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

The issue before the court on this appeal is whether section 58AA of the Courts and Legal Services Act 1990, as inserted by the Coroners and Justice Act 2009, together with the regulations made under section 58AA(4), render unenforceable agreements between claimants and litigation funders in which the funder agrees to loan money to pay for the litigation in return for receiving a share of any damages recovered for the claimant in the proceedings. The appeal arises in the context of claims brought in the Competition Appeal Tribunal (“the CAT”) pursuant to the statutory procedure for bringing collective actions. This is set out in sections 47B onwards of the Competition Act 1998. The issue arises acutely in this context because this kind of litigation funding agreement underpins many if not all of the proceedings brought under that statutory procedure. However, these funding agreements are by no means limited to collective actions in the CAT, as the cases I consider in this judgment show.

Section 58AA of the Courts and Legal Services Act 1990 (“CLSA” or “CLSA 1990”) as amended currently provides as follows:

“58AA Damages-based agreements

(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.

(2)

But (subject to subsection (9)) a damages-based agreement which does not satisfy those conditions is unenforceable.

(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—

(i)

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

(ii)

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

(4)

The agreement—

(a)

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;

(b)

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;

(c)

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

(d)

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.

(5)

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

(6)

Before making regulations under subsection (4) the Lord Chancellor must consult—

(a)

the designated judges,

(b)

the General Council of the Bar,

(c)

the Law Society, and

(d)

such other bodies as the Lord Chancellor considers appropriate.

(6A) Rules of court may make provision with respect to the assessment of costs in proceedings where a party in whose favour a costs order is made has entered into a damages-based agreement in connection with the proceedings.

(7)

In this section—

‘payment’ includes a transfer of assets and any other transfer of money's worth (and the reference in subsection (4)(b) to a payment above a prescribed amount, or above an amount calculated in a prescribed manner, is to be construed accordingly);

‘claims management services’ has the same meaning as in the Financial Services and Markets Act 2000 (see section 419A of that Act).

(7A) In this section (and in the definitions of ‘advocacy services’ and ‘litigation services’ as they apply for the purposes of this section) ‘proceedings’ includes any sort of proceedings for resolving disputes (and not just proceedings in a court), whether commenced or contemplated.

(8)

Nothing in this section applies to an agreement entered into before the coming into force of the first regulations made under subsection (4).

(9)

Where section 57 of the Solicitors Act 1974 (non-contentious business agreements between solicitor and client) applies to a damages-based agreement other than one relating to an employment matter, subsections (1) and (2) of this section do not make it unenforceable.

(10)

For the purposes of subsection (9) a damages-based agreement relates to an employment matter if the matter in relation to which the services are provided is a matter that is, or could become, the subject of proceedings before an employment tribunal.

(11)

Subsection (1) is subject to section 47C(8) of the Competition Act 1998.”

The appeal turns on whether litigation funding agreements of the kind at issue in this appeal fall within the definition of “damages-based agreements” for the purposes of section 58AA. That in turn depends on whether the funders of these claims are providing “claims management services” within the meaning of the section. The reference in section 58AA(7) to the meaning given to “claims management services” in section 419A of the Financial Services and Markets Act 2000 (“FSMA 2000”) is a reference to the following provision:

“419A Claims management services

(1)

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

(2)

In subsection (1) ‘other services’ includes—

(a)

financial services or assistance,

(b)

legal representation,

(c)

referring or introducing one person to another, and

(d)

making inquiries,

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

(3)

In this section ‘claim’ means a claim for compensation, restitution, repayment or any other remedy or relief in respect of loss or damage or in respect of an obligation, whether the claim is made or could be made—

(a)

by way of legal proceedings,

(b)

in accordance with a scheme of regulation (whether voluntary or compulsory), or

(c)

in pursuance of a voluntary undertaking.

(4)

The Treasury may by order provide that a claim for a specified benefit is to be treated as a claim for the purposes of this section.

(5)

The Treasury may specify a benefit under subsection (4) only if it appears to the Treasury to be a social security benefit, payable under the law of any part of the United Kingdom, designed to provide compensation for industrial injury.”

Before tackling the difficult question of the proper construction of these two provisions that is posed by this case, I describe the role that the litigation funders play and how their role in litigation has been addressed in the case law and in the legislation with which we are concerned.

Section 58AA(7) provides that “claims management services” has the same meaning as in section 419A of FSMA 2000 which I set out at the start of this judgment. That definition, the Appellants say, gives a very broad meaning to claims management services which covers the funding that Therium and Yarcombe provide here. That means, they submit,

In order to decide if there is any merit in this submission it is necessary to back track a little to consider what “claims management services” as defined in section 419A FSMA are.

Section 419A of FSMA is part of a regime which is not concerned with the enforceability or unenforceability of agreements but with the authorisation and regulation of people who, broadly speaking, act for clients who wish to pursue a legal dispute. Section 419A was inserted into FSMA 2000 by section 27 of the Financial Guidance and Claims Act 2018 (“FGCA 2018”) in order to enable the provision of claims management services to be made a regulated activity within the meaning of FSMA. The FGCA 2018 was not the first occasion on which people who provide claims management services were required to be authorised. Section 419A of FSMA derived from section 4(2) of the Compensation Act 2006.

Part 2 of the Compensation Act 2006 provided for the regulation of claims management services in the following terms:

“4 Provision of regulated claims management services

(1)

A person may not provide regulated claims management services unless—

(a)

he is an authorised person,

(b)

he is an exempt person,

(c)

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

(d)

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

(2)

In this Part—

(a)

‘authorised person’ means a person authorised by the Regulator under section 5(1)(a),

(b)

‘claims management services’ means advice or other services in relation to the making of a claim,

(c)

‘claim’ means a claim for compensation, restitution, repayment or any other remedy or relief in respect of loss or damage or in respect of an obligation, whether the claim is made or could be made—

(i)

by way of legal proceedings,

(ii)

in accordance with a scheme of regulation (whether voluntary or compulsory), or

(iii)

in pursuance of a voluntary undertaking,

(d)

‘exempt person’ has the meaning given by section 6(5), and

(e)

services are regulated if they are—

(i)

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.

(3)

For the purposes of this section—

(a)

a reference to the provision of services includes, in particular, a reference to—

(i)

the provision of financial services or assistance,

(ii)

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

(iii)

referring or introducing one person to another, and

(iv)

making inquiries, and

(b)

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

Other sections in Part 2 of the Compensation Act 2006 provided:

To implement section 4 of the Compensation Act 2006, an order was made under section 4(2)(a) and section 15: the Compensation (Regulated Claims Management Services) Order 2006 (SI 2006/3319) (“the Scope Order”). That order specified the kinds of claims management services which were brought into regulation if they were rendered in relation to the making of a claim of a kind described in that order. The kinds of services to be regulated were listed in article 4(2) of the Scope Order. They included advertising for persons who may have a cause of action, referring clients to solicitors, investigating the merits of the claim or representing a claimant. The kinds of claims covered included personal injury claims, housing disrepair claims and claims relating to financial services or products. The Order did not refer to providing financial services or assistance or to claims relating to loss suffered from unlawful anti-competitive agreements.

The role of the Regulator appointed under section 4 of the 2006 Act to authorise and set standards for people carrying on regulated claims management services was undertaken by the Claims Management Regulator Unit in the Ministry of Justice. The Regulator issued rules governing the conduct of regulated claims management services and the Compensation (Claims Management Services) Regulations 2006 (SI 2006/3322) set up the regime whereby providers could apply for authorisation.

Subsequently it was decided to transfer regulation of providers of regulated claims management services from the Ministry of Justice to the Financial Conduct Authority (“the FCA”) by incorporating the separate regulatory regime under the Compensation Act 2006 into the existing FSMA 2000 regime. Part 2 of the FGCA 2018 achieved that transfer of function making the substantial amendment to FSMA that was needed in order to effect this change.

The fundamental provision in FSMA, section 22, describes the kinds of activity which can be specified by the Treasury as a regulated activity and thereby brought within the regulatory regime established by the Act. Section 22 was amended by the insertion of subsection (1B) by the FGCA 2018. That new subsection provided that an activity could be specified as a regulated activity if it was carried on by way of business in Great Britain and “is, or relates to, claims management services”. So the potential for claims management services to be made regulated activities under FSMA was thereby created. The phrase was inserted into many other sections of FSMA by the FGCA 2018. The Financial Services and Markets Act 2000 (Claims Management Activity) Order 2018 (SI 2018/1253) (“the FSMA Claims Management Activity Order”) made substantial amendments to the secondary legislation under FSMA in order to effect this change.

