LFAs/DBAs: Statutory Interpretation
The Supreme Court was called upon to determine the proper interpretation of a definition first used in one statutory context and then adopted and used in another context: PACCAR Inc & Ors, R (on the application of) v Competition Appeal Tribunal & Ors [2023] UKSC 28 (26 July 2023): Lord Reed P, Lord Sales, Lord Leggatt, Lord Stephens, Lady Rose
The specific issue for consideration was whether litigation funding agreements (LFAs) pursuant to which the funder was entitled to recover a percentage of any damages recovered constituted “damages based agreements” (DBAs) within the meaning of the relevant statutory scheme of regulation.
This depended on whether litigation funding fell within an express definition of “claims management services” in the applicable legislation, which included “the provision of financial services or assistance”.
The DBA issue arose in the context of applications to bring collective proceedings for breaches of competition law under section 49B of the Competition Act 1998.
The words used in section 4(2) and (3) of the Compensation Act 2006 to define “claims management services” read according to their natural meaning, were apt to cover the LFAs in the present case. The Court held that Part 2 of the 2006 Act was intended to provide a broad power to allow the Secretary of State to decide what targeted regulatory response might be required from time to time as information emerged about what was then a new and developing field of services seeking to encourage or facilitate litigation, where the business structures were opaque and poorly understood at the time of enactment.
There was good reason to think that Parliament used wide language in section 4 deliberately and with the intention that the words in the definition should be given their natural meaning.
The DBA regulations 2013 were not introduced broadly contemporaneously in combination with the 2006 Act as part of a single coherent scheme. They were not subject to review by the same Parliament which had enacted the 2006 Act. The reasoning which justified treating subordinate legislation as a permissible aid to interpretation of primary legislation in limited circumstances was not applicable.
By contrast, the Compensation (Regulated Claims Management Services) Order 2006 (the Scope Order) was broadly contemporaneous and formed part of the same legislative scheme as, and so was a legitimate aid to interpretation of, the Compensation Act 2006, as also was the Explanatory Memorandum which accompanied the Scope Order, each of which supported the interpretation of the definition of Damages Based Agreements for which the appellants contended.
The terms explicitly used in the definition in the primary legislation and also in the Scope Order could not be read as involving the management of claims, nor as having claims management as a unifying core of meaning.
Further, “claims management services” had no established and generally accepted meaning which could lead a reader of the text of section 4 to suppose that the express language of the definition was to be treated as qualified or coloured by that meaning.
To read the definition in section 4 in that way would be counter to the scheme and purpose of the Compensation Act 2006.
The majority did not consider that it could be said that the interpretation of section 4 of the 2006 Act produced any absurdity so far as the juxtaposition of that provision and section 58B was concerned.
Even if it were desirable in public policy terms that third party funding arrangements of the kind in issue should be available to support claimants to have access to justice (as to which the majority expressed no view) this was not a reason why there should be any departure from the conventional approach to statutory interpretation.
Lady Rose gave a dissenting judgment.