ALERTER
Beyond PACCAR? Publication of the Civil Justice Council’s Review of Litigation Funding Final Report

Click here to download this Alerter by Henry Warwick KC, Reanne MacKenzie, Vishnu Patel & Benn Sheridan.

Two years on from the decision of the Supreme Court in R (on the application of PACCAR Inc & Others) v Competition Appeal Tribunal & Others [2023] UKSC 28 (PACCAR), the Civil Justice Council has published the Final Report following its Review of Litigation Funding.  The Final Report recommends that new legislation be enacted to reverse the effect of PACCAR with respect to certain litigation funding agreements and to clarify the distinction between such agreements and contingency fee agreements.

Overall it makes 58 recommendations intended to update and codify the use of third party funding in litigation, by what is termed a system of “light-touch” regulation.  More detailed regulation is proposed for group and representative actions, collective proceedings and funded consumer claims.

The extent to which the recommendations will be adopted, in full or part, remains to be seen.  We identify here some of the most important proposals and their possible implications for claimants, defendants and funders alike.

THE FINAL REPORT

The litigation funding market was thrust into turmoil following the Supreme Court’s decision in PACCAR, which called into question the enforceability of a number of litigation funding agreements (LFAs).[1] The previous Government responded to the decision by introducing the Litigation Funding Agreements (Enforceability) Bill 2024, clarifying that LFAs are not to be regarded as Damages Based Agreements (DBAs) within the scope of the DBA Regulations 2013.

However, the Bill was not enacted before the 2024 General Election.  The then Lord Chancellor requested the advice of the Civil Justice Council (CJC) on wider questions concerning litigation funding, which has since conducted its review.

On 2 June 2025, over a month earlier than scheduled, the CJC produced its much-anticipated Final Report.  It follows an Interim Report dated 31 October 2024 and is the product of wide consultation among legal professionals, the funding industry and other interested groups.  The Funding Report also draws upon the work of the European Legal Institute and its Principles published in 2024 (ELI Principles).[2]

The Final Report makes 58 Recommendations.  They are wide ranging.  They address topics such as the reversal of the effect of PACCAR, introduction of a “light-touch” regulatory regime for litigation funding, reform of conditional funding arrangements (CFAs and DBAs), and changes to associated costs and procedural rules.  The rationale for introducing regulation of litigation funding, and competing considerations, are set out in detail in Part 4 of the Report to which the reader is referred.

Were the recommendations to be implemented in full, they would introduce a statutory system of regulation of the use of litigation funding in proceedings in England & Wales, in ways that may well bring about very significant changes to how funded litigation is conducted.  They would also see the introduction of a Pre-action Protocol for mass claims and harmonisation of CPR Part 19 with aspects of the Competition Appeal Tribunal (CAT) Rules as to the approval of funding arrangements and settlements.

The recommendations would have a significant impact upon group, representative and collective proceedings.  It will only be possible fully to understand the effect of any changes made following the Final Report once their extent is known and they are seen in combination, given how they may operate cumulatively and the ways in which they may alter the sequencing of procedural and other steps in practice.

The Final Report addresses crowd funding, portfolio funding and a range of other topics.  Commentary on the detailed discussion in Part 3 of the Final Report on the role and benefits or otherwise of litigation funding and the responses received by the CJC with respect to funding and access to justice, equality of arms and unmeritorious claims is beyond the scope of this note.  So, too, is the proposal for an ‘Access To Justice Fund’ in Part 11.  The discussion is, however, highly illuminating, draws on a variety of sources, and no doubt formed the basis of the CJC’s guiding principles which it sets out in paragraph 4.4 and with which the recommendations are intended to be consistent.

What follows focusses upon the effect of PACCAR, the regulation of litigation funding and associated costs and case management proposals.

KEY RECCOMENDATIONS

Reversal of PACCAR

The principal recommendation (Recommendation 1) is to reverse by legislation, as soon as possible, the effect of the Supreme Court’s decision in PACCAR.  This is a standalone proposal in Part 2 of the Final Report and the CJC Working Party’s view is that it should be implemented in advance of any other recommendations.