Article 4 of the FSMA Claims Management Activity Order amended the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544) so that the potential for regulation created by the insertion of subsection (1B) into section 22 of FSMA was realised. The FSMA Claims Management Activity Order then inserted a new Part 3B (headed “Claims Management Activities in Great Britain”) into the FSMA Regulated Activities Order. Part 3B comprised articles 89F – 89W. It specified the kinds of claim in respect of which claims management activity was to be regulated as personal injuries claims, housing disrepair claims, some social security benefits claims, employment related claims and claims made under section 75 of the Consumer Credit Act 1974 or under the Criminal Injuries Compensation Scheme. Part 3B then specified which activities were regulated in relation to each of those kinds of claims. The provision of financial services or assistance are not mentioned.

When it was originally inserted into the CLSA 1990 by the Coroners and Justice Act 2009 section 154, section 58AA defined “claims management services” as having the same meaning as in section 4(2) of the Compensation Act 2006. The reference to section 419A of FSMA was substituted by article 90 of the FSMA (Claims Management Activity) Order 2018.

It is common ground that the two definitions cover the same services although the wording of section 4(2) and of section 419A are rather different. I shall refer to the two sections as “sections 4/419A”.

No one has suggested that the funding services provided by Therium and Yarcombe in these proceedings were specified as regulated activity either under the Compensation Act 2006 or under FSMA 2000 or that they need to be authorised under either of those regimes in order lawfully to operate the business that they are operating. I note here that Mr Leslie Perrin, Chairman of Calunius Capital LLP, states in his evidence that Calunius (the funding group of which Yarcombe is part) has in fact been authorised by the FCA since 2007 because it offers investment advice to its funds. The regulatory regime under the Compensation Act 2006 was not therefore the only means by which some control on the content of the agreements between funders and their customers could be exercised.

There is limited case law on the meaning of the term “claims management services”. The Divisional Court at paras 27 and 103 of the judgment now under appeal referred to the decision in Meadowside Building Developments Ltd v 12-18 Hill Street Management Co Ltd [2020] Bus LR 917 (“Meadowside”). The Divisional Court agreed with the conclusion of the CAT that the funding agreement in Meadowside was very different from the kind of third party litigation funding agreement that we are concerned with here. That case involved a damages-based agreement in adjudication proceedings on behalf of the liquidator of an insolvent company which had undertaken building work for which it had not been paid. The firm, Pythagoras, was appointed to “take all steps to ascertain and recover amounts due” to the insolvent company. The adjudication found that a balance was due to the insolvent company from the owners of the building. As part of the arrangement between the liquidator and Pythagoras, Pythagoras guaranteed payment of, amongst other things, any costs award made in favour of the building owner. The Deputy High Court Judge considered the application of the 2013 DBA Regulations to the arrangement at paras 91 onwards. At para 97 he held that Pythagoras may have been providing all of the “other services” within the definition of claims management services. It could not sensibly be disputed that it was providing financial assistance since that was “at the very heart” of its services. In reality it was also providing advice and other services to ascertain and recover the debt. He, rightly in my view, rejected a submission that section 58AA should be read as limited to regulated claims management services. Having concluded that the arrangement was a damages-based agreement falling within section 58AA the judge held that it did not comply with the 2013 DBA Regulations, because the percentage of damages to which Pythagoras was entitled exceeded the maximum of 50%. The agreement was therefore unenforceable.

I do not find Meadowside assists in resolving the present issue. Pythagoras was clearly managing the claim on behalf of the liquidator and providing a bundle of services that were properly described as claims management services. Those services included the services listed in section 419A(3). That does not help in deciding whether each such service amounts to providing claims management services if that is the only service which is provided.

As I have mentioned, the issue of the enforceability of the damages-based litigation funding agreements supporting the Respondents’ proposed collective proceedings was considered by the CAT as one of a number of issues raised by the Appellants objecting to the certification of the proceedings under section 47B of the Competition Act 1998. The CAT ordered the hearing of a preliminary issue, namely the question whether there were any aspects of the funding arrangements which should result in the Respondents not being authorised to act as class representatives. Not all the defendants to the proceedings advanced the argument that the agreements were unenforceable. The argument was put forward primarily by DAF, supported by MAN and Iveco.

The CAT (Roth J, Dr William Bishop and Professor Stephen Wilks) handed down its ruling on that preliminary issue on 28 October 2019 ([2019] CAT 26). The CAT set out the legislative history of the statutory provisions and the orders made under them. They described the background to the enactment of section 58AA originally in the Coroners and Justice Act 2009. They referred to Sir Rupert Jackson’s comprehensive review of litigation costs, the Preliminary Report dated in May 2009 and the Final Report dated in December 2009. The Reports discussed third party funding and addressed the question whether it should be regulated. Sir Rupert had recommended that full regulation of litigation funding was not required and that a voluntary code to which all litigation funders subscribe should be drawn up: see para 31 of the CAT’s judgment. That led to the founding of the ALF in November 2011 and the publication of the first Code of Conduct for Litigation Funders.

The CAT relied on a number of principles of statutory construction; the importance of context, the relevance of Explanatory Notes as an aid to construction, the presumption against absurdity and the relevance of secondary legislation as an aid to the construction of the primary legislation under which it is made: para 38.

The CAT held, in para 41, that the Respondents were correct that the reference in section 4(2) read with section 4(3)(a) of the Compensation Act 2006 to “the provision of financial services or assistance” “in relation to the making of a claim” is to be interpreted as applying “in the context of the management of a claim”. I take that to mean, in the context of the management of a claim by the same person who is providing the financial assistance. Litigation funders, the CAT said, were engaged in the funding of a claim and not in the management of the making of the claim. On that basis they were not providing “claims management services” and so did not come within the definition of a damages-based agreement in section 58AA.

The CAT also considered that viewed in its context, section 58AA was never intended to apply to litigation funding agreements. Those were intended to be covered by section 58B CLSA. This view was supported by the wording of the 2013 DBA Regulations which were not apt to describe the relationship between a funder and the recipient of financial assistance. This was further supported by the Jackson Costs Review material: “it would have been flying in the face” of those conclusions if Parliament had, by amending section 58AA rendered unenforceable agreements which complied with the ALF’s Code of Conduct (para 44). They then turned to consider the nature and adequacy of the funding arrangements as I have described.

The Appellants sought to challenge the CAT’s decision on this point on appeal. There was a procedural issue to be resolved as to whether that challenge could be by way of appeal under section 49(1A)(a) of the Competition Act 1998 or whether it should be brought by way of judicial review. The Appellants brought an application for permission to appeal or alternatively for permission to bring proceedings for judicial review, (for which purpose the Court would sit as a Divisional Court of the Queen’s Bench Division) with the substantive hearing to follow in either case if permission were granted. The Court (Henderson, Singh and Carr LJJ) held that the correct route was the judicial review route and that the Court of Appeal would have no jurisdiction to hear the substantive issue on appeal from the CAT: see para 60 of the judgment at [2021] EWCA Civ 299, [2021] 1 WLR 3648. I shall therefore refer to that judgment as the judgment of the Divisional Court.

Henderson LJ’s judgment proceeded on the basis that the relevant search must be for the meaning of the phrase “claims management services” on its first enactment in section 4(2) of the Compensation Act 2006: para 64. He referred to principles of statutory construction, in particular the presumption against absurdity. Having set out the legal, social and historical context of section 4, including Factortame (No 8), Arkin and the enactment of section 58B CLSA, he asked what was the particular mischief that section 4 was intended to remedy. He concluded at para 78 that there was nothing to suggest that non-champertous funding of litigation by professional third-party funders in return for a reasonable share of the client’s recoveries formed any part of the explicit mischief that section 4 sought to remedy. He concluded at para 87 that:

“Although on a literal, acontextual, reading of the extended definition, the words ‘the provision of financial services or assistance’ ‘in relation to the making of a claim’ could be read as including the provision of litigation funding by a third party which plays no part in the management of the claim, I consider that the Tribunal was correct to accept the submission of Mr Kirby for the RHA that those words are ‘to be interpreted as applying in the context of the management of a claim’…”

His conclusion was based in particular on the presence of section 58B CLSA even though it had not been brought into force. The second reason was the structure and wording of the definition itself (para 91). He referred to the principle of construction known as “the potency of the term defined” which I discuss below. He said that: (para 94).

“it seems to me entirely natural to read the words of the definition as both coloured and conditioned by the reference to ‘claims management’ in the phrase which is being defined, so that the ‘advice or other services in relation to the making of a claim’ must be understood as referring to advice or other services of a claims management nature, or having to do with the management of a claim, and the reference in subsection (3)(a)(i) to the provision of financial services or assistance should likewise be read as referring to the provision of such services or assistance in the context of claims management.”

