The Enforceability of Funding Arrangements after PACCAR

The Judgment of the Supreme Court in R (on the application of PACCAR Inc and others) v Competition Appeal Tribunal and others1PACCAR”) provoked litigation funders and class action claimants (amongst others) to reconsider whether their funding arrangements were enforceable. The recent judgment of the Competition Appeal Tribunal (“CAT”) in Commercial and Interregional Card Claims I & II v Mastercard and Visa on the enforceability of funding arrangements, sheds more light on the CAT’s approach in determining whether a litigation funding arrangement is enforceable for the purposes of collective proceedings post PACCAR.

Harcus Parker represents Commercial and Interregional Card Claims I & II at the Competition Appeal Tribunal.


The Judgment of the Supreme Court in R (on the application of PACCAR Inc and others) v Competition Appeal Tribunal and others1(“PACCAR”) provoked litigation funders and class action claimants (amongst others) to reconsider whether their funding arrangements were enforceable. Since PACCAR, the Competition Appeal Tribunal (“CAT”) has delivered two judgments on the enforceability of funding agreements: Alex Neill v Sony PlayStation2 and, more recently,  the Commercial and Interregional Card Claims I & II v Mastercard and Visa3 (“CICC Claim”) both dealing with the question of enforceability of revised funding arrangements in light of PACCAR, that a funder’s entitlement to a percentage of the damages awarded from funded litigation amounted to a Damages Based Agreement (“DBA”) in violation of Section 58 AA of the Courts and Legal Services Act 1990 and consequently, unenforceable. 

The Recent Judgment in CICC I & II v Mastercard and Visa

The CICC Claim comprises opt-in and opt-out collective proceedings against Mastercard and Visa alleging that interchange fees for payment on card transactions charged to merchants were unlawful. From a funding perspective, the CICC Claim had two major funding agreements, the opt-in funding agreement and the opt-out funding agreement for each of Mastercard and Visa. Following PACCAR, the CICC Claimants amended and restated  the Litigation Funding Agreements (“LFA”)  in order to align with the post-PACCAR funding environment, due to enforceability challenges raised by Mastercard and Visa. In the amended and restated LFAs, the funder’s fee percentage referenced in the various agreements was modified to be a multiple of the funder’s capital outlay to avoid the possibility that the funding agreements would be deemed as DBAs. 

Notwithstanding the modifications, the Proposed Defendants in the CICC Claim – Mastercard and Visa – continued to challenge the enforceability of the PCRs’ revised funding agreements, culminating in a hearing before the CAT. On 17 January 2024, the Tribunal delivered its judgment ( the “Funding Judgment”).

Relevant Provisions

Section 58AA (3) of the Court and Legal Services Act states:

(3) For the purposes of this section—

(a) a damages-based agreement is an agreement between a person providing advocacy services, litigation services or claims management services and the recipient of those services which provides that—

  1. the recipient is to make a payment to the person providing the services if the recipient obtains a specified financial benefit in connection with the matter in relation to which the services are provided, and
  2. amount of that payment is to be determined by reference to the amount of the financial benefit obtained;

The Funding hearing 

The Tribunal considered and heard arguments on the enforceability of each of the opt-in and opt-out agreements. Concerning the opt-out agreement, Mastercard and Visa argued two significant points:

(a)     Proceeds from recoveries point4: Mastercard and Visa argued that the amended opt-out LFA, notwithstanding modifications from a percentage based payment to a multiple of the funder’s capital outlay, was still a DBA, as they stressed that payment to the funder of any amount of the proceeds recovered by the PCRs, is a “payment out of recoveries”, which was sufficient to characterise the LFA as a DBA. 

(b)       Cap on funder’s fee point5: Secondly, Mastercard and Visa argued that the amount payable to the funder was capped, either by the proceeds recovered or some subset of the proceeds, which meant that the amount payable was therefore determined by reference to the proceeds, which fell within the scope of section 58AA(3).

In relation to the opt-in LFA, Mastercard and Visa also argued:

(c)    Contingency Arrangement for the Opt-In Claim6: that it was impermissible for the opt-in funding agreement to provide for alternative arrangements that would become enforceable should those arrangements be authorised by legislation or a further decision of the Courts. This argument was founded on the fact that although the PCRs revised the opt-in LFA to be in the form of a multiple of the funder’s capital outlay, the PCRs retained the percentage of damages arrangement that would come into force only if legislation reversed PACCAR, to permit a percentage component. 

Tribunal Determination of the Issues 

Proceeds of recoveries

The Tribunal noted that it was an obvious point from the arguments in (a) and (b) above that PACCAR did not assist materially in how to decide whether the amount of a payment to a litigation funder calculated other than on a percentage basis was determined by reference to the amount of proceeds received by the funded party. Accordingly, PACCAR was not used as a road-map to navigate the complexities presented on the funding issues before the Tribunal. 

To that extent, on the proceeds point, the Tribunal considered that the crux of Mastercard and Visa’s arguments was this: “all that was necessary to engage section 58AA was whether the payment to a funder is “for a share of recoveries” or “out of recoveries” obtained by a PCR”7. Impliedly, this argument meant that, provided payment to the funder came out of the damages awarded to a PCR, the provisions of 58AA(3) were triggered, which inevitably would extend to every situation where there was some connection between the funder’s fee and the damages recovered. The Tribunal rejected Mastercard and Visa’s argument as: “inconsistent with the plain words of the legislation and contrary to common sense.”8 It stated that the test set out in section 58AA(3)(ii) required an assessment of the nature of the connection between the calculation of the funder’s fee and the proceeds of the litigation rather than a blanket assertion of unenforceability based on any connection between a funder’s fee and damages recovered.