The CJC recommends that such legislation should go further than the 2024 Bill, by making it clear that common law LFAs may include both agreements where the funder’s return is calculated by reference to the funded party’s damages or settlement or by multiplier.

In this, the CJC appears not to accept the rationale of the Supreme Court in PACCAR, urging that legislation clarify that “litigation funding is not a form of DBA and that it is a distinct form of funding from that provided by a party’s legal representative.” It is recommended that legislation also make clear that the provision of litigation funding is not a form of “claims management service”.  The Working Party recommends that the legislation be given both prospective and retrospective effect (paragraph 5.1).  Legislation in this form would remove the considerable uncertainty that surrounded funding arrangements entered into prior to PACCAR.  Likewise, it may introduce certainty with respect to many LFAs entered into since PACCAR that have sought to take the judgment into account, or for those anticipating that the 2024 Bill, or similar legislation, may pass into law.

It is noteworthy that the CJC also recommends (Recommendation 45) that CFAs and DBAs be regulated together under a single legislative regime, with provision for DBAs to be regulated as envisaged in the ‘Mulheron-Bacon’ draft amendments[3] promulgated in 2019 which sought to address many of the difficulties that can arise from the DBA Regulations in their existing form (Recommendation 53).  Further recommendations are made for a simplified regulatory scheme applicable to such agreements, which are beyond the scope of this note, but which are found together with commentary in Part 9 of the report.

As such, LFAs will be treated distinctly from CFAs.  They would be subject to a separate regulatory regime.  Given the different considerations that arise in practice with respect to such agreements, it is likely that this too will provide much needed clarity to funded parties and to consumers of legal services.

Regulation of Litigation Funding

In line with its wider remit to advise the Lord Chancellor, in its proposals the CJC has given articulation to a system of regulation for litigation funding.  It is not recommended that funding of arbitration be subject to formal regulation (Recommendation 6).

The Working Party expressly recognised a need for an independent regulator for litigation funding.  Thought was given to the possibility that the FCA may perform that function.  For now, however, the Final Report recommends what is termed a system of “light-touch” regulation by the Lord Chancellor.  It proposes (Recommendation 9) that the “light-touch” approach be reviewed in five years’ time, and that any legislation introduced should contain a statutory power to enable the independent regulation of litigation funding.

If adopted, this would take the form of a regulatory regime introduced by a proposed single Litigation Funding, Courts and Redress Act, consolidating existing legislation, and replacing s.58B of the Courts and Legal Services Act 1990.  It is envisaged that more detailed regulations be introduced by statutory instrument, including by amendment to the Civil Procedure Rules (CPR).  To that end, constitution of a Litigation Funding Standing Committee of the Civil Procedure Rules Committee (CPRC) is suggested.

It is worth stressing, therefore, that in this move away from self-regulation into a comprehensive scheme, much will turn upon detail yet to be set out in secondary legislation and work to be undertaken by the CPRC.

Moreover, the Final Report calls for the Government to give wider consideration to further matters, including the possible establishment of alternative means of securing access to justice for low value or small claims, particularly in mass claims and collective proceedings, such as redress schemes.

The extent to which the Government chooses to move beyond current arrangements for regulatory redress into more generalised processes for such claims remains to be seen, though the recommendation appears to reflect some of the reasoning seen in recent judicial decisions favouring, where appropriate, use of existing schemes over forms of collective case management in some cases.[4]

Importantly, this approach also finds expression in a proposal that civil courts and the CAT be subject to a mandatory requirement to consider whether there are other consumer or regulatory redress schemes available for proposed funded collective proceedings, representative and group actions (Recommendation 25).

The Final Report is nonetheless clear as to the broad content of the proposed regulations and CPR changes.  It gives reasons for the proposals made on the information considered by the Working Party.

The CJC’s view is that to ensure it remains light touch in approach, aspects of the regulatory regime should be developed having regard to ELI Principles 4 to 12 in particular, which should be read alongside the Final Report.  The codifying approach taken in the ELI’s work, and its underlying analysis, sheds further light on what the Working Party has in mind for the implementation of its recommendations.