He held, at para 95, that the fact that the concept of claims management services had no standard or accepted legal meaning in 2006 shows that Parliament was content to leave its precise meaning to be developed by the courts in the light of the purpose of the statutory scheme and the guidance which could be obtained from the relatively open-textured terms of the definition. One must not, however, “ignore the relevance of the concept of ‘claims management’ as a central factor in delimiting the general nature and extent of the activities which Parliament intended to be subject to the regulatory scheme of the 2006 Act.” He therefore granted permission to the Appellants to apply for judicial review but dismissed the claim on the merits. Singh and Carr LJJ agreed with his judgment.

If section 58AA CLSA had been enacted without subsection (7), I doubt it would have occurred to anyone that litigation funding agreements of the kind supporting the truck purchasers’ claims were caught by the term “claims management services”. Litigation funders are not offering to manage their clients’ claims, they are not lawyers and they do not represent their customers in any kind of proceedings, however informal. There is always one or more other firms or individuals providing litigation services or advocacy services to the funded person. Those other firms work for months or years, charging an hourly rate for preparing the case, liaising with the court or tribunal, liaising with the opposing side or with other claimants. The litigation funders lend a large capital sum for which they would, normally, be paid by the repayment in due course of that capital together with interest, set at a rate which covers whatever administrative costs are incurred in the initial negotiation of the loan together with the cost of money.

The Appellants’ submissions as to why nonetheless the Respondents are providing claims management services for the purpose of section 58AA can be summarised as follows. The definition of “claims management services” in section 4(2) of the Compensation Act 2006 and now in section 419A FSMA was cast very wide because it was simply delineating the pool of activities from which the activities to be regulated could be drawn. There were no consequences arising for a firm providing claims management services from the fact that its business now fell within that wide definition, unless or until the particular service it was providing was specified by an order made under those regimes. There was no reason therefore for Parliament not to include the activity of litigation funding in the definition of “claims management services” even if litigation funding could not be described as such by any normal meaning of those words. That, they say, is what Parliament meant in section 4(3)(a)/419A(3) by stipulating that the reference to the provision of services “includes, in particular,” (in section 4(3)(a))or just “includes” (in section 419A(2)) a reference to the provision of financial assistance. In other words, they submit that because a reference to claims management services “includes” a reference to the provision of financial assistance, that means that the provision of financial assistance becomes a claims management service, even if carried out separately. It does not have to be provided as part of an overall service that could properly be described as the service of managing a claim in order to be caught by the definition.

The Appellants then make the jump from section 4/section 419A FSMA to section 58AA CLSA by submitting that the effect of section 58AA, now read together with section 419A FSMA, is that any person who provides one of the “other services” listed in section 419A(2)(a) to (d) of FSMA must be “a person providing … claims management services” within the meaning of section 58AA(3)(a) so that the agreement between that person and the recipient of the services is a damages-based agreement within section 58AA(1).

The relevant principles of statutory construction

Before construing section 4(3) and section 419A(2) I must first marshal the canons of statutory construction which will help determine whether what the Appellants contend is correct. First, I consider which interpretative criteria are relevant to the construction of section 4/section 419A. These are the general purposive approach to construction, the presumption against absurdity and the “potency of the term defined” or, as I find more relevant in the current dispute, what is meant by “including” something as part of the definition in this case. In construing section 58AA CLSA, additional tools can be deployed, namely the terms of the secondary legislation implementing the primary legislation, the relevance of a statutory provision which has not been brought into force, the effect of incorporating definitions from other enactments and reliance on the likely consequences of adopting either of the two rival constructions.

I address first the interpretative criteria relevant for interpreting section 4/419A.

The purposive approach to construction There are many passages in recent case law which set out how the courts should construe legislation. In R (Project for the Registration of Children as British Citizens) v Secretary of State for the Home Department [2022] UKSC 3, [2023] AC 255 Lord Hodge DPSC referred to some of the earlier authorities when describing the task: (paras 29 to 31)

“29 … Words and passages in a statute derive their meaning from their context. A phrase or passage must be read in the context of the section as a whole and in the wider context of a relevant group of sections. Other provisions in a statute and the statute as a whole may provide the relevant context. They are the words which Parliament has chosen to enact as an expression of the purpose of the legislation and are therefore the primary source by which meaning is ascertained.

“31 Statutory interpretation involves an objective assessment of the meaning which a reasonable legislature as a body would be seeking to convey in using the statutory words which are being considered.”

The court is often faced with legislative wording which appears to run counter to the purpose at which the provisions were directed. There is plenty of guidance in the case law as to how to approach such a problem. Littlewoods Ltd v Revenue and Customs Comrs [2017] UKSC 70, [2018] AC 869, was a judgment delivered in the long-running dispute over whether the interest to be paid by HMRC to a taxpayer when refunding overpaid tax should be calculated on a compound or simple basis. One issue was whether the statutory provisions conferring a right to interest for taxpayers who had overpaid VAT was intended to exclude the possibility of a common law claim to such interest.

In their joint judgment, Lord Reed and Lord Hodge JJSC (with whom the other Justices agreed) accepted that read literally, the statutory provision did not exclude common law claims. On the contrary, the statutory entitlement to interest was expressly stated to arise if and to the extent that HMRC would not be liable to pay interest apart from that section. Further, there were other sections in the same enactment which did expressly exclude common law claims. They considered whether it was possible, nevertheless, to construe the critical words more narrowly than their literal sense so that they referred only to preserving the entitlement to interest under other statutory provisions but excluded a right under the common law. They noted that limitations had been placed by Parliament on claims to interest under the statute and these would be defeated if it were possible for the taxpayer to bring a common law claim instead. Parliament could not have intended the special regime to be capable of circumvention in that way. They therefore upheld that narrower construction, at para 39:

“It is not a literal construction, but a departure from a literal construction is justified where it is necessary to enable the provision to have the effect which Parliament must have intended.”

In Littlewoods, Lord Reed and Lord Hodge cited the well-known passage from the speech of Lord Bingham of Cornhill in R (Quintavalle) v Secretary of State for Health [2003] 2 AC 687, para 8. Lord Bingham stated that the court’s attention should not be confined to a literal interpretation of the particular provision giving rise to difficulty. A literal interpretation has its dangers in, for example, encouraging prolixity in drafting:

“… It may also (under the banner of loyalty to the will of Parliament) lead to the frustration of that will, because undue concentration on the minutiae of the enactment may lead the court to neglect the purpose which Parliament intended to achieve when it enacted the statute. 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.”

The presumption against absurdity In Shahid v Scottish Ministers [2015] UKSC 58, [2016] AC 429, para 20 Lord Reed observed that purposive construction can only go so far: “No amount of purposive interpretation can however entitle the court to disregard the plain and unambiguous terms of the legislation.” But he went on to observe that there are more powerful tools available:

“21 The only principle of statutory interpretation which might enable the plain meaning of legislation to be circumvented is that it can be given a strained interpretation where that is necessary to avoid absurd or perverse consequences: see, for example, Inland Revenue Comrs v Hinchy [1960] AC 748, 768 (Lord Reid), and R (Edison First Power Ltd) v Central Valuation Officer [2003] 4 All ER 209, paras 25 (Lord Hoffmann) and 116 (Lord Millett). Indeed, even greater violence can be done to statutory language where it is plain that there has been a drafting mistake: R v Federal Steam Navigation Co Ltd [1974] 1 WLR 505, 509 (Lord Reid), and Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586, 592 (Lord Nicholls of Birkenhead).”

Bennion, Bailey and Norbury on Statutory Interpretation, 8^th ed (2020) (“Bennion”) states the presumption that an absurd result is not intended in the following terms, at 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. Here, the courts give a very wide meaning to the concept of ‘absurdity’, 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.

(2)

The strength of the presumption against absurdity depends on the degree to which a particular construction produces an unreasonable result.

(3)

The presumption may of course be displaced, as the ultimate objective is to ascertain the legislative intention.”

Earlier formulations of that principle in Bennion have been approved by this court, see for example R v McCool [2018] 1 WLR 2431, paras 23 – 25 (Lord Kerr of Tonaghmore JSC) and the observations of Lord Millett in R (Edison First Power Ltd) v Central Valuation Officer [2003] 4 All ER 209, paras 116-117.

