Digital Markets, Competition and Consumers Bill

Lord Sandhurst Excerpts

2nd reading
Tuesday 5th December 2023 Lords Chamber

[Lord Sandhurst (Con)]

My Lords, I welcome the aspiration of this Bill, in particular its stated intent to

“make provision relating to the protection of consumer rights and to confer further such rights; and for connected purposes”.

The focus of my speech today is narrow. It is addressed at only one topic and one clause, namely Clause 126. After Second Reading, it is my intention to move an amendment which goes further than the provisions of that clause, and I have given notice of that to the Government. This is about achieving effective access to the courts, which is of real importance to consumers and businesses, who have to fight large entities to recover just compensation. Let me explain.

As the Explanatory Notes tell us, Clause 126 was introduced by the Secretary of State to overturn with retrospective effect a decision of the Supreme Court handed down on 26 July of this year in cartel litigation known colloquially as PACCAR. The effect of the Supreme Court’s decision is to render unenforceable third-party litigation funding agreements, which I shall refer to hereafter as LFAs. Clause 126 makes a start at putting this right, but it should and could go further, which is what my amendment will be aimed at. The Supreme Court rendered unenforceable these third-party litigation funding agreements, which are entered into by claimants with third-party funders who finance litigation in return for the right to recover payment, often set as a percentage of the damages recovered. Such third-party funders have no say in the litigation and are ring-fenced from tainting its management. The lawyers are paid, win or lose, by the funder, and so can take a detached view when advising their clients.

Contrary to the views of most who practise in this area, and indeed the view of the Competition Appeal Tribunal—CAT—and later the Divisional Court, the Supreme Court in PACCAR held that if an LFA is to be enforceable by the funder, it must comply with the Damages-Based Agreements Regulations 2013. These regulations were introduced to regulate contingent fee agreements between claimants and their lawyers providing litigation services, not funding arrangements with third-party funders.

Unfortunately, it is quite clear now that almost all, if not all, current LFAs do not comply with the regulations. So, they are, and will be, unenforceable unless something is done about it. That is because the funders, and indeed most lawyers, considered that simply to provide funding was not to provide claims management services and did not bring them within the regulations. The Supreme Court, however, determined otherwise—for reasons I need not explain but would not challenge. That has serious ramifications for existing and future claims. The 2013 regulations were not drafted with LFAs in mind; lawyers were the target, not funders. So, it is hard, if not impossible, I am told, to structure compliant LFAs for use between a funder and client. This Bill offers an excellent opportunity to put things right, but so far it does not go anything like far enough.

Correction is necessary because an essential element, as we all know, of encouraging competition and a free market is to ensure that consumers, SMEs and other businesses have effective means to challenge and obtain redress from cartels and others that abuse dominant positions. That requires effective access to justice, particularly, but not always, in the CAT. Indeed, on 3 November 2014, the then Parliamentary Under-Secretary of State, my noble friend Lady Neville-Rolfe, said in this House in Committee on the Consumer Rights Bill something that demonstrates that the Government favoured LFAs over damages-based agreements. She said that

“there is a need for claimants to have the option of accessing third-party funding so as to allow those who do not have a large reserve of funds or those who cannot persuade a law firm to act pro bono to be able to bring a collective action case in order to ensure redress for consumers. Blocking access to such funding would result in a collective actions regime that is less effective”.

She added:

“Restricting finance could also create a regime which was only accessible to large businesses. This would weaken private enforcement in competition law, which is of course not the Government’s wish or intention”.—[Official Report, 3/11/14; col. GC583.]


That was what was said in 2014, and that is what is clearly stated in the Long Title to this Bill. The Government supported the use of such litigation funding agreements in the sort of litigation that we are concerned with in this Bill.

Competition law cases such as Mastercard or the claims against Google are obvious examples. The group actions in such cases are plainly necessary if consumers are to have effective access to justice and giant organisations are to be made to behave themselves. But group actions also have to be brought in the High Court, not just in the CAT. They have to be brought in respect of matters in the High Court which do not meet the criteria for an action in the CAT. These are necessary for individuals to obtain redress where a powerful entity has caused damage to those who, again, cannot individually contemplate litigation. A claim against a car company cheating on diesel emissions is a classic example, but it need not be the only example. Claimants’ rights as consumers are plainly involved. Group litigation is their only practical means and they have to be funded by third-party funders.