Many of the requirements are prescriptive and, if adopted in full, would appear to follow quite an interventionalist approach, while at the same time rejecting more heavy-handed proposals that may have seen, for example, caps on funders’ returns and disclosure of LFAs to all parties in funded litigation.  Caps were seen as a blunt instrument unable to take account of variable risks, whereas an inquisitorial process of court approval in collective or group proceedings is preferred.

Running through the Final Report is a distinction between commercial claims, for the one part, and group actions, collective proceedings and representative actions (as well as funded consumer claims) for the other.  The latter are slated for greater regulation.  Key proposals to be aware of at this early stage include the following:

• Minimum requirements: it is proposed that in all funded cases an LFA would only be enforceable if minimum ‘base-level’ requirements are met.  These include the need for case-specific capital adequacy on the part of the funder and ATE insurance with “robust” anti-avoidance provisions.  As to capital adequacy, the ELI Principles envisage a minimum requirement to maintain sufficient capacity to fund the sum or stages of the litigation specified in the LFA (ELI Principle 7(3)), but for the most part address capital adequacy by regulating the matters LFAs need to address.  The current system of self-regulation includes, in the case of the Association of Litigation Funders for example, more general requirements and it is possible that these may help to inform the approach to be taken.
• Certification: it is proposed that the litigation funder and the funded party’s legal representative jointly certify not only to the court, but also to any other party to the funded litigation, that (i) the funder has and maintains a level of capital adequacy for the lifespan of the litigation which enables the funder to meet financial obligations arising under or consequent to the LFA and, (ii) that sufficient ATE insurance is in place.  This may provide a further layer of assurance to claimants as to the availability of funds, but also a measure of security to opposing parties.  It may, however, present significant difficulties for legal representatives where they are not in a position to audit the financial standing of a litigation funder.  Although regulatory consequences are envisaged for inaccurate certification, it is not hard to see how a regime of this kind may give rise to professional liability risks and the need for additional insurance.
• Disclosure: the CJC has rejected proposals that LFAs should be required to be disclosed to other parties in proceedings.  This is largely on the basis that certification suffices.  It is proposed nevertheless (as reflected in the ELI Principles) that disclosure of the fact of litigation funding, the name of the funder and the source of funding be mandatory.  It is possible that secondary legislation may leave open the possibility of disclosure being ordered by the Court under its inherent jurisdiction; as the ELI has observed, disclosure is a hotly contested issue given the tactical advantages it may afford to others (ELI Principle 5, commentary) and it is clear that the CJC regarded the actual terms of an LFA generally to be a matter between the litigation funder and the funded party, only.
• Control: prohibition on litigation funder control of litigation, direct or indirect, is to be formalised.  It is stressed that this includes involvement in settlement and settlement negotiations.
• Further provision is made for a range of other matters, including AML requirements, for the management and control of actual or potential conflicts of interest and for dispute resolution between funders and funded parties.  As to conflicts, specific reference is made to ELI Principle 6, which provides for the identification and management of conflicts by funders and sets out the respects in which these should be provided for in the terms of any LFA.  While it is envisaged that breaches of the regulations would normally render an LFA unenforceable, it is also recommended that the Court have power to waive inadvertent breaches, where just and reasonable.

The additional requirements proposed with respect to funded consumers, and for collective proceedings, group litigation, and representative actions are of particular interest.  These are more stringent.  For now, we mention the following:

• Consumer Duty: it is recommended that litigation funders be subject to a regulatory consumer duty (Recommendation 17), and this should be based upon the FCA’s consumer duty, a discussion of which may be found here.
• Standard LFA terms: the Working Party has recommended that standard LFA terms be developed and annexed to any regulations, in the interests of certainty.
• Advance information and advice: the CJC recommends that advance information about a proposed LFA be given to funded parties in clear and simple terms, including as to adverse costs risk and likely return to the funder.  It is suggested that advice from an independent KC on the terms of funding, paid for by the funder, be given to funded parties prior to entering into an LFA (Recommendation 18).  The requirement is for independent advice and ought sensibly to be considered alongside what comes to be codified in regulation with respect to conflicts of interest.
• Without notice approval: the proposals are that the terms of the LFA be disclosed to the Court, with appropriate redactions, at the commencement of proceedings and subject to an approval process conducted without notice to other parties.  This would enable the Court to consider and approve the arrangements, using an inquisitorial approach that takes account of the interests of the funded party and any absent class members, and in particular “whether the funder’s return on its funding is fair just and reasonable.”  Though it is envisaged this would take place “at the commencement of proceedings” how and when this process is sequenced into the pre-action conduct to be expected of parties (see below) is important, as well as any application for case management directions, group litigation orders, or orders under CPR r.19.8, upon which the viability of a claim itself may depend.
• Harmonisation with CAT Rules: as foreshadowed above, the Final Report proposes that CPR Part 19 be harmonised with the CAT Rules insofar as LFAs are concerned, to make provision for their approval, and for settlement approval.  Both should, it is suggested, provide additional protection for class members in opt-out collective proceedings and representative actions.  This reflects a concern in the Final Report about the implications of LFA terms being negotiated by the class representative.  The Working Party suggests that these be considered further.
• Approaching funded parties: the proposals also envisage that the funder and the funded party’s legal representative certify to the court as part of the without notice approval process “that they did not approach the funded party either directly or indirectly, in respect of the claim.” The extent to which this will be implemented, and if so by whom and in what ways potential claimants may be informed about potential claims, are open questions given the effect the proposal may have upon the viability of multi-party proceedings that rely upon marketing and book building.

Costs and Funding

A range of proposals is made with respect to costs.  The recommendation likely to attract most attention is that the recoverability of litigation funding costs should be permitted in “exceptional circumstances” with amendment to the CPR and CAT Rules to provide for this (Recommendation 41).

It appears that the majority of respondents favoured this approach where justice in the case requires it, although some expressed concern about settlement dynamics.

The Working Party’s view is that it is difficult to see a principled reason for a divergence between the approach taken in civil litigation and in arbitration, in which section 59(1)(c) of the Arbitration Act 1996 has provided a basis for recoverability.

It favours bringing funding costs (including the funder’s return) within the Court’s wide discretion to make costs orders, the rationale being that it would promote access to justice, ensure a fairer allocation of financial burdens of disputes, and save court time and resources by promoting early settlement.

As ever, the detail of what is proposed will be important.  Draft amendments to the CPR are annexed to the Final Report.  These contemplate a power to grant such an order in exceptional circumstances by reference to a range of factors.  These include (i) the conduct of the parties; (ii) the conduct of the funder; (iii) the extent to which the paying party’s conduct is what caused the funding costs to be incurred; (iv) whether the matter could have been pursued by the receiving party without funding; and (v) the financial consequences of making the order from the perspective of both the receiving party and the paying party.  Certain categories of claim are excluded, and any order is to be subject to detailed assessment.

It was suggested to the CJC that Bates v Post Office [2019] EWHC 606 (QB) (Bates)[5] may supply a paradigm example of a case in which exceptional circumstances may have provided the basis for grant of an order for the recovery of funding costs.  The Working Party accepted that in cases like Bates litigation funding is likely to continue to be the only viable funding mechanism.  However, the factors as presently drafted may admit of the possibility of funding costs being awarded in circumstances which, while clearly exceptional, are wider than those in Bates, and indeed those at issue in Essar Oilfields Services Ltd v. Norscot Rig Management PVT Ltd [2016] EWHC 2361, in which the High Court held that an impecunious claimant in an arbitration could recover its litigation funding costs from the respondent found to have caused such impecuniosity, requiring the claimant to seek litigation funding in the first place.

It is noteworthy that the Final Report makes clear that recoverability should not be the norm.  However, the report also acknowledges at 11.52 that “[p]ermitting the recoverability of funding costs would reflect the fact that litigation funding is part of the reasonable, and indeed often necessary, costs of pursuing and claim.”

As practitioners in this area are aware, many or most multi-party litigation of this nature is funded in this way and in consumer cases very often this is the main or only way that claims may viably be pursued in the absence of an alternative procedure.  It follows that how these recommendations are given effect on a case by case basis will be important as a process that establishes the appropriate dividing line.