The potency of the term defined The Respondents rely on the principle sometimes referred to as “the potency of the term defined”. They submit that the other services listed in section 4(3)(a)/419A(2) only fall within the scope of the term “claims management services” to the extent that they are part and parcel of services involving the managing of claims. The principle, if such it is, has been used in a number of cases involving difficult points of statutory construction. In MacDonald (Inspector of Taxes) v Dextra Accessories [2005] UKHL 47, [2005] 4 All ER 107, (“Dextra”) the House of Lords was considering the meaning of the words “potential emoluments” in a tax context. Lord Hoffmann, with whom the other members of the House agreed, said at para 18:

“In the ordinary use of language, the whole of the funds were potential emoluments. They could be used to pay emoluments. It is true that, as Charles J pointed out, ‘potential emoluments’ is a defined expression and 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.”

Lord Hoffmann made a similar point in Oxfordshire County Council v Oxford City Council [2006] UKHL 25, [2006] 2 AC 674 (“Oxfordshire”). That case concerned the definition of a village or town green and whether an area of scrub land much of which was described as “impenetrable by the hardiest walker” fell within the statutory definition of a village or town green. Under the heading “What is a village green?” Lord Hoffmann referred to a “visceral unease” some might feel at the lack of resemblance between the land sought to be registered in the case before the House and the “traditional” village green:

“37 … Perhaps, one might feel, the concept could be narrowed by importing into the definition some of the qualities which are associated with the ordinary use of the term defined - what might be called an ‘Auburn test’, not expressly stated in the definition but implied from the choice of the words ‘town or village green’.

38 My Lords, it is true that in construing a definition, one does not ignore the ordinary meaning of the word which Parliament has chosen to define. It is all part of the material available for use in the interpretative process. But there are several reasons why I think that it would be unwise for your Lordships, at any rate without full argument, to embark upon the process of introducing some elements of the traditional village green into the statutory definition.”

The reference to the “Auburn test” was to the green at Auburn described in wistful terms in Goldsmith’s poem The Deserted Village (1770) from which Lord Hoffmann had quoted at para 3 of his speech. Lord Rodger of Earlsferry at para 115 agreed with Lord Hoffmann that it should not be so limited. Lord Walker of Gestingthorpe noted at para 128 that Parliament had deliberately chosen not to adopt a narrower definition that had been proposed by the Royal Commission on Common Land 1955–1958 (1958) (Cmnd 462). Lord Scott of Foscote at paras 81 – 83 placed greater reliance on the potency of the term defined. He held that the ordinary meaning of the term did affect its scope, though he agreed with the outcome of the appeal on other grounds. He said:

82 In Bennion, Statutory Interpretation, 4th ed (2002), p 480, under the side-heading ‘Potency of the term defined’, the author says:

‘Whatever meaning may be expressly attached to a term, it is important to realise that its dictionary meaning is likely to exercise some influence over the way the definition will be understood by the court. It is impossible to cancel the ingrained emotion of a word merely by an announcement.’

The author gives a number of examples from decided cases which illustrate, convincingly in my opinion, his point. …

83 My Lords, I would apply the same approach to construction of the definition of ‘town or village green’ in section 22(1) of the 1965 Act, or, for that matter, to construction of ‘town or village green’ in the Victorian statutes to which I have referred. I do not believe it can be correct to insist on a literal application of the section 22(1) definition so as to apply it to land that no one would recognise as a town or village green.”

Lady Hale asked the question “Is there some essence of the very expression ‘town or village green’ which would preclude or at least militate strongly against the registration of such land as a green?”: para 145. She said that she had considerable sympathy for the views expressed by Lord Foscote and noted that the powerful points expressed by Lord Hoffmann depended to a large extent on how the term had been construed since the 1965 Act was passed. She preferred to leave the issue for another day.

The Appellants in this appeal argue that a term defined only has “potency” for this purpose if it has a settled meaning. They rely for this proposition on Phillips v News Group Newspapers Ltd and another [2012] UKSC 28, [2013] 1 AC 1 (“Phillips”). The issue there was whether information left by people in voicemail messages recorded on their friends’ phones was “technical or commercial information” falling within the definition of “intellectual property” in section 72(5) of the Senior Courts Act 1981. Section 72(2)(a) referred to “proceedings for infringement of rights pertaining to … intellectual property” for the purpose of removing the privilege against self-incrimination. “Intellectual property” was then defined as including technical or commercial information.

It was accepted by the parties in Phillips that there was no universal definition of “intellectual property” and that Parliament had adopted a variety of definitions for different situations. Lord Walker referred at para 19 to Lord Hoffmann’s dictum in Dextra as to the potency of the defined term. But he concluded, at para 20, that there was no particular potency about the expression because although there was general consensus as to its core content, there was no general consensus as to its limits. For present purposes, he said, the essential point was that the definition contained the words “technical or commercial information” so that Parliament had made plain that information within that description was to be regarded as intellectual property for this purpose whether or not it would otherwise be so regarded.

Lord Walker, however, acknowledged that there was some “limited potency” in the expression and more generally in the legislative purpose of section 72 in enhancing protection against unlawful trade competition. Further, that might be of assistance in determining the meaning of the phrase “technical or commercial information”.

Applying those principles to the construction of section 4(2) and (3)/419A(2)

As regards a purposive construction of the provision, the CAT and the Divisional Court referred extensively to the history and context of the provisions in Part 2 of the CLSA 1990 and the regulation of claims management services in the Compensation Act 2006: see paras 22 to 35 of the CAT judgment and paras 69 to 79 of the Divisional Court judgment. The Divisional Court considered the mischief which section 4 was intended to remedy at paras 73 onwards. They referred to the Explanatory Notes to the Act which in turn referred to the Better Regulation Task Force report “Better Routes to Redress” (2004) and to the Government consultation paper, and the responses paper. They also quoted from the Explanatory Memorandum to the 2006 Scope Order. Henderson LJ concluded:

“78 Taking stock at this point, it seems reasonably clear to me that the purpose of introducing statutory regulation of claims management services in section 4 of the 2006 Act and its associated Scope Order was to enhance consumer protection in areas where the activities of "claims intermediaries" had been causing widespread public concern. Typical activities of the kind causing such concern might be broadly described as proactive "claims farming" or the formation of books of potential claimants to pursue legal claims, followed by assistance in the formulation and bringing of those claims, in relation to matters such as personal injuries, employment, housing, and financial products or services, in all of which consumer protection is likely to be much needed: compare article 4(2) and (3) of the Scope Order, set out in the Tribunal's judgment at para 28.

79 Conversely, there is no suggestion in any of the material I have reviewed which indicates 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) [2003] QB 381 and Arkin [2005] 1 WLR 3055, formed any part of the explicit mischief that section 4 of the 2006 Act sought to remedy.”

Neither party before this court sought to rely on anything that was said in Parliament during the debates on the Bill which became the Compensation Act 2006. The debates at Second Reading in the House of Commons appear to have focused on whether trade unions would be caught and should be exempted.

In my judgment, a purposive construction does not point clearly either in favour of or against a particular construction. The high point for the Appellants is a comment in the Explanatory Notes to the 2006 Act to the effect that the Act “provides the outline regulatory framework to authorise providers who would be required to comply with rules and codes of practice”: see the passage quoted by the Divisional Court at para 75. The Respondents on the other hand point to the undoubted fact that litigation funders were not and never have been brought within the regulatory regime created by the Act. Further, the Respondents argue that the 2006 Act was enacted shortly after the Court of Appeal had stated very clearly in Factortame (No 8) and Arkin that the courts at least did not regard litigation funding as problematic. On the contrary, as I have described earlier, the Court of Appeal stressed the importance of litigation funding as providing access to justice. The “state of affairs”, to adopt Lord Wilberforce’s phrase (see para 108 above), did not suggest that the purpose of the legislation was to bring litigation funding with the scope of potentially regulated activity.

Turning to the presumption against absurdity, the Respondents rely on this presumption to submit that section 4(2) and (3)/419A(2) should not be read as meaning that everything listed amounts to a claims management service, subject only to the qualification that it is provided “in relation to the making of a claim”. They give examples of absurdity that would result from treating every service listed, even if provided just by itself, as providing claims management services. The service of “making inquiries” in relation to the making of a claim in section 419A(2)(d) is, without more, entirely unbounded. There is no limit on the kind of inquiries that are covered. Similarly, if referring or introducing one person to another in relation to the making of a claim is a claims management service, a barrister’s clerk would be caught by the definition since he or she clearly refers or introduces members of chambers to solicitors in relation to the making of claims. If the litigation funders in this case are caught, then so would an ordinary bank giving a loan, if they were aware that the loan was to fund the making of a claim.