Bringing this speech to a conclusion: the key issue is that the Supreme Court’s PACCAR ruling affects LFAs in all courts, not just in the CAT, and not just, as this Clause 126 is designed to address, in so-called opt-out cases. You need it for opt-in cases as well.

In fact, such funded cases throughout the court system, particularly in the High Court, make up the majority of cases that litigation funding supports. I am told that CAT cases are just the tip of the iceberg. While the current Clause 126 goes a little way, it will put matters right for so-called opt-out cases, but will not help in opt-in cases, nor in conventional bi-party litigation—one large against one small. The small company fighting Apple will, effectively, not be able to go to a funder. Worse still, in the High Court—outside the CAT—in, for example, drug damages litigation, or the diesel exhaust emissions litigation to which I referred, the current Clause 126 will achieve nothing. Claimants will have no effective access to litigation funding agreements and many cases already in the pipeline face considerable problems.

It is necessary, therefore, to restore what I would say was the Government’s original 2013-14 intention, which was for litigation funding agreements not to be subject to the damages-based agreement regulations.

Clause 126 needs to be redrafted and expanded or it will not meet these important issues. This is critical to provide certainty and effective access to justice, and to protect and expand consumer rights: the Bill’s stated aim. I have provided a draft to the Minister and will be happy to engage with him and his team.

Digital Markets, Competition and Consumers Bill

Lord Sandhurst Excerpts

Committee stage
Wednesday 31st January 2024 Grand Committee

Moved by

[Lord Sandhurst]

88: Clause 126, page 79, line 15, at end insert—
“(1A) In section 47C of the Competition Act 1998 (collective proceedings: damages and costs), after subsection (5) insert—“(5A) An agreement under which—(a) the funder agrees to provide financial services or assistance in relation to—(i) the provision of advocacy services or litigation services, or(ii) costs that the funded party is ordered by a court or tribunal or in arbitration proceedings, or is otherwise legally obliged, to pay to any other party in relation to litigation; and(b) the recipient of financial services or assistance agrees to make a payment to the funder in specified circumstancesis not a damages-based agreement.”(1B) Where, before the passing of this Act, a person has entered into an agreement covered by section 47C(5A) of the Competition Act (inserted by this subsection (1A)), that agreement is not rendered unenforceable (or deemed to have been rendered unenforceable) by virtue of section 58AA(2) of the Courts and Legal Services Act 1990 and the amendment made by subsection (3) of that section is treated as having always had effect.”Member's explanatory statement
In response to the decision of the Supreme Court judgment in R (PACCAR Inc) v Competition Tribunal [2023] UKSC to ensure that third party litigation funding agreements in respect of proceedings in the Competition Tribunal will (with retrospective effect) not be unenforceable in competition and consumer law, so such agreements will be treated as never having been subject to restriction.

[Lord Sandhurst (Con)]

My Lords, my Amendments 88 and 89 are of real practical importance to injured citizens, to consumers and to businesses which have to fight large entities to recover just compensation. Clause 126 was introduced at a relatively late stage in the other place to overturn, with retrospective effect, at least some, albeit only a small part, of the damage done by a decision of the Supreme Court in July of last year in cartel litigation known colloquially as PACCAR. Clause 126 is inadequate: it does nothing like enough to overturn the damage which has been done. That decision rendered unenforceable third-party litigation funding agreements entered into by claimants with third-party funders who underwrite litigation. It did so in a way that surprised most who practise in this area, including many judges, including in the Court of Appeal.

The Supreme Court in PACCAR held—this is the important point—that if a litigation funding agreement is to be enforceable by the funder, it must, in terms, comply with the damages-based agreement regulations. Those regulations were not designed for and do not fit litigation funding agreements. There are no, or few, litigation funding agreements drafted to meet the regulations, so they are not valid, and it is difficult to draft one that would be valid. That has serious ramifications for existing and future claims, because there is no civil legal aid. The court’s decision means—this is very apposite—that the Horizon sub-postmasters would not have obtained funding: it would have been unlawful.

