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The UK government will change the law to protect the litigation funding sector that allowed hundreds of sub-postmasters to take the Post Office to court in the Horizon IT scandal, the justice secretary has said.
Justice secretary Alex Chalk told the Financial Times that he planned “at the first legislative opportunity” to reverse “the damaging effects” of a Supreme Court ruling last summer that critics claim has plunged the industry into jeopardy.
Litigation funders throw their financial backing behind parties in legal battles that they calculate are likely to win, in exchange for a share of the proceeds. This method of funding, involving independent commercial funds, allows expensive litigation or arbitration cases to go ahead.
In a Financial Times article published on Friday Alan Bates, a former sub-postmaster who heads the campaign group Justice for Sub-postmasters Alliance, added his voice to concerns that the “essential financing tool” that supported his own “David vs Goliath case” against the Post Office was in jeopardy as a result of the “obscure” Supreme Court ruling.
Bates was the lead claimant in a groundbreaking High Court action that in 2019 exposed bugs, errors and defects in the Horizon IT system used by the Post Office. It was on the basis of this system’s faulty data that more than 900 sub-postmasters were convicted of theft or false accounting between 2000 and 2014.
The litigation funding sector has recently garnered attention because it backed the sub-postmasters in their legal actions against the Post Office.
However, last July the Supreme Court handed down a judgment that has complicated the rules around litigation funding agreements, sparking concerns that several deals struck before the ruling will be rendered unenforceable. The sector was surprised by the ruling and claimed its business model would be thrown into turmoil.
While litigation funding can help claimants access justice at a time when publicly funded legal services are under pressure, there are concerns that it could encourage frivolous claims and that in some circumstances there could be a conflict of interest between claimants and funders.
The latter are frequently backed by hedge funds and private equity outfits and take a considerable cut of any compensation awarded. The 555 sub-postmasters involved in the 2019 High Court case lost much of their £43mn settlement to legal fees and other costs, including to the “no win, no fee” litigation funder in the case.
Prime minister Rishi Sunak announced last week he would urgently bring forward legislation to quash the convictions of the hundreds of former sub-postmasters caught up in the scandal.
Bates insisted that litigation funding was crucial in securing the ability of consumers and small business owners to take on corporate giants, describing how a third party had funded the sub-postmasters’ “hugely expensive and gruelling legal battle”.
Chalk said in a statement: “I’m proud of the UK’s reputation as the heart of global legal services and I want to keep it that way. That’s why the government will be reversing the damaging effects of PACCAR at the first legislative opportunity.”
PACCAR, a truck hauliers company, was the name of the claimant in the Supreme Court case last summer and has become shorthand for the ruling.
A Whitehall insider said Bates’ “interesting” intervention had “brought the issue into the spotlight”, but stressed that the government had been looking at the issue for some time.
Last month several peers, including former lord chief justice Lord John Thomas, proposed an amendment to the Digital Markets, Competition and Consumers Bill that aimed to reverse the past and future effects of the PACCAR judgment.
While the government was supportive of the amendment, it was ruled to be out of the bill’s scope. Ministers are now examining the best mechanism to change the law.
Gary Barnett, executive director of the International Legal Finance Association, called on the government to act “with urgency” to fix the issue, warning: “That funding model is now under threat.”
He said that while Bates and his partners had been “heroes” in their dogged mission to secure justice, litigation funders had also “played a small yet critical role, giving the sub-postmasters the confidence and the financial firepower to take on the Post Office”.