The Appellants accept, as they must, that their interpretation stretches the term claims management services beyond anything that could properly be described by the ordinary sense of those words. Their answer to the absurdity point was that it does not matter that all these services are caught by the definition. Parliament assumed that the Lord Chancellor would use the power reasonably when deciding which claims management services to regulate. They point to the additional control exercised because the making of an order under section 4 was subject to the affirmative resolution procedure: see section 15 of the Compensation Act 2006 and section 26 of FSMA.

I do not accept that that is a sufficient answer to the undoubted absurdity problem thrown up by the Appellants’ submission. The role of the legislature is to set the boundaries for the exercise of executive powers to make subordinate legislation. Those boundaries are defined by Parliament so that the later exercise of those powers can be examined by the courts to determine whether the resulting instrument made by the executive is within the vires of the power or not. The courts are frequently called upon to decide whether secondary legislation which the executive contends is authorised by the power conferred goes beyond the remit that Parliament delegated by the grant of that power. To argue, as the Appellants argue here, that it does not matter how broadly the power to regulate was drawn by the statute because one can always trust the executive only to use the power reasonably upsets that balance between the legislature and the executive.

Furthermore, the decision of Parliament to include a degree of control over the making of subordinate legislation through the affirmative resolution procedure does not help to save or justify the broad interpretation for which the Appellants contend. The court’s power to determine the legality of subordinate legislation is well established; even where a provision has been approved by Parliament, this does not prevent it from being challenged. In Hoffmann-La Roche & Co AG v Secretary of State for Trade and Industry [1975] AC 295, 365, Lord Diplock stated:

“even though [subordinate legislation] is contained in an order made by statutory instrument approved by resolutions of both Houses of Parliament … I entertain no doubt that the courts have jurisdiction to declare it to be invalid if they are satisfied that in making it the Minister who did so acted outwith the legislative powers conferred upon him by the … Act of Parliament under which the order [was] purported to be made …”

The Appellants’ argument that the formal parliamentary approval procedure is the control that saves the enabling provision from being too wide also runs counter to the legitimacy of the court’s jurisdiction to review subordinate legislation. The parliamentary approval process does not in this case shed any light on the correct construction of the provisions and is no answer to the absurdity problem.

If the Lord Chancellor had decided to prescribe ordinary lending by banks as a regulated claims management service or to require barristers’ clerks to be authorised under the regime, I have no doubt that there would have been a powerful case mounted that the order was ultra vires the power conferred by section 4, or by section 419A. That would be on the basis that the service that a bank or a barristers’ clerk provides is not a claims management service. The qualifying words “in relation to the making of a claim” do not narrow the scope sufficiently to mitigate the absurdity. The term “claim” is itself defined very broadly in section 419A(3). This presumption therefore points firmly in favour of a narrower construction of the term “claims management services” in section 4/419A.

How then should one construe section 4/419A to avoid the absurdity that arises from an argument that because the reference to the provision of services “includes” a reference to providing financial assistance, making inquiries, referring one person to another, that means that all those activities, taken by themselves, are also claims management services? The choice is, in my judgment, between two alternative constructions:

The case law on the “potency of the term defined” is useful here. The Phillips case on which the Appellants rely is, in my view, of limited assistance on this point. The term “intellectual property” is clearly a term of art because it is not using the word “intellectual” in its normal sense, nor does it cover things that are “property” in any normal sense either in common parlance or as a legal concept. A non-lawyer coming across the term “intellectual property” for the first time would have no idea what it means. In those circumstances clearly there must be some settled meaning to the term, divorced from the actual words used, in order for the term to have some potency of the kind described by Lord Hoffmann. That is not the position with the term “claims management services”. Each of those words has an ordinary meaning and the words bear that ordinary meaning here. The potency of that meaning is not destroyed by the fact that the precise boundary of the term is unclear. This point was made by Lewison LJ in R (Sisangia) v Director of Legal Aid Casework [2016] EWCA Civ 24, [2016] 1 WLR 1373 (“Sisangia”), referred to in Bennion section 18.3. That case concerned the meaning of the term “abuse of position or power” in a provision of LASPO 2012 which set out the kinds of claims for which legal aid could be granted. The judge at first instance had construed the term broadly on the basis that there was no generally recognised definition of “abuse of position or power” to be derived from the case law. Lewison LJ (with whom Elias and Christopher Clarke LJJ agreed) rejected that approach because it ignored the potency of the term defined: para 11. After referring to Dextra, he said:

“14 In my judgment the fact that a definition of ‘abuse of position or power’ of universal application cannot be extracted from the authorities does not mean that the term defined can be ignored. It is equally possible, indeed probable, that Parliament’s intention was that it should be left to the courts to develop what the phrase means.

…

17 The fact that ‘abuse of position or power’ cannot be given a hard-edged definition does not mean that the concept itself is meaningless.”

I respectfully agree. Almost all English words have imprecise boundaries. If one were to limit the principle of the “potency of the term defined” to ordinary words that have a single accepted core meaning and no fuzzy penumbra, almost no English word would have any potency at all. Case law is full of instances where the courts have had to grapple with the uncertain boundaries of an ordinary word.

The fact that litigation funding would not be regarded as “claims management services” in the normal meaning of those words is an important pointer in favour of a construction which treats the listed services as included in the term when they are provided as part of an overall claims management service but not when they are provided by themselves, not as part and parcel of managing a claim.

A similar point about the inclusion of a range of disparate items in a defined term arose in Winfield v Secretary of State for Communities and Local Government [2012] EWCA Civ 1415, [2013] 1 WLR 948, a case cited in the passages from Bennion, section 12.2 to which the parties referred us. That appeal concerned the statutory definition of the word “advertisement” for the purposes of a provision in class 13 of the Town and Country Planning (Control of Advertisements) (England) Regulations 2007 (SI 2007/783) which gave deemed planning consent to an advertisement displayed on a site continually for ten years. For that purpose, the word “advertisement” was defined by reference to the meaning given to it in section 336(1) of the Town and Country Planning Act 1990. That definition is very broad and expressly “includes” any hoarding or similar structure used or designed for the display of advertisements. The claimant had installed wooden posts and a wooden structure on the land for ten years and had sometimes displayed placards and notices on them. He argued that the unbroken presence on the land of the wooden posts and the wooden structure for more than ten years gave rise to deemed consent because, even during the periods when nothing was attached to them, they were expressly included in the definition of “advertisement” and so continued to be advertisements for that purpose.

The Court of Appeal disagreed. Maurice Kay LJ (with whom Sir Stephen Sedley agreed) said:

“14.

This is difficult drafting, … In Butler v Derby City Council [2006] 1 WLR 1346, para 18 Sullivan J said:

‘There is a degree of circularity in this definition … if one asks, what is an advertisement, the answer is, at least in part, something that is “in the nature of, and employed wholly or partly for the purposes of, advertisements”. In this respect the definition of an advertisement is like the definition of the proverbial elephant. One knows an elephant (or advertisement) when one sees it because it is in the nature of an elephant (or advertisement).’

15.

The submission on behalf of Mr Winfield is that the latter part of the definition, beginning with the word ‘includes’, brings within the meaning of ‘advertisement’ a ‘hoarding or similar structure used or designed, or adapted for use, for the display of advertisements’. The structure need never have had upon it anything recognisable as an advertisement. It would be sufficient, if, for example, it had merely been designed or adapted for use for the display of advertisements.”

The Court of Appeal noted that a purposive construction of the provision pointed in favour of a very broad meaning for the word “advertisement” as Mr Winfield contended. The provision was aimed at facilitating the control of advertising and was drawn broadly as an anti-avoidance measure to prevent loopholes. It was intended to enable the local authority to control not just a sign or placard but the structure to which it is attached. But, the Court of Appeal asked, did that necessarily mean that a bare unadorned structure remained an advertisement? It did not. Maurice Kay LJ said, at para 19:

“I am satisfied that common sense can be accommodated within the cumbersome wording of the definition. During the period of cessation, the unadorned structure is no longer “in the nature of, and employed wholly or partly for the purposes of, advertisement” and it cannot feed the continuance required by class 13. I accept that this interpretation is at or near the limits of the permissible, but it seems to me to serve the purpose of the legislation and to chime with common sense. If it were not correct, it would mean that a landowner who erects a structure with the sole intention of eventual use for advertising, but who does not adorn it for ten years, would immediately obtain the benefit of class 13 if he were to commence active advertising at the commencement of the eleventh year. I do not believe that the legislation was intended to benefit advertisers (including advertising companies) in that way.”