Cap on funder’s fee

The CICC Claim funding arrangements for the opt-out and the opt-in proceedings contained express provisions capping the funder’s fee at the amount available for distribution as awarded by the Tribunal. The commercial purpose of these provisions was to ensure that the PCRs would not be liable to the funder for amounts beyond the amount of damages and costs recovered by the PCRs, thereby limiting the PCRs’ potential exposure. However, Mastercard and Visa argued that the cap on the funder’s fee meant that the funder’s fee was “determined by reference to” the damages recovered, as set out in section 58AA(3)(ii) and, consequently, unenforceable. The Tribunal, however, considered this seemed a somewhat arbitrary result for the LFAs to be DBAs because of an express provision put in to protect the PCRs about a cap on the funding obligations. Again, the Tribunal emphasized the need to approach the assessment of funding arrangements according to section 58AA(3) on a more holistic, common sense basis9, as opposed to the approach Mastercard and Visa had taken. 

Determined by vs Reference to – financial benefit obtained

In explaining this point, the Tribunal distinguished between a factor that might influence the funder’s fee and one that is determinative in the sense of being the substantive mechanism by which the funder’s fee is arrived at. In other words, the Tribunal explained that it was necessary to form a view about the nature of the contractual arrangements and what can be said to be the natural and substantive basis on which the funder’s fee is determined. In the Tribunal’s reasoning,  this type of analysis must influence the debate on the enforceability of an LFA. The Tribunal explained that this type of exercise involved identifying particular factors and the closeness and quality of the causative connection between the factors and the funder’s return with a paramount consideration of what the actual commercial arrangement was and whether that commercial arrangement was calculated by reference to the proceeds recovered by the Claimants. On this basis, the Tribunal rejected the restrictive views on the provisions of Section 58AA(3) put forward by Mastercard and Visa, with the Tribunal observing that there was potential danger in taking too narrow an approach to the assessment of an LFA by an over- forensic analysis of the causative effect of any particular factor that might affect the amount of the funder’s fee.

In dealing with the point about reference to – as opposed to determined by – the Tribunal stated that the words: “the amount of that payment is to be determined by reference to the amount of the financial benefit obtained” naturally anticipated the application of common sense and a focus on the real substance of the arrangements in question and not a narrow or focused read10. The Tribunal affirmed the PCRs’ argument that both the amended and restated opt-in LFA and opt-out LFA were firmly and primarily based on a determination of the funder’s fee by reference to a multiple of outlay by the funder (or insurer) and not by reference to sharing in a percentage or other proportion of the amount of financial benefit received and the fact that reference to other factors (apart from the multiple calculation) might affect the actual fee in certain circumstances did not change that analysis11.

Contingency arrangements

As noted above, the PCRs retained as contingent provisions, the original percentage of damages approach to recovery of the funder’s fee in the opt-in LFA. This allows for a situation where there was a parliamentary (or other) reversal of the PACCAR decision12. Mastercard and Visa argued against this approach based on public policy considerations without stating how such an alternative funding arrangement, premised on the coming into force of legislation endorsing its legality, might affect the enforceability of funding for the proposed collective proceedings.

The Tribunal rejected Mastercard and Visa’s arguments and stated that such contractual provisions created a contingency that would have effect only if Parliament were in terms to permit funding arrangements of that sort to be enforceable i.e. percentage-based payment to the funder13. The Tribunal noted that Section 58AA would not be the relevant provision in this regard because it would not apply to make the provisions unenforceable as the premise of the contingency was that Section 58AA no longer operated to that effect owing to parliamentary intervention.


The Tribunal rejected all of Mastercard and Visa’s arguments against the enforceability of the PCRs’ funding arrangements. Following PACCAR, the funding arrangements for large collective claims have been somewhat uncertain. The Funding Judgment of the Tribunal in the CICC Claim has emphasized (i) a focus on the substance of LFAs as opposed to a blanket assertion of unenforceability regardless of funding arrangements or structure; and (ii) a broad reading of the provisions of Section 58AA(3) to provide an expansive interpretation. This approach helps to reinforce the collective actions regime by allowing litigation funding – an essential component – to continue, without which, large claims against competition infringers would be impossible. It remains to be seen whether Mastercard and Visa will appeal against this judgment, as was the case in Alex Neill v Sony, and how the outcome of such appeals will affect the litigation funding industry.


Tom Ross, James Cockburn and Temi Alade 

 1 R (on the application of PACCAR Inc and others) v Competition Appeal Tribunal and others [2023] UKSC 28

 2 Alex Neill Class Representative Limited v Sony Interactive Entertainment Europe Limited and ors [2023] CAT 73

 3 Case Nos: 1441-1444/7/7/22

Pg 15 of the Funding Judgment 

 5 Pg 18 of the Funding Judgment

6 Pg 27 of the Funding Judgment 

7 Pg 17 para 46 of the Funding Judgment

8 Pg 18 para 50 of the Funding Judgment 

9 Pg 21 para 56 of the Funding Judgment 

10 Pg 22 para 63 of the Funding Judgment

11 Pg 24 para 67 of the Funding Judgment 

12 UK government vows to protect litigation funding that helped sub-postmasters, accessed 17 January 2024

13 Pg 26 para 73 of the Funding Judgment