The Court of Appeal has delivered a boost to the UK litigation funding industry by approving litigation funding agreements (LFAs) set up to comply with the Supreme Court’s 2023 PACCAR ruling, which rendered traditional LFAs unenforceable.

In Commercial and Interregional Card Claims Ltd v Mastercard and others, the court dismissed an appeal by Sony, Visa, Mastercard and Apple challenging the validity of LFAs based on a multiple of the funding provided, subject to an express or implied cap based on any damages awards.

LFAs calculated in this way had been approved by the Competition Appeal Tribunal (CAT) in the aftermath of the PACCAR judgment as an alternative to LFAs calculated as a percentage of the damages – the traditional method the Supreme Court deemed to be damages-based agreements (DBAs), which are not permitted in collective proceedings before the CAT.

Sir Julian Flaux, Chancellor of the High Court, wrote in the judgment: “DBAs are agreements under which the representative’s fees are calculated or determined as a percentage of the damages recovered and an LFA under which the funder’s fee is calculated as a multiple of its outlay is not a DBA.”

He added: “The fact that the source of the fee paid is the damages does not turn it into a DBA, nor does the fact that there is an upper limit or cap on the funder’s fee recoverable by reference to the amount of damages recovered. The fee is still calculated or determined by reference to the amount of funding provided.”

Dorothea Antzoulatos, founder and director of Charles Lyndon, one of the four firms acting for the respondents, wrote on LinkedIn: “This is a great result and will bring certainty to funders who can be confident that, even after PACCAR, their LFAs are enforceable.”

The judgment, notable for its speed of delivery following a two-day hearing from 10-11 June, also found that clauses allowing for percentage-based returns if the law changes did not invalidate agreements and that percentage provisions “gave rise to an elevated risk of a conflict of interest between the funder and the class representative” given “safeguards within the legal framework”.

Writing on LinkedIn, Emma Carr, a disputes partner at Gowling WLG, described the judgment as “a clear and emphatic boost for funders, class reps and the UK’s collective regress regime”.

Last month, the Civil Justice Council’s (CJC’s) eagerly awaited report on litigation funding recommended that legislation should be enacted “as soon as possible” to reverse the impact of PACCAR.

The CJC also proposed a series of measures to introduce a “light touch” regulatory regime for litigation funders.

The other respondent firms were Harcus Parker, Milberg London and Hausfeld. The appellants’ advisers were Linklaters (Sony), Linklaters and Milbank (Visa), Freshfields (Mastercard) and Gibson, Dunn & Crutcher and Covington & Burling (Apple).