R (on the application of PACCAR Inc and others) (Appellants) v Competition Appeal Tribunal and others (Respondents)

LORD SALES (with whom Lord Reed, Lord Leggatt and Lord Stephens agree):

1. Introduction

1. The question which arises on this appeal is whether a form of arrangement for the financing of litigation by third party funders is lawful and effective. This depends on the interpretation of an express definition of a term as set out in a statute. The case concerns the proper interpretation of a definition first used in one statutory context and then adopted and used in another context.

1. It is necessary to consider the meaning of the definition in the first context. Lord Neuberger of Abbotsbury explained the proper approach in Williams v Central Bank of Nigeria [2014] AC 1189, at para 50:

   “Where a term in a later statute is defined by reference to a definition in an earlier statute, it seems to me self-evident that the meaning of the definition in the later statute must be the same as the meaning of the definition in the earlier statute. Hence, the meaning of the term in the later statute is determined by the definition in the earlier statute. Further, the adoption of the definition in the later statute cannot somehow alter the meaning of the definition in the earlier statute. It accordingly follows that one has to determine the meaning of the term in the later statute simply by construing the definition in the earlier statute.”

We also have to consider whether later legislation throws any light on the proper interpretation of the earlier legislation.

1. The specific issue for determination is whether litigation funding agreements (“LFAs”) pursuant to which the funder is entitled to recover a percentage of any damages recovered constitute “damages-based agreements” (“DBAs”) within the meaning of the relevant statutory scheme of regulation (“the DBA issue”). This depends on whether litigation funding falls within an express definition of “claims management services” in the applicable legislation, which includes “the provision of financial services or assistance”. If the LFAs at issue in these proceedings are DBAs within the meaning of the relevant legislation, they are unenforceable and unlawful since they did not comply with the formal requirements for such agreements.

1. The DBA issue arises in the context of applications to bring collective proceedings for breaches of competition law under section 49B of the Competition Act 1998. The second respondent (“UKTC”) and the third respondent (“the RHA”) each sought an order from the Competition Appeal Tribunal (“the Tribunal”) to enable them to bring collective proceedings on behalf of persons who acquired trucks from the appellants (collectively, “DAF”) and other truck manufacturers. The proposed proceedings take the form of follow-on proceedings in which compensation is sought for loss caused by an unlawful arrangement between DAF and other manufacturers in breach of European competition law, as found in an infringement decision by the European Commission dated 19 July 2016 (Case AT.39824 – Trucks). It is alleged that the prices paid for trucks were inflated as a result of the infringement.

1. The RHA’s application was for “opt-in” collective proceedings, whereby persons wishing to participate in any award would have to opt in to the class represented by the RHA. UKTC’s application was for “opt-out” proceedings, whereby an order would be made for it to represent a specified class of persons who would have the ability to opt out if they did not wish to be represented. UKTC made an application for opt-in proceedings in the alternative.

1. In order to obtain a collective proceedings order from the Tribunal, each of UKTC and the RHA needed to be able to show that it had adequate funding arrangements in place to meet its own costs and any adverse costs order made against it. For this purpose the RHA relied on an opt-in LFA and UKTC relied on an opt-in LFA and an opt-out LFA. The funders under the RHA LFA are entities which together I will call “Therium”. The funder under the UKTC LFAs is Yarcombe Ltd (“Yarcombe”). Under each LFA the funder’s maximum remuneration is calculated with reference to a percentage of the damages ultimately recovered in the litigation. UKTC and the RHA maintain that these LFAs do not constitute DBAs within the meaning of the relevant legislative provision, section 58AA of the Courts and Legal Services Act 1990 as amended in 2013 (“section 58AA” and “the CLSA 1990”, respectively), and accordingly are lawful and effective funding agreements.

1. The appellants, truck manufacturers who are defendants in the proceedings in the Tribunal, maintain that the LFAs in this case constitute DBAs within the meaning of section 58AA. On that basis, the appellants say the LFAs are unenforceable by virtue of section 58AA because they did not comply with formality requirements made applicable by that provision. If this is right, the practical consequence would be that there is no proper basis on which a collective proceedings order could be made by the Tribunal in favour of UKTC or the RHA. The arrangements which have to be in place to support the making of a collective proceedings order include provision for payment of any costs order made in favour of the defendants in the proposed proceedings, and it would not be fair to authorise collective proceedings against them without proper and enforceable funding in that regard. More fundamentally, if the funding arrangements are not enforceable there is no effective agreement in place pursuant to which the funders will provide the financing necessary for the claims to be brought at all.

1. The Tribunal (Roth J, Dr William Bishop and Professor Stephen Wilks) ordered that the DBA issue be determined as a preliminary issue to be heard together in both sets of proceedings. In determining that preliminary issue, the Tribunal ruled that the LFAs at issue are not DBAs within the meaning of section 58AA, and consequently found that they are lawful and enforceable funding arrangements such as could justify the making of collective proceedings orders in favour of UKTC and the RHA: [2019] CAT 26.

1. The appellants sought to appeal to the Court of Appeal, but also challenged the Tribunal’s ruling by way of judicial review in case the Court of Appeal did not have jurisdiction to entertain an appeal. A constitution of the Court of Appeal was convened (Henderson, Singh and Carr LJJ) which could also sit as a Divisional Court to hear the judicial review claim if necessary. The court decided that it had no jurisdiction to entertain an appeal: this is not an issue which arises in the present appeal to this court. Instead, they proceeded as a Divisional Court to grant permission for the appellants’ judicial review claim in relation to the DBA issue, which it then dismissed: [2021] EWCA Civ 299; [2021] 1 WLR 3648. The Divisional Court agreed with the Tribunal’s interpretation of section 58AA. Henderson LJ gave the sole substantive judgment, with which Singh and Carr LJJ agreed.

1. The appellants now appeal directly to this court against that determination of their judicial review claim under the leap-frog procedure set out in section 13 of the Administration of Justice Act 1969. The Association of Litigation Funders of England & Wales has intervened, with permission granted by this court, to make written submissions.