There are other examples: equal pay cases, including a current third-party funded case seeking to enforce the equal pay rights of over 100,000 women; SMEs, such as those affected by unlawful interchange fees imposed by Visa and Mastercard; the PACCAR case, which, I understand, involves 17,000 often small hauliers seeking compensation in truck cartel litigation for over- charging—excessive pricing—by the truck manufacturers; the Volkswagen NOx emissions group litigation, which secured nearly €200 million compensation for United Kingdom consumers and which began outside the CAT; sports injury claims, such as those in the High Court by 300 rugby players seeking compensation for the impact of head trauma; and financial mis-selling claims, such as mortgage and personal pension mis-selling or pension transfer claims and secret commissions claims. All these are now without funding.

I think we all believe that our citizens having access to justice is an essential component of a democratic society. It is important to get redress for injury and to believe that you at least have a chance of going to court to seek redress. You may lose, in which case you pay the costs. In the case of funders, they have to pay the costs for the cases they underwrite which fail. An essential element of encouraging competition and a free market is to ensure that consumers and SMEs have effective access to challenge and obtain redress from cartels and others that abuse dominant positions. Both require access to justice, which must be effective—particularly, but not always, in the CAT.

There are two types of representative action with the CAT: so-called opt-out and opt-in. Opt-out cases account for the vast majority and include high-profile examples such as the MasterCard and PlayStation cases. I understand that there is one example of an opt-in case currently in the CAT, which is the PACCAR litigation involving the hauliers. Although the current Clause 126 will put matters right for opt-out cases only, it will not help the opt-in cases in the CAT, nor will it address conventional bi-party litigation in the CAT, where a small company has to go to a funder to get support to bring action for redress against abuse by a large multinational. Worse still, as I outlined earlier, outside the CAT—that is, in the High Court—the current Clause 126 will be of no effect: it will do nothing at all, so many claimants will have no effective access to litigation funding. Group litigation is their only practicable means. I respectfully suggest that this is not an undue litigation culture, and I hope we will not hear that terminology in this context. The key issue is that the PACCAR ruling affects litigation funding in all courts, not just the CAT, and it is claimants’ only means of bringing such cases.

My Amendment 88 would restore legitimacy in the CAT to funding arrangements in opt-in proceedings and two-party actions, and Amendment 89 would restore legitimacy for consumer and competition cases outside the CAT, but only in those categories. It will not do anything, for example, for the sub-postmasters, rugby players, equal pay cases and many other types of legitimate group action. There will be no access to justice for them as matters stand. They remain in the cold because my much wider original amendment was ruled out of scope—I do not criticise the clerks. I anticipate that the noble and learned Lord, Lord Thomas of Cwmgiedd, will address noble Lords on that.

Finally, Amendment 89A by the noble Lord, Lord Hodgson, is sensible—I see no problem with regulation—but there is not much to regulate at the moment. We have to go further down the road and start with getting funding arrangements back on track. Regulation can follow swiftly. People have looked at this; I think a working party is looking at it at the moment.

I understand that the noble Lord, Lord Arbuthnot, who is here, supports my amendments but will not waste our time, if that is the right word—I mean no disrespect—by repeating what I have had to say. I beg to move.

--- Later in debate ---

[Lord Offord of Garvel (Con)]

I turn first to litigation funding and Amendments 88 and 89. I thank my noble friend Lord Sandhurst and the noble and learned Lord, Lord Thomas of Cwmgiedd, for their passionate and eloquent contributions on this important issue, both in this Room and outside.

On Amendments 88 and 89, tabled by my noble friend Lord Sandhurst, I thank him for tabling these two amendments and for giving Members the opportunity to discuss this important issue. It has offered the unique opportunity to hear from a number of noble Lords with unparalleled expertise on the UK’s legal system. As my noble friend outlined, these amendments would reverse the effect of the Supreme Court judgment in PACCAR for competition and consumer claims. This would remove the requirement for litigation finance agreements in these cases to comply with the damages-based agreements regulations.

To be clear, it is government policy to return to the pre-PACCAR position at the earliest legislative opportunity. We are committed to delivering that reversal for all the reasons that noble Lords rightly highlighted, there perhaps being no better example of the benefit of litigation funding than the case of the postmasters impacted by the Horizon scandal. That is why the Government acted within weeks of the Supreme Court’s judgment to mitigate its impact on live collective actions before the CAT.

