The government has introduced a proposed change to the Digital Markets, Competition and Consumers Bill. This change would permit the use of damages-based agreements (DBAs) with litigation funders in opt-out collective proceedings in the Competition Appeal Tribunal (CAT). However, DBAs with solicitors and barristers would still remain prohibited for such actions.
This amendment has come about in response to the prominent ruling in the Paccar case in July, which we discussed in a previous blog post. The Supreme Court determined that litigation funding agreements, where the funder receives a portion of the damages, are classified as DBAs according to the legislation that governs such agreements. Therefore, these agreements must comply with the relevant regulatory framework, particularly the 2013 DBA Regulations, to be legally binding. Following the decision, the government promptly declared that it was exploring all available options to provide clarity to all parties involved. It was commonly understood that litigation funders were advocating for legislative changes to be made.
Decisions made by the Competition and Markets Authority (CMA) and UK sectoral regulators with competition powers carry legal weight and are binding on the CAT and the High Court. Consequently, if a claimant initiates a follow-on collective action based on a decision made by the CMA or a relevant sectoral regulator, it is not required to prove that the defendant has breached competition law; it must only demonstrate that it has suffered financial loss as a result of the infringement.
In addition, high court and CAT are also bound by EC infringement decisions made prior to the end of the Brexit transition period or after the transition period in cases where competence is continued. However, EC decisions and rulings from European courts regarding investigations initiated post-Brexit do not hold binding force on the High Court or the CAT. Nevertheless, these decisions may be taken into consideration during case proceedings and are likely to carry substantial evidentiary weight.
Most challenges related to the authorization condition have mainly focused on alleged deficiencies in the proposed funding arrangements of the Public Contracts Regulations (PCR). However, no respondent has been successful in persuading the Competition Appeal Tribunal (CAT) to deny certification based on this matter. Several respondents have attempted to argue that the adverse costs cover of the PCR may be inadequate, but the CAT has consistently been unwilling to hinder the progress of Compensation Purchase Orders (CPOs) on this ground. Even in cases where funding challenges have been successful, the CAT has given PCRs the opportunity to amend their funding arrangements to rectify any identified flaws. Considering the potential costs involved, it is possible that respondents will be less inclined to bring funding challenges in the future.
It is anticipated that the Supreme Court will provide further guidance on funding issues in an ongoing appeal. This appeal pertains to the two CPO applications in the Trucks case and asserts that the funding arrangements of the PCRs are essentially “damages-based agreements” that do not comply with the relevant regulatory requirements.
Mandatory redress schemes are currently unavailable, but there have been new regulations introduced under the Consumer Rights Act 2015 that allow for the approval of voluntary redress schemes by the CMA. Through these schemes, individuals affected by a breach of competition law established by the CMA, EC, or other competition regulators in specific sectors can receive compensation without having to engage in legal proceedings. In exchange, businesses that offer these schemes can receive a reduction of up to 20 percent in fines imposed by the relevant authority for competition law violations. However, it is worth noting that there has been a lack of significant participation in the voluntary redress process thus far.
Reference : https://www.lexology.com/library/detail.aspx?g=04942884-b050-4c45-90da-a167c2bd503f
Submitted by : Jagriti Tiwari, First year legal intern at Legal Vidhya
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