1. The common law was historically hostile to arrangements for third parties to finance litigation between others. According to the doctrines of champerty and maintenance, such arrangements were generally regarded as unenforceable as being contrary to public policy according to the test identified in British Cash and Parcel Conveyors Ltd v Lamson Store Service Co Ltd [1908] 1 KB 1006: see the discussion in Giles v Thompson [1994] 1 AC 142 and R (Factortame Ltd) v Secretary of State for Transport, Local Government and the Regions (No 8) [2003] QB 381 (“Factortame (No 8)”). But over the last 30 years there have been substantial changes to litigation funding in England and Wales. Legislation has been passed which has affected the courts’ assessment of the extent to which public policy supports the conclusion that particular funding arrangements are unenforceable: see Factortame (No 8). As Henderson LJ observed, funding of litigation by third parties is now a substantial industry which, although driven by commercial motives, is widely acknowledged to play a valuable role in furthering access to justice. The old common law restrictions on the enforceability of third party funding arrangements have been relaxed in various ways, with the result that this industry has developed.

1. In particular, the effectiveness of group litigation may depend on the use of third party funding, since such litigation often involves high numbers of claimants who have individually suffered only a small amount of loss, where the pursuit of claims on any other basis would be uncommercial. Third party funding arrangements based on the right of the funder to take a share of any compensation recovered in the proceedings have proved to be an attractive and effective model in other jurisdictions and claimants and third party funders have sought to adopt that model in proceedings in the United Kingdom.

1. Against this background, the implications of the issue in the appeal are significant. Section 58AA provides that where a third party litigation financing arrangement takes the form of a DBA it will be unenforceable unless certain conditions are complied with. Such conditions have not been complied with in relation to the arrangements entered into by UKTC and the RHA, nor is it usual for them to be met in relation to other cases where the third party funding arrangements are based on the funders sharing in the compensation which might be awarded. The assumption has been made that third party funding arrangements such as those in issue in these proceedings, which assign a passive role to the funders in relation to the conduct of the litigation, are not DBAs within the meaning of section 58AA, are not contrary to public policy, and so are enforceable as ordinary binding contractual arrangements. The court was told that if LFAs of this kind, whereby the third party funders play no active part in the conduct of the litigation but are remunerated by receiving a share of any compensation recovered by their client, are DBAs within the meaning of section 58AA, the likely consequence in practice would be that most third party litigation funding agreements would by virtue of that provision be unenforceable as the law currently stands.

1. The Relevant Statutory Provisions

1. The Compensation Act 2006

1. Although the appeal is concerned with section 58AA, it is necessary to go back to an earlier provision in the Compensation Act 2006 (“the 2006 Act”) which set out the definition of a DBA which section 58AA later incorporated and utilised. The 2006 Act received Royal Assent on 25 July 2006. As stated in its long title, the 2006 Act is an Act to make provision, among other things, for the regulation of claims management services. This it does in Part 2, which begins with section 4.

1. The relevant provisions in Part 2 were brought into force by orders made by the Secretary of State pursuant to section 16(1). Section 4(2), (3), (5) and (6) was brought into force on 1 December 2006 by the Compensation Act 2006 (Commencement No 1) Order 2006 (SI 2006/3005) and section 4(1) and (4) was brought into force on 23 April 2007 by the Compensation Act 2006 (Commencement No 3) Order 2007 (SI 2007/922).

1. Section 4(1) provides:

   1. A person may not provide regulated claims management services unless –

   1. he is an authorised person,

   1. he is an exempt person,

      1. the requirement for authorisation has been waived in relation to him in accordance with regulations under section 9, or

      1. he is an individual acting otherwise than in the course of a business.”

   “4 Provision of regulated claims management services

1. A claims management service is defined in section 4(2)(b) of the 2006 Act to mean “advice or other services in relation to the making of a claim”.

1. Section 4(3) of the 2006 Act provides:

   1. For the purposes of this section-

   1. a reference to the provision of services includes, in particular, a reference to-

   1. the provision of financial services or assistance,

      1. the provision of services by way of or in relation to legal representation,

      1. referring or introducing one person to another, and

   1. making inquiries, and

   1. a person does not provide claims management services by reason only of giving, or preparing to give, evidence (whether or not expert evidence).”

1. As is clear from section 4(1), the mere fact that a claims management service is provided does not attract the regulatory restrictions set out in that provision. They only apply in relation to regulated claims management services. Section 4(2)(e) provides that:

   1. of a kind prescribed by order of the Secretary of State, or (ii) provided in cases or circumstances of a kind prescribed by order of the Secretary of State.”

   “services are regulated if they are-

It is an important feature of the legislative scheme in the 2006 Act that it gives the Secretary of State power to choose which claims management services should be subject to regulation.

1. Section 6 of the 2006 Act also gives the Secretary of State power to exempt persons from the scope of regulation even if they provide regulated claims management services:

   1. The Secretary of State may by order provide that section 4(1) shall not prevent the provision of regulated claims management services by a person who is a member of a specified body.

   1. The Secretary of State may by order provide that section 4(1) shall not prevent the provision of regulated claims management services-

   1. by a specified person or class of person,

   1. in specified circumstances, or

      1. by a specified person or class of person in specified circumstances…”

   “6 Exemptions

1. By virtue of section 15 of the 2006 Act, before making an order for the purposes of section 4(2)(e) the Secretary of State is subject to a duty of consultation with the Competition and Markets Authority (or previously, until amendment in 2013, with the Office of Fair Trading) and such other persons as he thinks appropriate, and such an order has to be approved by each House of Parliament according to the positive resolution procedure. Also, the first order made under section 6 and any order thereafter which removes or restricts an exemption from section 4(1) have to be approved according to the same procedure; any other order under section 6 is subject to the negative resolution procedure.