I and my ministerial colleagues at the Ministry of Justice have been pleased to receive my noble friend’s representations regarding his amendments and the Government’s position on PACCAR. I recognise the efforts that he and colleagues have made, working within the scope of the Bill, to return proceedings in front of the CAT to their pre-PACCAR condition. However, any action taken through the Bill must be aligned with the Government’s intention to return to the pre-PACCAR position across the whole of the justice system, as publicly set out by the Lord Chancellor. I assure noble Lords that we and our colleagues in the Ministry of Justice are examining this matter urgently and considering the best possible way to achieve this objective. In the meantime, I ask my noble friend not to press his amendments, with the assurance that the Government will continue to work closely with him, ahead of Report, to identify opportunities to address his laudable concerns, within the scope of the Bill or elsewhere.

I turn to Amendment 89A on a review of the litigation funding industry, I thank my noble friend Lord Hodgson of Astley Abbotts for tabling this amendment and for his contribution to the debate in this Committee on this important issue. My noble friend raises some important considerations about the litigation funding sector. Ensuring that access to justice is maintained and properly managed is a critical issue, and I welcome this debate.

As my noble friend outlined, this amendment would require the Secretary of State to conduct a review of the application of litigation funding arrangements to competition and consumer law matters. My noble friend’s amendment sets out the factors that he believes such a review should consider. To be clear, although there has been much debate about litigation funding during the passage of the Bill, responsibility for litigation funding remains a matter for the Ministry of Justice. Although I appreciate the limited remit of this amendment, it is right that any review considers the application of litigation funding across the entire justice system.

On competition matters, I note that the CAT rules and guide to proceedings provide for significant scrutiny of funding agreements in collective proceedings, which are looked at as part of the tribunal’s consideration of whether it is just and reasonable for a person to act as a class representative. The CAT has also extensively considered the application of these rules, including in the light of the PACCAR ruling. Although this is not a matter for my department, I assure my noble friend that the Government are already considering options for a wider review of the litigation funding market and its regulation. The Civil Justice Council may be asked to undertake such a review, given the need to ensure access to justice and the attractiveness of the jurisdiction. Given its independence, it may be unhelpful to specify the scope and timing of such a review at this stage. However, I expect colleagues from the justice department to update this House once that review is agreed. To that end, I thank my noble friend Lord Hodgson and hope that he is sufficiently reassured not to move the amendment.

[Lord Sandhurst (Con)]

My Lords, I am very grateful for the words of my noble friend the Minister. I should perhaps say this in respect of what my noble friend Lord Hodgson had to say: I accepted at the beginning that it is time now for regulation. Funding has been around since at least 2003 and I know, because I acted as leading counsel—I have no interest now—for funders in the case of Arkin. It was, in effect, a failed competition case, and the question was whether it was lawful and so on. To cut a long story short, the Court of Appeal said that the agreement was perfectly lawful; the case having been lost, it ordered the funders to pay the defendant’s costs up to but not exceeding the amount that they had underwritten—a cap, known as the Arkin cap. It is not always followed, but that is the general rule. It may well be that it is time for a review.

I remind the Committee of something that I drew attention to in my Second Reading speech, namely the statement by the then Parliamentary Under-Secretary of State, my noble friend Lady Neville-Rolfe, in Committee on the Consumer Rights Bill on 3 November 2014. In respect of legal litigation funding agreements, as opposed to damages-based agreements, she said that

“there is a need for claimants to have the option of accessing third-party funding so as to allow those who do not have a large reserve of funds or those who cannot persuade a law firm to act pro bono to be able to bring a collective action case in order to ensure redress for consumers. Blocking access to such funding would result in a collective actions regime that is less effective … Restricting finance could also create a regime which was only accessible to large businesses. This would weaken private enforcement in competition law, which is of course not the Government’s wish or intention”.—[Official Report, 3/11/14; col. GC 583.]

I think that is enough said, in the light of my noble friend the Minister’s observations about my noble friend’s Amendment 89A. I am very grateful for what has been said by the Minister about my amendments. I say only this: something will have to be delivered by the time we get to Report, or it will be a very interesting day out in the main Chamber. I beg leave to withdraw my amendment.

Amendment 88 withdrawn.