The CJC also makes a range of further recommendations for the costs budgeting of funded litigation.  Fixed costs were rejected as a proposal for funded claims.  The Working Party considered that the key to securing costs control in funded claims is effective costs and case management.  Primarily this should be prospective.

To that end, the Final Report proposes that a Pre-action Protocol be developed for mass claims applicable both in civil proceedings and in proceedings in the CAT (Recommendation 37).  It recommends the introduction of mandatory costs budgeting and costs management in funded collective proceedings, representative and group actions; and in other funded claims it is suggested that a party being funded be included as a consideration relevant to whether to costs management is ordered (Recommendation 38).  There is also a proposal for a power to make pre-action costs budgeting and case management orders upon application.

Again, how these steps will be sequenced with one another in the context of existing practice in the conduct of mass claims is important.  It is noteworthy that the Working Party recommends that, as a general rule, only authorised (ticketed) judges be allocated to manage funded claims (Recommendation 40).  This is also significant given the specialist nature of these proceedings and the practice in them that has emerged over many years in a range of fields from product liability, financial services, environmental mass torts and competition follow-on and standalone damages claims.

Further recommendations are made, the detail of which is beyond the scope of this note.  These are commended to the reader wishing to form a holistic view.  In particular, the Final Report recommends there be no presumption in favour of grant of orders for security for costs, on the basis that the capital adequacy requirements, alongside adequate ATE, should be sufficient.  It is only in circumstances where the regulatory requirements in relation to capital adequacy and ATE have not been complied with that a grant of security for costs should be made available.  Proposals are also made for an approach that codifies the common law position with respect to funder liability for adverse costs on a case by case basis.

CONCLUSION

The Final Report contains recommendations that are wide in scope and it is a matter for the Government, and the CPRC, what effect is to be given to them.

However, it appears that the reversal of the effect of PACCAR is highly likely, after a period of uncertainty following PACCAR itself and since the 2024 General Election.  Likewise, the Working Party has made detailed recommendations for the regulation of litigation funding, and for the conduct of claims in which it is used – particularly for collective proceedings, group actions, representative actions, and consumer claims.  These appear to balance the considerations raised by respondents to the consultation and the wider consultation group.  Aside from general regulation of the content of LFAs and a certification process, the proposals seek to harmonise the approach of the civil courts with that under the CAT Rules with respect to approval of funding arrangements and other matters.

Importantly, the door is open for the recovery of funding costs as adverse costs in certain exceptional circumstances.  This again is to be subject to judicial control.  The introduction of a fixed costs regime, and of caps on funding returns has been rejected, alongside the cards on the table proposal that LFAs be disclosed to all parties.

It may be that the Government uses the Final Report as an opportunity to usher in the suggested reforms, or to hear further from stakeholders.  In our view it is important to consider how the reforms would operate in combination and the steps envisaged are sequenced, given the effect they may have upon the conduct of litigation and the early stages of the formation of mass claims in particular.

This is best judged by reference to how such claims are pursued and defended in practice, balancing the access to justice considerations referred to in the Final Report with the concerns of those who express scepticism about the risks and benefits.

Henry Warwick KC
Reanne MacKenzie
Vishnu Patel
Benn Sheridan
11 June 2025

This Alerter is available to download as a PDF below. 

[1] For a summary of the implications of PACCAR by Henry Warwick KC and James White, see: https://www.hendersonchambers.co.uk/2023/08/03/alerter-by-henry-warwick-kc-and-james-white-unenforceable-litigation-funding-agreements-the-supreme-courts-shock-decision-in-paccar/.

[2] European Legal Institute, Principles Governing the Third Party Funding of Litigation (August 2024)

[3] https://www.qmul.ac.uk/law/research/research-impact//dbarp/ 

[4] See, for a recent example: Webster & ors v Treloars Trust [2025] EWHC 516 (KB).

[5] in which a Counsel team from Henderson Chambers acted for the successful 550 Subpostmaster Claimants.

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