1. Pursuant to sections 4(2)(e) and 15, on 12 December 2006 the Secretary of State made the Compensation (Regulated Claims Management Services) Order 2006 (SI 2006/3319) (“the Scope Order”). Article 4(1) provided that for the purposes of Part 2 of the 2006 Act services of a kind specified in article 4(2) are prescribed (so as to be regulated) if rendered in relation to claims described in article 4(3), including for example claims for personal injuries and claims in relation to employment. Article 4(2) specified the following kinds of service:

   1. advertising for, or otherwise seeking out (for example, by canvassing or direct marketing), persons who may have a cause of action;

   1. advising a claimant or potential claimant in relation to his claim or cause of action;

   1. subject to paragraph (4), referring details of a claim or claimant, or a cause of action or potential claimant, to another person, including a person having the right to conduct litigation;

   1. investigating, or commissioning the investigation of, the circumstances, merits or foundation of a claim, with a view to the use of the results in pursuing the claim;

   1. representation of a claimant (whether in writing or orally, and regardless of the tribunal, body or person to or before which or whom the representation is made).”

Article 4(4) provided that, despite article 4(2)(c), “the service of referring a claim’s or a claimant’s details to another person is not a regulated claims management service if it is not undertaken for or in expectation of a fee, gain or reward.”

1. The Financial Services and Markets Act 2000

1. As of 1 April 2019 responsibility for the regulation of claims management services was transferred from the Ministry of Justice to the Financial Conduct Authority pursuant to amendments to the Financial Services and Markets Act 2000 (“FSMA”), and the relevant provisions of the 2006 Act were repealed. Section 419A of FSMA defines claims management services in materially the same terms, as follows:

   1. In this Act ‘claims management services’ means advice or other services in relation to the making of a claim.

   1. In subsection (1) ‘other services’ includes –

   1. financial services or assistance,

   1. legal representation,

   1. referring or introducing one person to another, and

   1. making inquiries,

      but giving, or preparing to give, evidence (whether or not expert evidence) is not, by itself, a claims management service.”

   “419A Claims management services

1. As under the 2006 Act, provision of a claims management service is only a regulated activity if specified in an order made by the Treasury: section 22(1B) and (5) of FSMA. Where the effect of such an order is that “an activity which is not a regulated activity would become a regulated activity”, the approval of each House of Parliament is required under the positive resolution procedure: para 26 in Part III of Schedule 2 to FSMA. However, this power to regulate financial services or assistance in relation to the making of a claim has not been exercised.

1. The Courts and Legal Services Act 1990

1. Section 58 of the CLSA 1990 introduced conditional fee agreements (“CFAs”) under which lawyers were permitted in certain circumstances to charge success fees for their litigation and advocacy services. These are distinct from DBAs (sometimes called contingency fee agreements) of the kind in issue in this appeal, under which those providing litigation and other services charge a fee in the form of a share of the compensation recovered by the client.

1. Section 28 of the Access to Justice Act 1999 (“the AJA 1999”) made provision for a new section 58B to be inserted into the CLSA 1990 to make enforceable certain litigation funding agreements which were otherwise thought to be unenforceable at common law (“section 58B”). Section 108 of the AJA 1999 provided that section 28 should be brought into force on a date appointed by the relevant Minister, but no commencement order has been made. Section 58B provides in relevant part as follows:

   1. A litigation funding agreement which satisfies all of the conditions applicable to it by virtue of this section shall not be unenforceable by reason only of its being a litigation funding agreement.

   1. For the purposes of this section a litigation funding agreement is an agreement under which—

   1. a person (‘the funder’) agrees to fund (in whole or in part) the provision of advocacy or litigation services (by someone other than the funder) to another person (‘the litigant’); and

   1. the litigant agrees to pay a sum to the funder in specified circumstances.

   1. The following conditions are applicable to a litigation funding agreement—

   1. the funder must be a person, or person of a description, prescribed by the Secretary of State;

   1. the agreement must be in writing;

   1. the agreement must not relate to proceedings which by virtue of section 58A(1) and (2) cannot be the subject of an enforceable conditional fee agreement or to proceedings of any such description as may be prescribed by the Secretary of State;

   1. the agreement must comply with such requirements (if any) as may be so prescribed;

   1. the sum to be paid by the litigant must consist of any costs payable to him in respect of the proceedings to which the agreement relates together with an amount calculated by reference to the funder’s anticipated expenditure in funding the provision of the services; and

   1. that amount must not exceed such percentage of that anticipated expenditure as may be prescribed by the Secretary of State in relation to proceedings of the description to which the agreement relates.

   1. Regulations under subsection (3)(a) may require a person to be approved by the Secretary of State or by a prescribed person.

   1. The requirements which the Secretary of State may prescribe under subsection (3)(d)—

   1. include requirements for the funder to have provided prescribed information to the litigant before the agreement is made; and

   1. may be different for different descriptions of litigation funding agreements.

   1. In this section (and in the definitions of ‘advocacy services’ and ‘litigation services’ as they apply for its purposes) ‘proceedings’ includes any sort of proceedings for resolving disputes (and not just proceedings in a court), whether commenced or contemplated. …”

   “58B Litigation funding agreements

1. A new section 58AA was inserted into the CLSA 1990 by section 154 of the Coroners and Justice Act 2009 (“the CJA 2009”) to introduce DBAs and make them enforceable subject to the satisfaction of certain conditions. As originally introduced section 58AA was limited to employment claims. However, that limitation was removed by section 45 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (“LASPO”) with effect from 19 January 2013. For discussion of these changes, see Lexlaw Ltd v Zuberi [2021] EWCA Civ 16; [2021] 1 WLR 2729. As so amended, and so far as is material, section 58AA provides as follows:

   1. A damages-based agreement which satisfies the conditions in subsection (4) is not unenforceable by reason only of its being a damages-based agreement.

   1. But … a damages-based agreement which does not satisfy those conditions is unenforceable.

   1. For the purposes of this section—

   1. 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

   1. the amount of that payment is to be determined by reference to the amount of the financial benefit obtained.

   1. The agreement—

   1. must be in writing;

      (aa) must not relate to proceedings which by virtue of section 58A(1) and (2) cannot be the subject of an enforceable conditional fee agreement or to proceedings of a description prescribed by the Lord Chancellor;

   1. if regulations so provide, must not provide for a payment above a prescribed amount or for a payment above an amount calculated in a prescribed manner;

   1. must comply with such other requirements as to its terms and conditions as are prescribed; and

   1. must be made only after the person providing services under the agreement has complied with such requirements (if any) as may be prescribed as to the provision of information.

