On 2 June 2025 the Civil Justice Council ("CJC") released its final report on its review of litigation funding in the UK. We summarise and comment on the key recommendations from the report below.
Background
The CJC's review was prompted by the Supreme Court's decision in R (PACCAR) v Competition Appeal Tribunal [2023] UKSC 28. PACCAR, which confirmed that litigation funding was subject to the Damages-Based Agreements Regulations 2013 ("DBA Regulations"). This means that litigation funding agreements ("LFAs") which allow for a funder's return on investment to be a percentage of the damages awarded to the claimant (previously the most common model for LFAs) are presently unenforceable in respect of opt-out proceedings before the Competition Appeals Tribunal ("CAT") and only enforceable for litigation if the LFAs comply with the strict requirements of the DBA Regulations, which LFAs usually do not.
In response, the former government: (i) sought to restore the pre-PACCAR position via the introduction of the Litigation Funding Agreements (Enforceability) Bill; and (ii) requested advice from the CJC on the regulation of litigation funding. The Bill did not make the legislative wash up and was not reintroduced in the wake of the 2024 general election when the current Labour government took office. The government subsequently signalled that it would not take further steps until it had received the CJC's final report.
Key Recommendations
The key recommendations from the CJC's report include:
Reversal of PACCAR
The CJC recommend that the government introduce legislation as soon as possible to reverse PACCAR with retrospective and prospective effect.
Following PACCAR, many funders re-negotiated LFAs so that their return is calculated as a multiple of their capital outlay, rather than as a percentage of damages, with the multiple increasing as the litigation progresses. The CAT approved this approach but that decision is subject to appeal to the Court of Appeal, which means there remains uncertainty over the enforceability of LFAs. This uncertainty would be cured by the proposed legislation.
The retrospective effect of new legislation would prevent successful claimants in historic cases from clawing-back the funders’ share of damages on the basis that, under PACCAR, the funders' share was paid out under an unenforceable LFA.
The Litigation Funding Agreements (Enforceability) Bill was intended to be retrospective in effect and it is possible the government will seek to revive this bill (or use similarly drafted wording) to address PACCAR.
Light-touch regulation
The CJC recommend that the government adopt a "light-touch" statutory regime for regulating litigation funding. The recommended regulatory authority is the Lord Chancellor, rather than the FCA, albeit it is proposed that this is revisited in five years.
The regime would include capital adequacy requirements, a prohibition on the control of litigation, provisions dealing with conflicts of interest, anti-money-laundering requirements, a binding dispute resolution process for disputes between the funder and funded-party, and a requirement to disclose the fact and source of funding to the Court and other parties to the proceedings. Any breach of the regulations would render the LFA unenforceable (unless the Court considered the breach was just and reasonable). The proposed regulation would not apply to arbitration.
Class actions and consumer duty
The CJC propose additional requirements for class actions and where an individual consumer obtains funding. These additional requirements include:
- Litigation funders being subject to a 'Consumer Duty' akin to the duty imposed on providers of financial services requiring they "must pay due regard to the interests of its customers and treat them fairly" (FCA PRIN 2A.6)
- An obligation to pay for consumers to receive independent legal advice from a KC about the LFA
- A requirement to obtain the courts' approval for the funding arrangement which would require the litigation funder to disclose the LFA to the court (subject to redactions for privilege and confidentiality) and the court to adopt an inquisitorial approach in reviewing the agreement and determining whether the funder's return is fair, just and reasonable
- Standard terms for LFAs
- A requirement that the funder and the funded party's lawyer certify to the court that they did not approach the funded party directly or indirectly to seek their agreement to pursue the proceedings
- Litigation funding is to be subject to ATE insurance with robust anti-avoidance endorsements
Comment
The CJC's ambit was to recommend reforms that would promote effective access to justice by improving the provision and accessibility of litigation funding while also introducing fair and proportionate regulation.
The CJC's report will be welcomed by litigation funders given the CJC appears to agree that litigation funding promotes effective access to justice. The proposed reversal of PACCAR and recommendations for 'light touch' regulation are likely to be welcomed by funders.
On the other hand, some institutional defendants and their insurers may be disappointed that the CJC has not suggested more far reaching regulation, particularly given the increased burden faced by large corporates notably from large scale consumer claims in the CAT. The CJC did not recommend introducing a cap on the return that litigation funders can make due to concerns that this would deter investment in litigation funding.
We will need to await the governments' reaction to the CJC report and whether its recommendations are implemented. We consider the CJC proposals are likely to lead to continued growth of litigation funding in the UK and provide for a more stable, regulated environment in which funders have confidence in the enforceability of funding agreements.
