On 31 October, the Civil Justice Council (CJC) published an interim report and consultation as part of its ongoing review into the third-party litigation funding market in England and Wales.

The interim report does not set out any recommendations at this stage and instead provides an overview of how third-party funding and its regulation have developed. Following the conclusion of the consultation in January 2025, the final phase of the review is for the CJC to issue its final report with recommendations, which the CJC has said that it expects to do by summer 2025.

Background

Third-party litigation funding is where a third party with no prior connection to the litigation agrees to finance all or part of the legal costs of the litigation in return for a fee, payable from the proceeds received by the funded litigant if the claim is successful.

Litigation funders are currently self-regulated under the Association of Litigation Funders Code of Conduct, which establishes the ethical and commercial standards, including the capital adequacy of funders, the conditions under which they may withdraw from a case, and the clear separation of roles between funders, litigants and their legal counsel.¹

Third-party litigation funding is prevalent in the legal sector, providing financial backing for most claims in the UK and enabling parties to share financial risks without depleting their own resources to cover costly litigation expenses.² Third-party litigation funding also allows investors to make returns on such claims – a key factor in its growing popularity. In this regard, the global litigation funding market is estimated to be worth between £33 billion and £67 billion as of 2024.³

The growing size of this industry, together with a number of recent high-profile cases, have caused the current model of self-regulation to become increasingly scrutinised. More recently, in PACCAR,⁴ the Supreme Court called into question the enforceability of many third-party funding agreements where the funder's return is calculated by reference to the damages recovered.

Following PACCAR, the previous government introduced a draft bill which was intended to reverse the effect of PACCAR, although that bill was not passed in the pre-election wash-up. At the same time as introducing the draft bill, the previous government announced a review into litigation funding. The CJC's interim report is the first step in that review. The current government has indicated that it will revisit the question of legislation once the CJC's review has concluded.

The interim report

The report is divided into six sections addressing:

• the development of third-party funding in England and Wales;
• the development of self-regulation;
• other possible approaches to regulation;
• regulatory approaches adopted in other jurisdictions;
• the relationship between costs and third-party funding; and
• alternatives to third-party funding, such as legal expenses insurance and conditional fee arrangements.

At the outset, the report identifies a number of perceived concerns with third-party funding, including that it may promote unmeritorious or abusive claims, reduce the prospect of settlement and undercompensate funded claimants by virtue of the fact that the amount of the funder's return which is taken from any damages award is uncapped.

As to regulation, the report provides that the current model of voluntary self-regulation was introduced when the third-party funding market was still in the early stages of development, and that, of the estimated 44 funders which currently operate in the jurisdiction, only 16 are members of the Association of Litigation Funders, which imposes a Code of Conduct. It does, however, acknowledge that funders and their employees may be subject to other regulatory regimes, such as where the funder is staffed by solicitors. The report raises certain concerns as to the adequacy of the Code, including whether its capital adequacy provision (which requires funders to maintain sufficient resources to meet their aggregate funding obligations for at least 36 months) provides sufficient comfort in practice and whether the provision of funding should be subject to a requirement that it facilitates access to justice. In terms of the approach taken in other jurisdictions, the report notes that this jurisdiction is unique in its regulatory model, with other jurisdictions either imposing no regulation at all or subjecting it to a formal statutory regime.

The report also emphasises the need to better understand the relationship between litigation costs and funding in order to determine the wider impact any reforms in this area could have on the cost of litigation. For example, the CJC notes a lack of clarity as to the extent to which a funder's costs are passed on to the funded litigant (thereby increasing their overall litigation costs) and whether there is scope for renegotiation of those funding costs.

The consultation

Appendix A to the report sets out a list of 39 wide-ranging consultation questions addressing issues such as:

• the benefits and key risks of third-party funding, including the extent to which it currently achieves access to justice and/or encourages specific forms of litigation including meritorious, vexatious or group claims;
• whether the current model of voluntary self-regulation is fit for purpose and the extent to which improvements could be made;
• whether the same regulatory approach should apply to (i) all types of litigation and (ii) arbitration seated in England;
• the relationship between third-party funding and litigation costs, and whether the costs of funding should be recoverable as a litigation cost;
• whether a funder's return should be capped (and at what level) or subject to other controls;
• the benefits and disadvantages of other forms of funding and whether all forms of funding should be governed by a single regulatory framework;
• the role to be played by the court in controlling funded litigation, including whether (and in what circumstances) the court should be required to approve the settlement of funded proceedings; and
• whether there is a need to amend the Civil Procedure Rules or the CAT Rules to cater for the role played by third-party funding or other forms of funding.

The consultation is open for responses until 11.59 p.m. on January 31, 2025.

Comment

The report and consultation clearly acknowledge the complexity of the issues in this area and that more information is required from funders and funded parties to understand whether a more nuanced approach to regulation is required. It is perhaps for this reason that the CJC declined to put forward recommendations at this initial stage.

1. AALF Code of Conduct can be accessed here↩
2. Sam Bidwell, Judge Dread, "How lawfare undermines business confidence in the UK", Adam Smith Institute, October 2024 ↩
3. Third Party Funding of Litigation, European Law Institute, July 2022 – October 2024 ↩
4. [2023] UKSC 28 ↩