Civil Justice Council publishes final report into review of litigation funding – what does it mean for litigants, practitioners and funders?
On 2 June 2025, the Civil Justice Council ("CJC") published its Final Report in its Review of Litigation Funding, making 58 recommendations to reform the litigation funding sector in England and Wales. Most significantly, the Final Report calls upon the government to (i) reverse PACCAR by legislation that is both retrospective and prospective in effect; and (ii) to "promote certainty" concerning the status of litigation funding arrangements ("LFAs"), by making clear that there is a categorical difference between contingency fee funding, i.e., funding provided to a party by their legal representatives (through a conditional fee agreement ("CFA") or a damages-based agreement ("DBA")) and litigation funding from a third-party funder.
We address the key recommendations of the Final Report below and consider the potential implications for litigants, practitioners and funders.
History
The Review of Litigation Funding was requested in the spring of 2024 by the former government following the Supreme Court's decision in R (on the application of PACCAR Inc and others) (Appellants) v Competition Appeal Tribunal and others (Respondents) [2023] UKSC 28 ("PACCAR").
In PACCAR, the Supreme Court held that LFAs which provide for a funder to receive a share of damages are DBAs, and are therefore unenforceable (unless they comply with the strict regulations which govern DBAs). This called into question the enforceability of a considerable number of funding arrangements in extant and prospective litigation.
The former government simultaneously sought to reverse the effect of PACCAR via the introduction to Parliament of the Litigation Funding Agreements (Enforceability) Bill 2024, but this bill was not enacted prior to the July 2024 general election.
Light-touch regulation
The primary recommendation made by the CJC is that PACCAR should be overturned by legislation which clarifies that a funder's return under an LFA may permissibly be calculated by reference to damages or a settlement sum payable to the funded party, or by a multiplier of drawn or committed capital.
The Final Report also recommends that the current "self-regulatory" approach, under which members of the Association of Litigation Funders ("ALF") abide by the ALF Code of Conduct, should be replaced by a "formal, comprehensive regulatory scheme". The Final Report does not go so far as to recommend regulation by the Financial Conduct Authority ("FCA"), although it does suggest that FCA regulation be considered if the light-touch approach is not shown to be working well, following a formal review over the next five years.
The CJC proposes that a minimum base-line set of regulatory requirements should apply to all litigation funding, covering issues such as (i) case-specific capital adequacy requirements; (ii) codification of the requirement that funders must not control litigation; (iii) conflict of interest provisions; (iv) anti-money laundering requirements; and (v) disclosure at the earliest opportunity of the fact of funding, the name of the funder, and the ultimate source of funding (although the Final Report clarifies that the terms of LFAs should not generally be subject to disclosure to other parties to the litigation).
Under the CJC's proposals, breaches specifically of the prohibition on funders exercising control over litigation would render the LFA unenforceable as against the funded party and should render the funder liable for the funded party's costs and adverse costs. The Final Report also calls for the development of a mechanism to secure the independent, low cost and binding resolution of disputes between funders and funded parties (with the cost of the dispute resolution process to be borne by the funder).
Further, the CJC recommends that different regulatory schemes should apply to commercial and consumer parties, with the former only requiring "minimal" regulation and the latter needing "[g]reater, but still light-touch regulation". Where the funded party is party to collective proceedings, a representative action or other group action, or where they are a consumer, the CJC proposes the following regulations (amongst others):
- Funded parties should be provided with independent legal advice from a King's Counsel prior to entering an LFA;
- The funded party should disclose to the court, on a without notice basis, the terms of the LFA, to enable the court (adopting an "inquisitorial approach" and having particular regard to the issue of whether the funder's return is reasonable) to consider whether to approve it;
- There should be enhanced notice of the funder's return in the event of success during the opt-out period in collective proceedings; and
- The funder and the funded party's lawyers should certify to the court that they did not approach the funded party to seek their agreement to pursue proceedings, i.e., that the proceedings were initiated by the funded party, rather than by the funder or the lawyers.
