Litigation funding, where a third party funds the legal costs of a claim in return for a fee or portion of an award if successful, is an increasingly popular means for claimants (particularly those in group actions) to fund their claims. Proponents of litigation funding promote the associated benefits of giving claimants access to justice in circumstances where they may otherwise not be able to afford litigation.
The Supreme Court decision in R (PACCAR) v Competition Appeal Tribunal [2023] UKSC 28 in July 2023 created uncertainty for the ongoing operation of third party funding ("TPF") in the UK, now a billion pound industry. The Court determined that the Litigation Funding Agreements ("LFAs") were Damages-Based Agreements and were, therefore, subject to the DBA Regulations 2023 ("DBA Regulations"). The PACCAR decision had, in effect, invalidated the vast majority of LFAs, since most were not compliant with the DBA Regulations.
The Litigation Funding Agreements (Enforceability) Bill 2024, which would have reversed the effects of PACCAR, did not make the pre-election wash-up and does not form part of the Labour government’s agenda. Instead, a review into litigation funding is being conducted by the Civil Justice Council ("CJC") which published an interim report on 31 October 2024. The consultation period closes on 31 January 2025. The CJC aims to deliver a final report by the summer 2025.
The CJC’s interim report does not make any recommendations but considers the following key points:
- The development of TPF.
- The current position regarding self-regulation of TPF.
- How TPF is regulated in other jurisdictions.
- Where TPF fits among other types of funding options.
Any recommendations the CJC makes are likely to focus on the need for TPF to be regulated and to what extent such regulation should be implemented. TPF is currently self-regulated. Of the 44 litigation funders in England and Wales, only 16 are members of the Association of Litigation Funders which sets out a voluntary code of conduct.
There are pros and cons to greater regulation. Some argue there is a risk that regulating (or overregulating) TPF may have adverse consequences to the industry. It could deter investment and ultimately leave claimants without funding to pursue claims, impacting access to justice. A comprehensive code of conduct (that all funders are required to follow) may offer increased transparency for users of TPF, without deterring funders from continued investment into this industry.
The shape of the CJC’s final report remains to be seen. The initial consultations suggest that a "light touch" approach to regulating TPF will become the preferred approach. This echoes the sentiment set out in European Law Institute's (“ELI”) recently published "Principles Governing the Third Party Funding of Litigation". In particular, ELI notes that “if regulation is to be considered in any given jurisdiction it should either be to address an identifiable – and fixable – problem or to ensure consistency of best practice…” In other words, if it’s not broken, don’t fix it.
While the CJC’s report is awaited, how funding will operate in the future could change significantly if it becomes subject to a complete regulatory overhaul. In view of the CJC’s initial position, it is likely that any changes would be restrained, which ought to provide funders and claimants some comfort in an uncertain landscape post- PACCAR.