   1. Regulations under subsection (4) are to be made by the Lord Chancellor and may make different provision in relation to different descriptions of agreements.

      …

   1. In this section—

      …

      ‘claims management services’ has the same meaning as in Part 2 of the Compensation Act 2006 (see section 4(2) of that Act).”

   “58AA Damages-based agreements

1. The latter cross-reference to the 2006 Act has now been replaced by amendment in 2018 (by article 90 of the Financial Services and Markets Act 2000 (Claims Management Activity) Order 2018 (SI 2018/1253)) to say that “‘claims management services’ has the same meaning as in the Financial Services and Markets Act 2000 (see section 419A of that Act)”.

1. Shortly after section 58AA was given general effect in January 2013, on 1 April 2013 the Damages-Based Agreements Regulations 2013 (SI 2013/609) (“the DBA Regulations 2013”) came into force. These Regulations set out additional detailed requirements which must be satisfied if a DBA is to be enforceable pursuant to section 58AA. It is common ground that the LFAs at issue in this case do not satisfy the requirements in the Regulations. Therefore, if the agreements are DBAs, by virtue of section 58AA(2) they are unenforceable.

1. Regulation 1(2) of the DBA Regulations 2013, as amended to reflect the change in the cross-reference in section 58AA(7), defines “client” to mean “the person who has instructed the representative to provide advocacy services, litigation services … or claims management services (within the meaning of section 419A of the Financial Services and Markets Act 2000) and is liable to make a payment for those services” and defines “representative” to mean “the person providing the advocacy services, litigation services or claims management services to which the damages-based agreement relates”. Regulation 3 requires that the terms of a DBA must specify, among other things, the circumstances in which the representative’s payment is payable.

1. The issues in the appeal

1. The appellants submit that under the LFAs with UKTC and the RHA, respectively, (hereafter, “the LFAs”) Yarcombe and Therium provide “claims management services” within the meaning of section 4 of the 2006 Act and section 419A of FSMA by virtue of providing “other services in relation to the making of a claim” in the form of “the provision of financial services or assistance”.

1. The respondents dispute this. They submit that the provision of “financial services or assistance” (section 4(3)(a) of the 2006 Act; section 419A(2)(a) of FSMA) “in relation to the making of a claim” (section 4(2)(b) of the 2006 Act; section 419A(1) of FSMA) is to be interpreted as applying in the context of the management of a claim, and under the LFAs Yarcombe and Therium have no role in the management of the claims against the appellants. The LFAs are therefore not DBAs within the statutory meaning and section 58AA(2) does not render them unenforceable. This was the submission accepted by the Tribunal and the Divisional Court.

1. The Divisional Court noted that none of the parties submitted that anything turns on the differences in wording between section 4 of the 2006 Act and section 419A of FSMA, so the critical issue before it was the meaning of the phrase “claims management services” as defined in the 2006 Act, when that definition was first incorporated into section 58AA by the CJA 2009. That remains the principal issue on this appeal.

1. The LFA between the RHA and Therium was entered into prior to the change in the reference in section 58AA(7) from section 4 of the 2006 Act to section 419A of FSMA. The LFAs between UKTC and Yarcombe were entered into after that change to section 58AA(7). In this court, again, there was no suggestion that this change had any significance and counsel for all parties focused their submissions on the meaning of “claims management services” as defined in the 2006 Act.

1. However, the respondents argued that it is relevant to have regard to later legislation, particularly the DBA Regulations 2013, as an aid to the interpretation of section 4 of the 2006 Act and section 58AA. This is on the basis that, according to the argument, “claims management services” is an ambiguous expression, even having regard to the statutory definition, so that it is legitimate to have regard to later legislation to resolve that ambiguity; also, the DBA Regulations 2013 form part of an integrated legislative scheme with section 58AA and may be used as an aid to the interpretation of the parent Act, the CLSA 1990. They emphasised that the DBA Regulations 2013 use the term “representative” to denote the party who contracts with a client by way of the DBA.

1. As a subsidiary issue, UKTC submitted that even if its opt-out LFA with Yarcombe provides for a claims management service as defined, it still does not fall within the definition of a DBA in section 58AA(3). UKTC raised this argument by way of a Respondent’s Notice in the Divisional Court and the appellants responded to it in their skeleton argument before that court. It was not addressed in the Divisional Court’s judgment. UKTC pursued this alternative argument before this court. Both sides dealt with it primarily by way of written submissions.

1. The judgment of the Divisional Court

1. Henderson LJ summarised (paras 65-68) the principles of statutory construction to be applied, referring in particular to the speech of Lord Nicholls of Birkenhead in R v Secretary of State for the Environment, Transport and the Regions, ex p Spath Holme Ltd [2001] 2 AC 349 (“Spath Holme”), 396-397, and Pollen Estate Trustee Co Ltd v Revenue and Customs Comrs [2013] 1 WLR 3785, para 24 (Lewison LJ). Henderson LJ emphasised (para 68) that the presumption against absurdity is an important tool in determining the meaning which Parliament intended a statutory provision to have.

1. At paras 69-79 Henderson LJ reviewed the legal, social and historical context of section 4 of the 2006 Act. In order to identify the particular mischief which that provision was intended to remedy, that is, its purpose, he referred to the Explanatory Notes which accompanied the 2006 Act and the Explanatory Memorandum for the Scope Order. He also reviewed the case-law which indicated that certain forms of litigation funding by third parties had by 2006 become established and were recognised by the courts as not being champertous as contrary to public policy: Factortame (No 8) and Arkin v Borchard Lines Ltd (Nos 2 and 3) [2005] 1 WLR 3055 (“Arkin”). He concluded (para 78) that the purpose of introducing statutory regulation of claims management services in section 4 of the 2006 Act and the Scope Order “was to enhance consumer protection in areas where the activities of ‘claims intermediaries’ had been causing widespread public concern”, and that conversely (para 79) there was no suggestion “that regulation of non-champertous funding of litigation by professional third-party funders in return for a reasonable share of the client’s recoveries”, of the kind exemplified in Factortame (No 8) and Arkin, formed any part of the mischief which section 4 of the 2006 Act sought to remedy. In that regard, he referred to section 58B and drew the inference from the fact that it had not been brought into force that immediate regulation of the third-party funding sector was not considered necessary.