Just as the fact that an advertisement is expressly defined as including the hoarding on which it is fixed does not mean that the hoarding alone is an advertisement, in our case, the fact that claims management services include providing financial assistance, does not mean that all financial assistance is a claims management service whenever it relates to a claim. I recognise that “claims management services” are perhaps less readily identifiable than elephants or advertisements. But the Appellants fairly accepted that litigation funding of the kind with which we are concerned did not naturally fall within the scope of the term – the litigation funders here are not managing claims but are funding the litigation and advocacy services or claims management services provided to the claimants by others.

I am fortified in this conclusion by three further considerations. The first is that the drafting of the “services” which are said to become claims management services by the combination of section 4(2)(b) and (3)(a)(i) – (iv) is so broad as to be almost meaningless. How broad are the services “by way of or in relation to legal representation” or “making inquiries”? It cannot have been intended that everything falling within those terms is capable of being made a regulated activity even if the person does not also “manage claims” in any recognisable way. I agree, therefore with what Henderson LJ said at para 95 of the Divisional Court’s judgment. The imprecision in the drafting of section 4:

“shows that Parliament was content to leave its precise meaning to be developed by the courts in the light of the purpose of the statutory scheme and the guidance which could be obtained from the relatively open-textured terms of the definition.”

This appears to be the first time that the courts have been called upon to develop that meaning, and I agree with the way in which the CAT and the Divisional Court carried out that task.

Secondly, it is important to consider the purpose for which claims management services are defined in section 4 of the Compensation Act 2006 and the subsequent section 419A FSMA. The prescription of some claims management services as regulated activities is not an end in itself but a means of empowering the Regulator to set standards for and control the conduct of persons carrying on regulated claims management services. The role of the Regulator designated by the Secretary of State under section 5 of the Compensation Act 2006 and now of the FCA is to regulate the conduct of authorised persons by for example investigating complaints. One can readily see that the inclusion of the ancillary services in section 4(3)/419A(2) within the scope of claims management services makes clear that standard setting and other regulation such as the capping of fees may extend to those aspects of the authorised person’s business even if those aspects might not strictly speaking be described as claims management services themselves. It forestalls an argument by claims management service providers that the aspects of their business listed are not strictly speaking claims management services and so should not be the subject of regulation.

Thirdly, a similar argument to that put forward by the Appellants was considered and rejected by the Court of Appeal in Factortame (No 8). The Secretary of State argued in that appeal that because the services that GT were providing were in large measure the type of services that solicitors customarily provide in the course of “the conduct of litigation”, the principles that applied to solicitors should apply to them. Lord Phillips analysed the services that GT were providing. He noted that given that it was a criminal offence to conduct litigation without being a solicitor, the term must be given a narrow meaning: “It cannot embrace all the activities that are ancillary to litigation and which are sometimes carried on by a solicitor and sometimes by a person who has no right to conduct litigation”: para 25. He cited Potter J in Piper Double Glazing v DC Contracts [1994] 1 WLR 777, 783 who said that “An unqualified person does not act as a solicitor … merely by doing acts of a kind commonly done by solicitors. To fall within that phrase, the act in question must be an act which it is lawful only for a qualified solicitor to do and/or any other act in relation to which the unqualified person purports to act as a solicitor”. Lord Phillips said that GT’s services had at all times been ancillary to the conduct of litigation by those solicitors.

The Appellants’ argument in this appeal suffers from the same flaw as the Secretary of State’s argument in Factortame (No 8). It relies on a syllogism: claims management service providers often provide financial assistance - Therium provides financial assistance - Therium must therefore be a claims management service provider. That ignores the point made in Factortame (No 8) that the people who provide advocacy services, litigation services and claims management services provide a bundle of services some of which are ancillary to the core service. A person who provides that ancillary service by itself is not within that class.

Mr Thanki relied on the express exclusion from claims management services in section 4(3)/419A(2) of the services of witnesses, whether or not expert witnesses. He submitted that the definition of claims management services must be casting the net very wide if Parliament considered it necessary to exclude expert evidence. There are two answers to that point. First, the exclusion of a specific item does not necessarily mean that it would have been included had it not been expressly excluded: see Sisangia para 30. Secondly, it is more likely, in my view, that the explanation for this exclusion lies in Factortame (No 8), decided shortly before the Compensation Act 2006, and the nature of the services that GT provided to the fishermen. In his judgment, Lord Phillips addressed at some length the question whether expert witnesses could provide their services on a contingency fee basis. The Court of Appeal concluded at para 73 that it would be a very rare case indeed where the court would consider that appropriate. As I have said, the Court of Appeal, by contrast, saw nothing contrary to public policy in pure funding being offered under a damages-based contingent arrangement. So the Court of Appeal saw evidence and expert evidence falling on the wrong side of the champerty line but litigation funding falling on the right side. The legislature in section 4(3)(b)/419A(2) made clear that giving evidence and expert evidence falls on the right side of the line being drawn here. It would not make sense to suggest, from that provision, that the legislature was moving pure funding to the wrong side of the line, at least without making it clear that that was the intention.

I would therefore hold that section 4(3)/419A(2) properly construed means that claims management services include the ancillary services commonly provided by claims managers listed so that those ancillary services may also be regulated activities and subject to the supervision and standard setting role of the Regulator. It was not intended to elevate those ancillary services into claims management services in and of themselves, when they are undertaken outside the context of a claims management business. That is all that the section needed to achieve and that is, in my judgment, what it achieved both in its original version in section 4 of the 2006 Act and in its new version in section 419A of FSMA.

If I am wrong as to the scope of the definition in section 4/419A, there is still the question of how to define “a person providing advocacy services, litigation services or claims management services” for the purpose of section 58AA(3)(a). For this task, four further interpretative criteria are relevant:

The relevance of the 2010 and 2013 DBA Regulations

It is fairly accepted by the Appellants in this appeal that the terms on which the 2010 and 2013 DBA Regulations were drafted can be used as an aid to construe the provisions of section 58AA: see Factortame (No 8), para 57. It is apparent from the way the 2010 DBA Regulations are drafted that they were not directed at agreements with litigation funders. For example:

The 2010 DBA Regulations therefore assumed that the person providing the services was a “representative” of the recipient of the services. A litigation funder of the kind described in Factortame (No 8) or Arkin does not “represent” the claimant in any normal sense of that word. Those Regulations, further, assumed that the representative was providing the kind of service which involves ongoing work typically charged for at an hourly rate. Again, that is entirely inapt to apply to a litigation funder who does not charge an hourly rate for work done but rather recovers sums advanced to finance the litigation plus an additional fee. That distinction is reflected in the different description of the uplift to which I have referred in section 58B (dealing with litigation funders) and sections 58 and 58A (dealing with legal representatives). Litigation funders do not charge a success fee expressed as an amount of fees charged because they do not charge fees like legal representatives do.

The 2013 DBA Regulations were similar to the earlier Regulations in that they referred to the recipient of the services as the client “who has instructed the representative” to provide advocacy services, litigation services or claims management services; they assume that the party providing the services is a “representative” who typically charges an hourly rate for time spent on the claim or proceedings. The use of these terms is not accidental. In fact, the Explanatory Memorandum laid before Parliament by the Ministry of Justice refers to the person providing the services as “the lawyer”, apparently regarding that as interchangeable with “the representative”. The DBA principles are described as “based on the lawyer not being able to recover any more than the DBA fee” (para 4.5).

Damages-based agreements entered into by litigation funders cannot realistically comply with either the 2010 or 2013 DBA Regulations because those Regulations are not drafted in a way which applies to their business. The issue in this case is whether Parliament and the Lord Chancellor by enacting section 58AA and prescribing conditions with which damages-based litigation funding agreements could not comply intended thereby to render unenforceable the damages-based litigation funding agreements currently underpinning claims in the CAT and in other courts and tribunals.

The presence of section 58B CLSA 1990

I explained earlier that the AJA 1990 inserted section 58B about litigation funders into the CLSA 1990 as well as replacing the original section 58 with revised sections 58 and 58A. Section 58B has not been brought into force or amended since then. The Divisional Court placed considerable reliance on the existence of section 58B. Henderson LJ said at para 88 that one of the main reasons why he agreed with the CAT’s decision was the presence of section 58B. The fact that the section had never been brought into force was, he said, beside the point: (para 88)

“… As I have explained, section 58B remained unrepealed on the statute book in 2006 (as it still does today), and the executive (in the form of the Lord Chancellor or the Secretary of State) is under a continuing duty to consider whether it should be brought into force: see para 81 above, and the decision of the House of Lords in the Fire Brigades Union case [1995] 2 AC 513. Furthermore, if section 58B were in force, there cannot be any doubt that the funding agreements in the present case would fall within its ambit. In terms of the definition in section 58B(2), set out at para 70 above, each such agreement is one under which the funder agrees to fund (in whole or in part) the provision of advocacy or litigation services by someone other than the funder to the litigant (i e the representative and/or the individual claimants), and the litigant agrees to pay a sum to the funder in specified circumstances.”

