On 2 June 2025, the Civil Justice Council (CJC) published its final report (including recommendations) (the Final Report) on the third-party litigation funding market in England and Wales. This follows publication of its interim report and consultation last October, which we discussed here.

The Final Report makes 58 comprehensive recommendations, including that the UK government should legislate to reverse the impact of the PACCAR¹ decision (discussed here) and to replace the current self-regulated approach to litigation funding with "light-touch" statutory regulation which is to be overseen by the Lord Chancellor.

Background

The review into third-party litigation funding (i.e. the funding of claims by a third party in return for a fee) was announced by the previous government at the same time as the introduction of a draft bill to reverse the effect of PACCAR (which ultimately was not passed in the pre-election wash-up).

The CJC's interim report provided an overview of the development of third-party funding and set out a detailed list of consultation questions, acknowledging the need to gather information from both funders and funded parties on key issues. The consultation closed on 3 March 2025 and the CJC indicated it expected to publish its final report by summer 2025.

The Final Report

The Final Report makes the following key recommendations:

• Legislative reversal of the Supreme Court decision in PACCAR as soon as possible by providing that litigation funding agreements (LFAs) are not damages-based agreements (DBAs).² The CJC recommends that this should have both retrospective and prospective effect.
• A baseline set of requirements in respect of all litigation funding, including ongoing capital adequacy requirements, the application of anti-money laundering regulation to funders and disclosure of the funder's identity and ultimate source of funding (but not the funding terms) as soon as possible. The CJC also recommends codification of the prohibition against funders controlling funded litigation.
• Additional regulation for funding of consumer claims or any form of group litigation,³ to include:
  • The introduction of a regulatory Consumer Duty on the funder based on the FCA's Consumer Duty, which would include providing the funded party with clear, simple and transparent information upfront as to the nature of funding and its benefits and risks.
  • Independent legal advice to be given to the funded party at the funder's expense before entering into an LFA.
  • Development of standard terms for LFAs.
  • Court approval of LFA terms, including consideration of whether the funder's return is fair, just and reasonable.
• A single regime to govern contingency fee funding provided by lawyers, i.e. Conditional Fee Agreements and DBAs.
• Removal of the current ban on the use of DBAs in opt-out collective proceedings.
• A new pre-action protocol specifically for group litigation, to be applied to both civil proceedings and competition claims in the CAT.
• Mandatory costs budgeting and costs management for all funded group litigation.
• Review of the regulatory regime for litigation funding in five years' time.

The CJC has proposed that all recommendations other than the reversal of PACCAR (which should be prioritised) should be implemented via a single comprehensive statute.

Notably, the CJC has expressly rejected:

• Application of formal regulation to funding in arbitration, which the CJC considers is a matter for individual arbitral institutions.
• Regulation of litigation funding by the FCA at this stage, though this should be revisited in five years' time.
• The introduction of a cap on funders' returns.
• A presumption of security for costs to be ordered against a funder or funded party in funded claims.

Comment

The proposed shift to formal regulation is an acknowledgment that a different approach is needed now that the litigation funding industry is long past its infancy, and aligns England and Wales with certain other jurisdictions including Singapore, Hong Kong and parts of the United States.

Though described as a light-touch approach to regulation, the Final Report does make wide-ranging recommendations as to the conduct of litigation funding. The UK government indicated it would revisit the question of legislation to address PACCAR following the conclusion of this review and, while the CJC's strong recommendation to act may carry some weight, it remains to be seen whether some or all of the remaining recommendations will receive government backing.

1. [2023] UKSC 28.↩
2. In PACCAR, the Supreme Court found that LFAs providing for third-party funders to be paid a percentage of damages recovered amount to DBAs. This meant that such funding arrangements (a) fell within a statutory prohibition and were unenforceable in opt-out collective proceedings before the Competition Appeal Tribunal (CAT) and (b) were only enforceable in other contexts if they complied with the statutory requirements for DBAs. This called into question the enforceability of many LFAs. ↩
3. Including collective proceedings under the CAT regime and representative actions. ↩