1. Having regard to the context in which section 4 of the 2006 Act had been passed, the Divisional Court concluded that the Tribunal had been right to construe the relevant words in section 4(2) of the 2006 Act as applying “in the context of the management of a claim” (para 87). Henderson LJ gave two main reasons for this. First, Parliament had already enacted a comprehensive scheme for the regulation of litigation funding agreements by way of section 58B, even though it had not been brought into force, and it was most improbable that Parliament would have intended to bring such agreements within the ambit of the regulation of claims management services by a side-wind: paras 88-90. Secondly, the structure of the definition of “claims management services” in section 4(2) and (3) of the 2006 Act, with a primary limb in section 4(2)(b) (“advice or other services in relation to the making of a claim”, broadly defined) which was extended by subsection (3)(a) in various ways, meant that it was appropriate to have regard to “the potency of the term defined”, meaning that the definition should itself be coloured by the reference to “claims management” in the phrase being defined: paras 91-95. Henderson LJ also relied (para 96) on the presumption against absurdity, saying:

   “The result of the construction for which DAF contends is in my judgment both anomalous and unreasonable, because it would bring any form of the provision of financial assistance for the making of a claim within the ambit of the 2006 Act, without regard to the fact that pure litigation funding was not then perceived to be a problem which required fresh legislative intervention, and if its regulation were to be considered necessary in the future, the provisions of section 58B of CLSA 1990 could be brought into force for that very purpose. I also respectfully agree with the Tribunal that the example of a bank lending money to a customer to fund litigation is telling in this context, because there is nothing to indicate that Parliament intended to bring such activities within the purview of the 2006 legislation, but a literal reading of section 4(3)(a)(i) would admittedly have that effect. A degree of legislative ‘overkill’ is sometimes the price to be paid for countering abuse, but if that were the position in the present case, it is inconceivable that the Explanatory Notes would have said nothing on the subject. If, however, the phrase ‘claims management services’ is interpreted with due regard to the central concept of the management (as opposed to the pure funding) of claims, the problem disappears.”

1. The interpretation of Part 2 of the 2006 Act: its language and scheme and the context in which it was passed

1. The relevant interpretative principles

1. The basic task for the court in interpreting a statutory provision is clear. As Lord Nicholls put it in Spath Holme, at p 396, “Statutory interpretation is an exercise which requires the court to identify the meaning borne by the words in question in the particular context.”

1. As was pointed out by this court in Rossendale Borough Council v Hurstwood Properties (A) Ltd [2021] UKSC 16; [2022] AC 690, para 10 (Lord Briggs and Lord Leggatt), there are numerous authoritative statements in modern case law which emphasise the central importance in interpreting any legislation of identifying its purpose. The examples given there are R (Quintavalle) v Secretary of State for Health [2003] UKHL 13, [2003] 2 AC 687 and Bloomsbury International Ltd v Department for the Environment, Food and Rural Affairs [2011] UKSC 25, [2011] 1 WLR 1546. In the first, Lord Bingham of Cornhill said (para 8):

   “Every statute other than a pure consolidating statute is, after all, enacted to make some change, or address some problem, or remove some blemish, or effect some improvement in the national life. The court’s task, within the permissible bounds of interpretation, is to give effect to Parliament’s purpose. So the controversial provisions should be read in the context of the statute as a whole, and the statute as a whole should be read in the historical context of the situation which led to its enactment.”

   “In matters of statutory construction, the statutory purpose and the general scheme by which it is to be put into effect are of central importance… In this area as in the area of contractual construction, ‘the notion of words having a natural meaning’ is not always very helpful (Charter Reinsurance Co Ltd v Fagan [1997] AC 313, 391C, per Lord Hoffmann), and certainly not as a starting point, before identifying the legislative purpose and scheme.”

In the second, Lord Mance said (para 10):

The purpose and scheme of an Act of Parliament provide the basic frame of orientation for the use of the language employed in it.

1. It is legitimate to refer to explanatory notes which accompanied a Bill in its passage through Parliament and which, under current practice, are reproduced for ease of reference when the Act is promulgated; but external aids to interpretation such as these play a secondary role, as it is the words of the provision itself read in the context of the section as a whole and in the wider context of a group of sections of which it forms part and of the statute as a whole which are the primary means by which Parliament’s meaning is to be ascertained: R (Project for the Registration of Children as British Citizens) v Secretary of State for the Home Department [2022] UKSC 3; [2023] AC 255, paras 29-30 (Lord Hodge). Reference to the explanatory notes may inform the assessment of the overall purpose of the legislation and may also provide assistance to resolve any specific ambiguity in the words used in a provision in that legislation. Whether and to what extent they do so very much depends on the circumstances and the nature of the issue of interpretation which has arisen.

1. The courts will not interpret a statute so as to produce an absurd result, unless clearly constrained to do so by the words Parliament has used: see R v McCool [2018] UKSC 23, [2018] 1 WLR 2431, paras 23-25 (Lord Kerr of Tonaghmore), citing a passage in Bennion on Statutory Interpretation, 6^th ed (2013), p 1753. See now Bennion, Bailey and Norbury on Statutory Interpretation, 8^th ed (2020), section 13.1(1): “The court seeks to avoid a construction that produces an absurd result, since this is unlikely to have been intended by the legislature”. As the authors of Bennion, Bailey and Norbury say, the courts give a wide meaning to absurdity in this context, “using it to include virtually any result which is impossible, unworkable or impracticable, inconvenient, anomalous or illogical, futile or pointless, artificial, or productive of a disproportionate counter-mischief”. The width of the concept is acceptable, since the presumption against absurdity does not apply mechanistically but rather, as they point out in section 13.1(2), “[t]he strength of the presumption … depends on the degree to which a particular construction produces an unreasonable result”. I would add that the courts have to be careful to ensure that they do not rely on the presumption against absurdity in order to substitute their view of what is reasonable for the policy chosen by the legislature, which may be reasonable in its own estimation. The constitutional position that legislative choice is for Parliament cannot be undermined under the guise of the presumption against absurdity. There is an issue between the parties whether the presumption against absurdity provides relevant guidance in the circumstances of this case.

