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.