Furthermore, in an effort to improve clarity and promote consumer protection, the Final Report recommends the development of standard terms for LFAs to be annexed to the proposed regulations, by reference to the European Law Institute's Principles Governing Third Party Funding of Litigation.
Reform of CFAs and DBAs
In respect of CFAs and DBAs, the CJC recommends that the current CFA and DBA legislation should be replaced by a single, simplified, contingency fee regime which would clarify that hybrid arrangements (under which a reduced fee is payable regardless of the outcome of the litigation, with a damages-based uplift in the event of success), are lawful.
Further, the CJC recommends that CFAs and DBAs entered into by commercial parties should not be subject to any cap on the legal representative's return, and that DBAs should be permitted in opt-out collective proceedings in the Competition Appeal Tribunal ("CAT") (albeit with the caveat that the applicable return should be subject to approval by the CAT on the same basis as a funder's return under an LFA).
Costs and funding
The Final Report also addresses costs and funding considerations. It recommends costs budgeting and costs management should be mandatory for all collective proceedings, representative actions, and group actions, with better guidance on costs budgeting and management of funded claims to be developed. However, the Final Report rejects the suggestion that a fixed costs regime should be introduced for funded claims.
The CJC also proposes that litigation funding costs should be recoverable only in "exceptional circumstances" having regard to, for example, the defendant's conduct, the claimant's financial position, and the necessity of litigation funding in the relevant case. In other words, litigation funding costs would only be recoverable where a defendant has, through its conduct, adversely affected the claimant's ability to secure effective access to justice.
The Final Report further recommends that there be no presumption of security for costs to be ordered against a funder or funded party, and that security for costs should not be available against a funder or funded party where the funder has complied with the regulatory requirements concerning capital adequacy and they have in place a suitable and adequate after-the-event insurance policy with effective anti-avoidance endorsements. The Final Report recommends codification of the current approach to the 'Arkin Cap', i.e., where the court makes a decision concerning the extent of a litigation funder's liability for adverse costs on a case-by-case basis.
Other key recommendations
In terms of other key recommendations, the CJC recommends that Part 19 of the Civil Procedure Rules should be made consistent with the CAT's rules applicable to LFAs, in particular concerning the approval of LFAs and settlements. Further, the CJC proposes that both the civil courts and the CAT should be given the power to manage, on application, the pre-action phase of funded litigation, and should consider whether and if there are any available consumer or regulatory redress schemes for the proposed funded proceedings.
The CJC's working party expressed significant concerns with portfolio funding – a form of finance under which several cases are cross-collateralised to diversify risk. Accordingly, in the Final Report, it recommended that portfolio funding should be regulated by the FCA as a form of loan (noting that such funding should be distinguished from "normal business loans to law firms"). As for crowdfunding, the Final Report recommends that all forms thereof should be regulated (with a distinction being drawn between crowdfunding where funders will or will not receive a financial return).
Implications
A number of recommendations made in the Final Report are likely to be welcomed by those involved in funded proceedings as promoting certainty in the litigation funding industry.
Whilst funders may be cautious about the proposed imposition of "light-touch" regulation, the CJC's approach appears to strike a balance between preserving case-by-case flexibility and promoting general best practice.
However, certain recommendations may, if implemented, be problematic. In particular, the recommendation that lawyers and funded parties certify that they did not approach a funded party seeking their agreement to pursue proceedings may, if implemented, stymie the development of the collective proceedings regime. Where potential claimants may be unaware of wrongdoing and/or means through which claims can brought on behalf of a claimant group or class, it is arguable that the adoption of this recommendation may limit access to justice and have a chilling effect on claims.
Litigants, practitioners and funders will now keenly await confirmation from the government of which recommendations it intends to adopt.
Authors
Tim Knight, Adrian Carr, Katelyn Iacono and Simone Sokol.