1. In certain circumstances, subordinate legislation made pursuant to powers in a statute can be an aid to interpretation of the statute. There is an issue as to how far this principle extends. The parties are agreed that the Scope Order is an admissible aid to interpretation of the 2006 Act. It was promulgated at a time roughly contemporaneous with the 2006 Act itself, and in Deposit Protection Board v Dalia [1994] 2 AC 367 the House of Lords held that it is permissible to refer to such contemporaneous subordinate legislation as an aid to interpretation: p 397 per Lord Browne-Wilkinson. In my view, on this basis and in line with the position for explanatory notes, the Scope Order is admissible as an aid to interpretation both for such light as it might throw on an assessment of the purpose of the primary legislation and to assist in resolving any identified ambiguity in a provision in that legislation.

1. Further, Part 2 of the 2006 Act specifically contemplated that, for its operation, the Secretary of State would define its scope by an order. Given the broadly contemporaneous nature of the Scope Order, it can fairly be regarded as being, in combination with the 2006 Act, part of a single scheme to introduce the new statutory regime in Part 2 in a way that justifies reference to the Scope Order “to take account of indications of consistency between them” on the basis explained in R v McCool [2018] UKSC 23, [2018] 1 WLR 2431, para 105 (Lord Hughes, for the majority); cited as authoritative in Bennion, Bailey and Norbury, 8^th ed, above, section 24.18. To similar effect, in R (A) v Director of Establishments of the Security Service [2009] UKSC 12; [2010] 2 AC 1, Lord Hope of Craighead said that where a statute which received Royal Assent on 28 July 2000 and subordinate legislation was made under it on 28 September 2000 and laid before Parliament the next day, “[t]he interval was so short that, taken together, they can be regarded as all part of the same legislative exercise” (para 42), albeit in that case it was not in the event necessary to refer to the subordinate legislation because the scheme of the primary legislation was clear. Where the primary legislation and the subordinate legislation are drafted by or on the instructions of the same government department at about the same time, as would be normal in this type of case, it is reasonable to suppose that they are inspired by the same underlying objective and are intended to reflect a coherent position as understood at the time the primary legislation is presented to Parliament. In that situation, it has been observed that the subordinate legislation made under a power in the primary legislation can be regarded as a form of parliamentary or administrative contemporanea expositio (exposition of contemporary understanding) in relation to the primary legislation which may provide some evidence of how Parliament understood the words it used in the primary legislation, even though this does not decide or control their meaning: Hanlon v The Law Society [1981] AC 124, 193-194 (Lord Lowry, with whom Lord Edmund-Davies, Lord Fraser of Tullybelton and Lord Scarman agreed). This point is strengthened where, as here, the subordinate legislation is broadly contemporaneous with the Act and is subject to review by the same elected Parliament which passed the Act according to the positive or the negative resolution procedure. This can provide grounds to infer that the Parliament which passed the Act regarded the subordinate legislation as in accordance with it and a fair reflection of it.

1. Since the Scope Order is a permissible aid to interpretation of the statute, for similar reasons the Explanatory Memorandum which accompanied it to explain its effect to Parliament is also a permissible aid to interpretation of the statute.

1. The respondents contend that some assistance in interpreting the 2006 Act is also to be derived from the DBA Regulations 2013. In my opinion this contention is not sustainable. In the Dalia case regulations made four years after the Act in question were held not to be a permissible aid to interpretation. 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 justifies treating subordinate legislation as a permissible aid to interpretation of primary legislation in limited circumstances is not applicable.

1. In an appropriate case “the potency of the term defined” may provide some guidance as to the meaning for that term as set out in a statutory definition. As it is put in Bennion, Bailey and Norbury, op. cit., section 18.6: “In the case of a statutory definition the defined term may itself colour the meaning of the definition”. Lord Hoffmann explained in MacDonald v Dextra Accessories Ltd [2005] 4 All ER 107, para 18, “a definition may give the words a meaning different from their ordinary meaning. But that does not mean that the choice of words adopted by Parliament must be wholly ignored. If the terms of the definition are ambiguous, the choice of the term to be defined may throw some light on what they mean”. I agree with Henderson LJ, paras 92-93 (citing Birmingham City Council v Walker [2007] 2 AC 262, para 11, per Lord Hoffmann, and Oxfordshire County Council v Oxford City Council [2006] 2 AC 674, para 38, per Lord Hoffmann, and para 82, per Lord Scott of Foscote), that this principle is not confined to cases where there is an ambiguity in the terms of the definition, but means that when the definition is read as a whole the ordinary meaning of the word or phrase being defined forms part of the material which might potentially be used to throw light on the meaning of the definition. Whether and to what extent it does so depends on the circumstances and in particular on the terms of the legislation and the nature of the concept referred to by the word or phrase being defined.

1. The difficulty in trying to use this sensible principle of interpretation in the present case is that it was agreed, and the Divisional Court accepted, that the phrase “claims management services” defined in section 4(2) of the 2006 Act did not have any established legal meaning. Nor, as explained below, did it have any clear or generally accepted meaning in ordinary parlance which was capable of exerting any significant “potency” in terms of qualifying the ordinary words used by Parliament in section 4(2) and (3) of the 2006 Act to define that term. Where an express definition of a term is given in statute then even if there is consensus as to its core content, in the absence of general consensus as to the limits of the term no significant potency can be attached to the term so as to colour or qualify the meaning of the definition: Phillips v News Group Newspapers Ltd [2013] 1 AC 1, para 20 (Lord Walker of Gestingthorpe, with whom the other members of the court agreed). Still less will the term defined have potency to colour the meaning of the definition if there is no general consensus as to the core meaning of the term, which is the case here. Rather, Parliament deliberately used wide words of definition in the 2006 Act precisely because of the nebulousness of the notion of “claims management services” at the time and in order to ensure that the general policy objective of Part 2 of the 2006 Act would not be undermined. That objective was to confer a general power on the Secretary of State appropriate for the regulation in the public interest of this developing area of activity, involving the creation of new commercial models to facilitate litigation and access to justice. The fact that Parliament provides a statutory definition of a term means that it is not satisfied that the term itself is sufficiently clear on its own. Where Parliament has taken the trouble to provide a definition, it is the words of the definition which are the primary guide to the meaning of the term defined. The weaker the inherent or established meaning of the term defined, the weaker must be its ability to throw light on Parliament’s meaning when setting out the express words of the definition which falls to be construed.