Henderson LJ, at para 89, said that it was “most improbable” that Parliament would have intended, by a sidewind, to bring litigation funding agreements which were potentially liable to regulation under section 58B within the ambit of the scheme for regulation of claims management services under the 2006 Act.

The case to which Henderson LJ referred, R v Secretary of State for the Home Department, Ex p Fire Brigades Union [1995] 2 AC 513 concerned a statutory scheme set out in the Criminal Justice Act 1988 for compensating victims for criminal injuries. The quantum was to be calculated on the same basis as common law damages. The scheme was never brought into force by the Secretary of State. In 1994, a new non-statutory scheme was established that calculated compensation according to a tariff no longer based on common law principles and was substantially less generous. The House of Lords rejected the submission that the Minister was under a statutory duty to bring the provisions into force. That did not mean, however, that the Secretary of State had an absolute and unfettered discretion whether or not to do so. Lord Browne-Wilkinson said, at p 551:

“So to hold would lead to the conclusion that both Houses of Parliament had passed the Bill through all its stages and the Act received the Royal Assent merely to confer an enabling power on the executive to decide at will whether or not to make the parliamentary provisions a part of the law. Such a conclusion, drawn from a section to which the sidenote is ‘Commencement,’ is not only constitutionally dangerous but flies in the face of common sense. … In the absence of express provisions to the contrary in the Act, the plain intention of Parliament in conferring on the Secretary of State the power to bring certain sections into force is that such power is to be exercised so as to bring those sections into force when it is appropriate and unless there is a subsequent change of circumstances which would render it inappropriate to do so.”

The result of this was, the House of Lords held, that the Secretary of State came under a clear duty to keep under consideration from time to time the question whether or not to bring the sections into force. The introduction of the new tariff scheme was therefore unlawful because Parliament had expressed its will that there should be a scheme based on the tortious measure of damages. That expression of Parliament’s will had not been repealed, nor had Parliament been invited to repeal it.

Lord Lloyd of Berwick also held that although the legislative provisions did not have statutory force that “does not mean that they are writ in water”: p 570H. They contain a statement of parliamentary intention even though they create no enforceable rights. Lord Nicholls said that although the Secretary of State is not under a legal duty to appoint a commencement day, he or she “is under a legal duty to consider whether or not to exercise the power and appoint a day” (emphasis in original): p 575F. That obligation would cease only when the power was exercised or Parliament repealed the legislation. Until then the duty to keep under review continued.

The Appellants in this case say that that section 58B is not relevant because it does not empower the prescribing of a complete code for regulating litigation funding and in particular it could not be used to control damages-based litigation funding agreements. Henderson LJ was wrong to say that the funding agreements in the instant case would fall within section 58B if that section were brought into force. That is because litigation funding agreements within its scope are those where the uplift agreed is calculated by reference to the money spent by the funder and not by reference to the damages received: see section 58B(3)(e).

I accept that correction but I do not consider that that detracts from the force of the point made by Henderson LJ. The structure of this series of statutory provisions shows that agreements entered into by funders who agree to fund the provision of advocacy and litigation services by someone else were dealt with separately from agreements entered into by those providing the advocacy and litigation services. The former were intended to be dealt with, if at all, by section 58B CLSA. That would be brought into force if needed and would, one assumes, be accompanied by a further set of regulations. Those regulations would need to define who is a “funder” for this purpose because section 58B(3)(a) does not enact a definition of funder but envisages that the definition will need to be contained in regulations. In enacting section 58B in the terms set out, Parliament no doubt intended that the requirements would be prescribed in a way which enable at least some litigation funding agreements to comply with them and so be enforceable.

If and when section 58B needs to be activated, Parliament may also have to consider whether that section itself needs amendment to reflect how matters have moved on since the AJA 1999 — whether, for example, it should apply to the funding of claims management services provided by someone else as well as to the funding of the advocacy or litigation services to which it is currently limited and whether it should apply to damages-based litigation funding agreements as well as agreements which provide for an uplift on the amount lent.

It seems to me, as it seemed to the Divisional Court, most improbable that Parliament intended that damages-based litigation funding agreements would all be rendered unenforceable by section 58AA without any mention of this fact. Given the Secretary of State’s duty to consider whether to bring section 58B into force, one would expect the Appellants to be able to point to some explanation given by the Government as to why the 2010 and 2013 DBA Regulations were drafted so as to be the mechanism by which all damages-based litigation funding agreements were rendered unenforceable, rather than revising and implementing the mechanism for regulation of such agreements that Parliament had enacted in section 58B.

Incorporation of a definition from another statute

The Appellants place weight on authorities that make clear that where a definition is incorporated into another statute it must bear the same meaning in both places. The leading case on this point is Williams v Central Bank of Nigeria [2014] AC 1189 (“Williams”). That case concerned the word “trustee” in section 21(1)(a) of the Limitation Act 1980. Section 38(1) of that Act defined the terms “trust” and “trustee” as having the same meanings as in section 68(17) of the Trustee Act 1925. That earlier definition extended the expressions to implied and constructive trusts and to the duties incident to the office of a personal representative. The issue before the court was whether the term “trustee” in the 1980 Act included as well a stranger to a trust who was liable to account (as the defendant bank was alleged to be) on the footing of dishonest assistance or knowing receipt of trust assets. If such a stranger was not a “trustee” then the claim would be time barred.

Lord Sumption (with whom Lord Hughes JSC agreed) dealt at para 27 with the submission that Parliament must have intended to abolish for limitation purposes the distinction between true trustees and those on whom equity imposed a liability to account as if they were trustees. This was because the legislation was designed to adopt the recommendations of the Wright Committee (see Law Revision Committee, Fifth Interim Report, Statutes of Limitation, (1936) (Cmd 5334)) and that is what they recommended. Lord Sumption rejected that submission for a number of reasons. First, he rejected the submission that the Wright Committee had made such a proposal. Further, if Parliament had understood the Wright Committee to have made that recommendation, they would not have implemented it by adopting the definition in the Trustee Act 1925 since that Act was also not concerned with ancillary liability. Lord Sumption then went on: para 27

“The latter point raises an altogether more fundamental objection to using the Committee’s report to elucidate not the rules of limitation as such but the categories of ‘trustee’ to which they were intended to apply. By adopting not just the language but the meaning of the ready-made definition in the Trustee Act 1925, Parliament directed the courts to discover its meaning in the latter Act. On that question, the intentions of a Committee reporting 11 years later cannot be of the slightest assistance.”

Lord Neuberger (with whom Lord Hughes also agreed) made the same point in Williams:

“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. … In the light of Lord Mance JSC’s judgment, it is, I think, important to emphasise that the way in which the definition of ‘trustee’ in section 68(1)(17) is incorporated into the 1980 Act appears to leave no scope for contending that the meaning of the expression in the 1980 Act can somehow be different from that which it bears in the 1925 Act.”

He rejected any suggestion that the words in the Limitation Act 1980 could bear any different meaning, because of the mischief being addressed by the later Act. When performing its interpretative role, the court cannot take “a free-wheeling view of the intention of Parliament” treating the words used as merely one item of admissible material: para 72.

That principle of construction, expressed in such uncompromising terms by Lord Neuberger, is in tension here with another principle referred to by Bennion at section 11.6. That section is headed “Regard to be had to consequences” and states the principle in the following terms:

“When considering, in relation to the facts of the instant case, which of the opposing constructions of the enactment corresponds to its legal meaning, the court should assess the likely consequences of adopting each construction, both to the parties in the case and (where similar facts arise in future cases) for the law generally. If on balance the consequences of a particular construction are more likely to be adverse than beneficent this is a factor telling against that construction.”

The Appellants did not demur from the Respondents’ description of the very adverse consequences of the choice between the two constructions I have set out at para 208, above. As I have already explained, the Appellants’ primary argument in support of the breadth of the term “claims management services” for the purposes of section 4/419A is that Parliament included all sorts of ancillary services in the definition because the breadth of the term had no immediate effect on anyone unless or until the services were prescribed in an order of the Lord Chancellor. Transplanted into its new context in section 58AA, however, the Appellants contend that the breadth of the definition certainly does have adverse consequences for a person providing unregulated claims management services and for their customer. Those consequences are that the funders cannot enforce their agreement for the repayment of the millions of pounds they have spent.

