“Only to the extent permitted” - having your cake and eating it

Like most people, lawyers love the idea of having their cake and eating it. A good example is when they deploy the phrase “only to the extent permitted”.  But does it work as a drafting technique? A recent Court of Appeal case, looking at litigation funding agreements, suggests it does.

PACCAR – a recap

The 2023 UK Supreme Court decision in PACCAR established that litigation funding agreements of the type that were then widespread in collective proceedings in the Competition Appeal Tribunal — with a “funder’s fee” calculated as a percentage of the damages awarded to the successful class representative — are damages-based agreements. As a result, they are only enforceable if compliant with the statutory regime for damages-based agreements.

Funding agreements post PACCAR

Since PACCAR, funders have revised their funding agreements so that they fall outside the statutory regime.

In Sony v Neill, the Court of Appeal agreed with the funders and held that litigation funding agreements used in collective proceedings in the Competition Appeal Tribunal which provided that the funder's fee was to be calculated as a multiple of the funder's outlay and, expressly or implicitly, capped the amount of the funder's recovery at the level of the proceeds recovered, were not unenforceable damages-based agreements.

“Only to the extent enforceable and permitted by applicable law”

Of more interest to this blog was a provision in the funding agreements attempting to get the benefit of any future favourable change in the law (which the Civil Justice Council recommended in its recent report).  This proposed change would reverse PACCAR and make the old, pre-PACCAR funding agreements—calculated on the basis of the damages awarded, not the funder’s outlay—enforceable once again.  Accordingly, the litigation funding agreements in Sony had an alternative method of calculating the funder’s fee whereby the funder would be entitled to a percentage of the damages if successful but “only to the extent enforceable and permitted by applicable law”. The agreement also contained a standard provision on severance stating that, if any part of the agreement was unenforceable, the whole agreement should not fail.

The Court of Appeal held that the “only to the extent permissible” language worked.  The provisions allowing the funder’s fee to be determined by reference to a percentage of the damages were valid but had no contractual effect unless and until the law changed to allow this approach. The fact that the clause contemplated an arrangement that was currently unenforceable did not render the clause unenforceable because it did not yet bite.

As a result, the question of severability fell away.  In other words, the “only to the extent permissible” language prevents the court from getting into the question of whether the agreement as a whole is unenforceable or only a part of the agreement.

Judgment: Sony Interactive Entertainment v Alex Neill