1. The wording of section 4 of the 2006 Act

1. The words used in section 4(2) and (3) to define “claims management services”, read according to their natural meaning, are apt to cover the LFAs in this case, as the respondents and the Divisional Court accepted. Subsection (2)(b) defines “claims management services” to mean advice “or other services in relation to the making of a claim”. Subsection (3)(a)(i) states in terms that for the purposes of section 4 “a reference to the provision of services includes … [a reference to] the provision of financial services or assistance.” Under the LFAs Therium and Yarcombe are to provide financial services or assistance to their respective counterparties, the RHA and UKTC, in relation to the making of the claims they wish to bring. Of course, that would also be true of an ordinary bank which lent money to its customer for the purpose of assisting the customer to bring a claim. I return to this point when considering the presumption against absurdity, below.

1. The words used to define “claims management services” also provide an important indication of Parliament’s purpose in legislating as it did in Part 2 of the 2006 Act, to which I now turn.

1. The context in which Part 2 of the 2006 Act was enacted and its legislative purpose

1. The context in which Part 2 of the 2006 Act was enacted was one in which there had been a progressive expansion of the ways in which litigants could gain access to varieties of financial support to bring and defend claims. This was motivated in part by the need to promote new ways of assisting people to have access to justice in circumstances where public support for this in the form of legal aid was being reduced.

1. Section 58 of the CLSA 1990 allowed agreements for conditional fees (that is, fees paid to persons providing advocacy or litigation services conditional on success of the claim) to be used in cases to be specified by order made by the Lord Chancellor. Where such agreements provided for an additional success element above the basic fees, that element was not to be recoverable from the opposing party. The Conditional Fee Agreements Order 1995 (SI 1995/1674) allowed such conditional fee agreements for the first time, by specifying a limited range of proceedings in which such agreements would be permitted. The AJA 1999, as brought into force on 1 April 2000, replaced section 58 with a new section 58 and section 58A of the CLSA 1990 which expanded the range of cases in which conditional fee agreements could be used and provided that the success element could be recovered from the opposing party. Section 58B was also enacted, but was not brought into effect.

1. The decision of the Court of Appeal in Factortame (No 8) in 2002 considered the implications of these legislative changes as regards the public policy which underlies the law of champerty in the context of a contract whereby services were provided by accountants to assist in the bringing of a claim in return for a percentage of the final compensation awarded in respect of that claim. The claim was successful and the accountants were paid that percentage of the sum received as compensation. The claimants sought to recoup that amount as costs from the opposing party. The Court of Appeal held that they could. The original and the extant provisions of the CLSA 1990 provided guidance as to the limits of public policy taken to control the enforceability of such a contract. Section 58 of that Act did not apply to the form of contingent fee arrangement in issue and did not implicitly render it unenforceable. Assessing the effect of the contract in the light of the particular facts, and bearing in mind the importance which public policy now attached to access to justice, the contract did not conflict with public policy directed to protecting the due administration of justice. The contract was therefore enforceable and the costs payable under it were recoverable from the opposing party.

1. In the Arkin decision in 2005 the Court of Appeal confirmed that an arrangement whereby a third party funder who financed a claim in the expectation of receiving a share of any recovery, under an arrangement which left the claimant in control of the litigation, was non-champertous and hence was enforceable. If the claim failed, the funder could be ordered to pay the costs of the successful party, but found that the funder in that case should be liable only up to the extent of the funding provided. The effect of Factortame (No 8) and Arkin was to encourage third party funders to provide financing for claims on the basis that they would assume a passive role in relation to the conduct of the litigation itself.

1. In May 2004 the Better Regulation Task Force (“the BRTF” - an independent group set up to advise the government) produced a report entitled “Better Routes to Redress” to consider what regulation would be appropriate in relation to various services to assist people to bring claims, focusing on personal injury claims. The report addressed the perception in the media that the United Kingdom was in the grip of a “compensation culture”, but concluded that this was a myth. It considered how that damaging perception could be addressed and how people with genuine grievances could have better access to justice and made recommendations about how the process could be improved. It highlighted how the introduction of “no win, no fee” arrangements and the emergence of claims management companies had increased access to justice; but also how claims management companies, especially The Accident Group and Claims Direct which had dominated the market but had by then collapsed, had fed the perception that litigants were now being encouraged to bring unmeritorious claims in the hope of obtaining compensation. The report did not provide a definition of a claims management company nor analyse in detail what services might be provided by such a company, other than to say that they take advantage of the new “no win, no fee” arrangements “by gathering accident cases by advertising or direct marketing, administering the cases, and then farming them out to solicitors up and down the country”, earning money “by non-transparent and complex systems of referral fees and charges”. It noted that nearly everyone consulted for the purposes of the report called for the government to regulate the sector, “however few could suggest a model for the regulation of the sector”; instead, “self-regulation with a statutory underpinning” should be tried first, involving a new professional organisation, the Claims Standards Federation, which should apply to the Office of Fair Trading for approval of a code of practice to be developed by it. The BRTF advised that the government should keep the need for regulation under close review and a regulatory model should be developed “that could incorporate claims management companies should the need arise in future”. If progress had not been made by December 2005, the government “should step in and regulate the sector” (para 4.1).

1. The government responded to the BRTF’s report in November 2004, accepting the recommendation that regulation of claims intermediaries should be considered if self-regulation failed. Part 2 of the 2006 Act laid the legislative foundation for such regulation.

