markets Act. Such services are defined as “advice or other services in relation to the making of a claim” and “other services” includes “the provision of financial services or assistance”.
The CAT ruled that the LFAs entered into by UKTC and RHA were not DBAs and were therefore enforceable because they did not involve the provision of claims management services. The Divisional Court dismissed an appeal launched by DAF Trucks N.V. and the other truck manufacturers, who then appealed under the ‘leap-frog procedure’ directly to the Supreme Court.
Handing down the court’s majority decision earlier this week, Lord Sales said that when the words “claims management services” in the Compensation Act were read according to their natural meaning, they were capable of covering the LFAs. The court allowed the appeal, ruling that the LFAs in question were unenforceable because they did not meet the statutory requirements for DBAs.
Gielas said the ruling would have important implications for the UK’s collective proceedings regime that applies to competition law cases. “At least to the extent that they provide for funders to take a share of any damages, existing LFAs for ‘opt-out’ competition collective damages proceedings are effectively rendered unenforceable by this judgment, because DBAs are expressly prohibited for such type of claim under section 47C(8) of the 1998 Competition Act. It remains to be seen if LFAs could be revised to escape the definition of a DBA, or whether there might be government intervention to amend the Competition Act regarding LFAs for opt-out claims,” he said.
Highlighting the potential ramifications of the Supreme Court ruling, Gielas said that nearly all competition law collective proceedings currently before the CAT are “opt-out” claims. “Moreover, all current “stand-alone” competition collective claims are opt-out claims. In stand-alone proceedings, the claimant must establish the competition law infringement from which the damages claim is said to arise, rather than simply “following-on” from an existing infringement decision of a competition authority.”
Gielas added: “Stand-alone opt-out claims are increasingly common, and are used to bring novel competition law issues before the CAT or in some instances to ‘leapfrog’ ongoing regulatory investigations. Such claims could now be curtailed unless a workaround to the legislative ban on DBAs is found”.