Ms Dunn, the current Chair of the Association of Litigation Funders, described the consequences beyond the present proceedings in her witness statement:

“These consequences will extend to all or most litigation funding agreements that have been agreed since litigation funding began in England and Wales. This would be massively damaging both for the administration of justice in relation to the existing cases which involve funding by litigation funders, and the future access to justice of parties who would otherwise have employed litigation funding agreements to fund their cases. It would bring to an abrupt end hundreds of funded claims with potentially catastrophic financial consequences for all involved in the case. It would have a major impact on the development of group litigations before the English Courts (including but not limited to Collective Proceedings Orders before the Competition Appeals Tribunal), given the inter-relationship between that group litigation and the litigation funding industry. This would have enormous financial consequences: there is estimated to be over £500 million of costs incurred annually by litigation funders in the UK alone. It would also have huge policy implications for the litigation funding industry, which ALF is best-placed to address.”

Mr Leslie Perrin, Chairman of Calunius, also describes the importance of the issue:

“… if the proposed LFAs with [UK Trucks Claim] were found to be DBAs, that finding would invalidate most if not all LFAs that have been agreed since litigation funding began. For example, it would invalidate the Merricks LFA (so far as I understand its terms from the judgments of the CAT) and would be likely to mean that no [collective proceedings order] could ever be pursued, given the reliance that has been placed on litigation funding in the development of this aspect of the work of the CAT. At the least, it would require a radical review not only of these LFAs but of the entire litigation funding sector as it has developed in the United Kingdom.”

As regards the consequences of the Appellants’ submission, there is the additional point arising from section 58AA(11) which cross refers to section 47C(8) of the Competition Act 1998 (inserted by the Consumer Rights Act 2015). That provides that a damages-based agreement is unenforceable if it relates to opt-out collective proceedings even if it complies with the requirements set in section 58AA.

Given that I have decided that the importation of the term “claims management services” from section 4(2)(b)/419A(1) into section 58AA does not lead to the outcome for which the Appellants contend, I do not have to address what would be the position if the term might be broad enough to do that. The Appellants were not able to point to anything that has happened in terms of orders made by the Lord Chancellor or standards set by the Regulator or FCA which would be disrupted by adopting the narrower of the two possible constructions set out in para 208, above. Litigation funding as an independent activity has never been treated as “claims management services” for any purpose either under section 4/419A or under section 58AA CLSA.

In my judgment, therefore, the highest that the Appellants can fairly put their case is that section 4/419A is ambiguous as to whether it is intended to catch “financial assistance”, “making inquiries” or “introducing one person to another” in relation to a making of a claim even where that activity is unconnected with what one might naturally describe as managing claims. If there is that ambiguity, one must then address whether the incorporation of the term in the later legislation casts any light on whether it was really ever intended to be that wide. This principle is included in Bennion section 24.19. It is important not to overstate this principle because as Lord Radcliffe said in Inland Revenue Comrs v Dowdall, O’Mahoney & Co Ltd [1952] AC 401, 426 cited in Bennion “The beliefs or assumptions of those who frame Acts of Parliament cannot make the law”. But where the provision in the earlier statute is ambiguous and capable of two meanings, a later statute can assist in resolving that ambiguity if it is clear that it assumes that the earlier provision bore one of two possible meanings.

This problem was considered in R (ZYN) v Walsall Metropolitan Borough Council [2014] EWHC 1918 (Admin), [2014] PTSR 1356, a case that was raised during the hearing before the court. In that case the difficulty was construing a reference in regulations made in 1987 to the “Court of Protection”. The Court of Protection that had existed at the time those regulations were made had been abolished under legislation enacted in 2005 and replaced as from October 2007 with a new Court of Protection. Although transitional provision was made in the 2005 legislation dealing with various matters, there was nothing which stated that references in subsisting legislation to the old Court of Protection were to be treated as referring to the new Court. The question was whether the reference in the 1987 regulations was now redundant or whether it should be read as referring to the new Court. Leggatt J compared the historical approach to interpreting legislation with the updating, or “always speaking” approach. He preferred the updating approach so that the term should be interpreted as referring to the body in existence at the time when the regulations are being applied: para 51. Leggatt J then went on to consider whether there are circumstances in which later legislation can change the meaning of earlier legislation. This can, of course, be done expressly but:

“55 Even without explicitly requiring the courts to give a term in existing legislation a particular meaning, or to apply a specified rule when interpreting the term, Parliament may act in a way which treats the term as having a particular meaning and signals its approval of that meaning. A line of cases illustrates that this is a matter to which a court may properly have regard to resolve an ambiguity in the statutory language.”

Having considered a number of authorities on the point, Leggatt J concluded:

“59 This approach seems to me to respect the constitutional principle of parliamentary sovereignty. Bennion, at p 801, quotes a statement of Thomas Hobbes in Leviathan (1651), ch 26 that ‘the legislator is not he, by whose authority the laws were first made, but by whose authority they now continue to be laws’. If Parliament has proceeded on the basis that an existing law has a particular meaning at a time when, if Parliament had understood the law to have a different meaning, it is reasonable to infer that it would have acted differently, that may properly be treated as an implied directive as to how a previously ambiguous law should be interpreted.”

The term “Court of Protection” was capable of bearing either of two meanings. It was inconceivable that Parliament would have failed to update the 1987 regulations if they had thought that they referred solely to the body which had ceased to exist.

Leggatt J also addressed a point that underlies much of the debate in the present appeal, namely that Parliament simply overlooked or misunderstood the effect of the combination of the earlier provision and the abolition of the Court of Protection. That was not a permissible conclusion:

“65 That suggestion might have force if ascertaining the intention of Parliament involved a sociological inquiry into what was actually in the minds of individual legislators. However, that would be to mistake the nature of the interpreter’s task. When courts identify the intention of Parliament, they do so assuming Parliament to be a rational and informed body pursuing the identifiable purposes of the legislation it enacts in a coherent and principled manner. That assumption shows appropriate respect for Parliament, enables Parliament most effectively to achieve its purposes and promotes the integrity of the law. In essence, the courts interpret the language of a statute or statutory instrument as having the meaning which best explains why a rational and informed legislature would have acted as Parliament has. Attributing to Parliament an error or oversight is therefore an interpretation to be adopted only as a last resort.”

I respectfully agree with that analysis. One of the cases to which Leggatt J referred was Cape Brandy Syndicate v Inland Revenue Comrs [1921] 2 KB 403. That concerned legislation taxing excess profits introduced by the Finance Act (No 2) 1915 during the First World War and raised the issue whether a business that was started after the War could be caught. The problem was that the Finance Act (No 2) 1915, when specifying the comparison to be made in order to decide whether profits were “excessive”, appeared to contemplate that the comparison needed to be with profits earned in pre-war accounting periods. The Finance Act 1916 extended the operation of the taxing provision in the 1915 Act to later accounting periods but did not itself impose a new taxing provision. Lord Sterndale MR concluded that the framers of the Finance Act 1916 “were of the opinion” that the 1915 Act did catch businesses which started after the War commenced. He said: (p 414)

“I think it is clearly established in Attorney General v Clarkson [1900] 1 QB 156 that subsequent legislation on the same subject may be looked to in order to see what is the proper construction to be put upon an earlier Act where that earlier Act is ambiguous. I quite agree that subsequent legislation, if it proceed upon an erroneous construction of previous legislation, cannot alter that previous legislation; but if there be any ambiguity in the earlier legislation then the subsequent legislation may fix the proper interpretation which is to be put upon the earlier. … I think those are two possible constructions. It is perfectly obvious that the Act of 1916 and the Act of 1920 both assume that the Act of 1915 was so framed as to include post-war businesses, and therefore it seems to me to assume and really to direct that the second construction, which does not exclude post-war businesses, is the right construction of Part II of the fourth schedule to the Act of 1915.”

The ambiguity, if it exists, in section 4/419A can in my judgment be resolved in this way. Everything in the scheme of Part II of CLSA 1990 as amended over the years, in the pre-legislative materials, the 2010 and 2013 DBA Regulations and in the case law which Parliament is assumed to know shows that Parliament did not intend by enacting section 58AA suddenly to render unenforceable damages-based litigation funding agreements. Parliament must have read section 4/419A as having the second meaning I have suggested and so as not covering the litigation funding agreements at issue in these proceedings. There is no need, therefore, to frustrate the will of Parliament in that regard, under the banner (to adopt Lord Bingham’s phrase) of loyalty to the will of Parliament.

I therefore conclude that the Divisional Court was right to agree with the reasoning of the CAT that the giving of financial assistance is only included in the term claims management services if it is given by someone who is providing claims management services within the ordinary meaning of that term.

I would therefore dismiss the appeal.