1. The government published Explanatory Notes which accompanied Part 2 of the 2006 Act. These referred to the BRFT’s report and the government’s response, by way of background. The Explanatory Notes stated (para 31):

   “The legislative framework [in the 2006 Act] is flexible and allows the Secretary of State to designate a body to regulate claims management services, to establish a body to regulate (where he thinks that no existing body is suitable for designation) or to regulate himself. The Act provides the outline regulatory framework to authorise providers who would be required to comply with rules and codes of practice. The Act also includes power for the Regulator to investigate unauthorised activities and to prosecute those who try to evade regulation.”

The Explanatory Notes explained (para 34) that “[o]nly those claims management services that the Secretary of State prescribes by order under section 4(2)(e) will be subject to regulation. The Secretary of State can therefore target regulation in areas where he considers there to be a particularly high risk to consumers”.

1. At para 35 the Explanatory Notes explained that section 4(3) “gives examples of activities which constitute the provision of services (where they are connected with a claim)” and continued:

   “The list, which is not exhaustive, includes financial services (for example assisting with the purchase of insurance or loans); legal representation (for example acting on a [claimant’s] behalf in pursuing a claim); referring or introducing one person to another (for example referring a claim to a solicitor); and making inquiries (for example contacting witnesses in the course of investigating a claim). The provision of advice does not extend to the preparation or giving of evidence. For example, if a person were asked to give evidence in a personal injury claim (whether or not expert evidence) this would not amount to providing claims management services.”

1. The 2006 Act does not prohibit or limit the provision of claims management services generally. Instead, section 4(1) provides that a person may not provide regulated claims management services unless certain conditions are fulfilled. Services are regulated only if they are of a kind, or are provided in cases or circumstances of a kind, prescribed by an order made by the Secretary of State: section 4(2)(e). To make such an order, the Secretary of State has to comply with the procedural requirements laid down in the Act, which stipulates for parliamentary oversight by the positive resolution procedure. Parliament thus reserved to itself close control of the making of an order to subject particular services to regulatory control pursuant to the Act.

1. In this way, in my view, the scheme of Part 2 of the 2006 Act bears out what was explained in the Explanatory Notes, that the purpose of Part 2 was to create a broadly framed power for the Secretary of State to regulate in this area, leaving it to him (subject to close supervision by Parliament itself) to target the regulation, and the statutory effects which regulation carries with it under section 4, according to his own assessment of where a need of regulation was shown to exist at any particular time on the evidence which had then become available.

1. The fact that the making of an order was to be subject to the positive resolution procedure indicates that Parliament intended the control on the Secretary of State’s power to be primarily procedural, rather than by way of closely delimiting the ambit of the power by the statutory definition of the area in which it might be exercised. Further, Parliament clearly intended that the Secretary of State should be able to regulate effectively in future in a new and fast developing area in which, as at the time of enactment, the financing and business models being used were not fully understood. Effective regulation would be liable to be undermined if the powers conferred were narrow or unclear, so that an order which the Secretary of State might consider to be justified in the public interest to regulate some feature in the general area of providing funding and other assistance to potential litigants could be made subject to a vires attack. In the context of the power of regulation created by section 4, and the general purpose it is supposed to promote, there is no good reason to look for implied limitations which do not appear from the wide language used for the definition.

1. The language of the main part of the definition of “claims management services” in section 4(2)(b) is wide and is not tied to any concept of active management of a claim. The provision says that such services mean “advice or other services in relation to the making of a claim”. Advice in relation to a claim does not carry any connotation of management of the claim. In the area of litigation the connotation of “advice” in relation to a claim is advice (typically legal, though it might take other forms) given to a client who then makes their own decision about how to manage their claim. In the definition, the words “other services” are juxtaposed with and take their colour from “advice”, so it is not plausible to say that they should be read as qualified to mean services in the management of a claim. Further, according to the definition the “other services” have to be “in relation to the making of a claim”. That is wide express language and in my view it is not possible to read it to mean in relation to the management of the making of a claim; yet this is what the respondents’ proposed interpretation amounts to.

1. These basic points are strongly reinforced by the wide language of section 4(3)(a), which stipulates that “the provision of services” includes a non-exhaustive list of four items stated in very broad terms, none of which has the connotation of or involves a power of management of a claim. Provision of services “by way of or in relation to legal representation” (sub-paragraph (ii)) is, according to the normal understanding of the role of a legal representative, to assist a client in presenting a claim, not to manage or have the power of management of a claim. “[R]eferring or introducing one person to another” (sub-paragraph (iii)) clearly does not involve management of a claim as a matter of the ordinary use of language. The same is true of making inquiries (sub-paragraph (iv)): in the context of litigation, inquiries are made to find evidence to support a claim being brought by others. The same point applies in relation to the provision of financial services or assistance (sub-paragraph (i)): in the context of litigation, as a matter of ordinary language, such services or assistance are provided to help someone to bring a claim, not to secure a power of management over it.

1. Consideration of section 4(3)(b) leads to the same conclusion. It is obvious, and does not require to be stated, that a witness giving or preparing to give evidence is not managing the claim to which that evidence relates, nor providing a service in order to manage that claim. The only point of section 4(3)(b) is to carve out from the wide definition of “claims management services” a category of case to which the Secretary of State’s power of regulation does not extend. This provision therefore constitutes a further specific indication that the definition of “claims management services” in section 4(2)(b) is indeed intended to be very wide, in line with its own express language and that of section 4(3)(a), and that it is not limited to services involving the management of a claim.

1. It is also significant that the manner in which section 4 operates is by focusing on a particular type of activity rather than by focusing on a particular actor (say, a claims intermediary as opposed to a reputable or regulated bank). If it is possible that one of the activities referred to could be conducted in a way which is prejudicial to consumer protection in this area, it is plausible to infer that Parliament intended the activity to be covered by the wide regulatory power created by section 4 even if some actors in the field may not behave in a prejudicial way. The reverse logic, according to which if there are some reputable actors it should be inferred that the intention was not to provide a power to regulate the activity at all, is not at all persuasive.