Litigation Funding – the Civil Justice Council’s Final Report

The Civil Justice Council has published its Final Report on litigation funding and proposes two waves of reform.

Why was the report commissioned?

In R (PACCAR) v Competition Appeal Tribunal (see our article here) a majority in the Supreme Courtheld that litigation funding agreements (LFAs) were a form of damages-based agreement (DBA), and consequently mostly unenforceable for failing to comply with the DBA Regulations 2013.  As the PACCAR decision then called into question the validity of large numbers of funding arrangements, the government took several steps to address the resulting uncertainly.

First, it introduced the Litigation Funding Agreements (Enforceability) Bill, a short Bill designed to reverse PACCAR by amending the Courts and Legal Services Act 1990 (the 1990 Act) to clarify that an LFA is not a DBA (see our overview here). The Bill did not make it through wash up before the 2024 general election, however.

Long before PACCAR, there had been concerns about aspects of litigation funding, and in particular the 2013 DBA Regulations, once memorably described by the Court of Appeal as not "the draftsman's finest hour". The new government proposed a wider review of litigation funding before taking any action and asked the Civil Justice Council (CJC) to review the funding regime, specifically to assess whether it was effectively providing access to justice and whether regulation of commercial funders was needed. The CJC's Working Party published its Interim Report and consultation on 31 October 2024, and its Final Report on 02 June 2025.  

The Final Report recommends a series of reforms to litigation funding, to be implemented through primary and secondary legislation.

PACCAR - should LFAs be DBAs?

As a first step, the CJC recommends the introduction of legislation to reverse the effect of the PACCAR decision with retrospective effect and make clear both that LFAs are not DBAs, and that the provision of litigation funding is not a form of claims management service (the statutory definition of which was central to the PACCAR decision). It is suggested that this legislation should be free standing and discrete, quickly ending the uncertainty over the status of LFAs in cases that have concluded.

The CJC's other recommendations can then be addressed over a longer period, allowing more complex legislation to be properly developed.

Regulation of the litigation funding sector?

A further recommendation is that section 58B of the Legal Services Act 1990 be replaced with "a formal, comprehensive regulatory scheme" that covers all forms of litigation funding. The CJC is at pains to emphasise that such regulation will be "light-touch", and even more so where the litigant who is funded is a commercial party. Separate regulatory regimes should reflect the "categorical difference" between contingency fee funding (through a CFA or DBA with the party's legal representatives) and litigation funding with a third party.

There are a number of specific proposals on the regulation of litigation funding, but among other things the CJC recommends that:

• the regulations should include case-specific capital adequacy requirements, conflict of interest provisions, a requirement for disclosure to the court and other parties of limited information about the funding and a prohibition on litigation funders controlling funded litigation;

• the Lord Chancellor (not the FCA) should be given responsibility for regulatory oversight initially, subject to a review after 5 years;

• sanctions should to be applied to funders who fail to comply with the regulations.  Breach should render any regulated funding agreement unenforceable, with a discretion for the court to waive regulatory breaches where it is just and reasonable to do so;

• an independent, binding dispute resolution process should be established to resolve disputes between funders and funded parties, with costs of the dispute resolution process to be borne by the funder;

• where the funded party is a consumer, a party to collective proceedings, a representative action or group action, additional regulatory requirements should apply; litigation funders should be subject to a regulatory Consumer Duty, the terms of the funding agreement should be disclosed to the court, and funded parties should be given independent legal advice from a KC;

• standard terms for LFAs should be developed and these should be annexed to the regulations to improve consumer protection and increase transparency;

• the funder and funded party's lawyer should certify to the court that they did not approach the funded party to seek their agreement to pursue the proceedings.

More funding options

The advent of DBAs initially promised a wider range of ways in which to fund litigation, but the 2013 Regulations introduced difficulties that greatly reduced the take-up of DBAs. Some of these issues have been resolved through the courts, which have for example confirmed that a DBA can provide for alternative remuneration for lawyers if the DBA is terminated. But the fact that lawyers acting under a DBA have to take a 100% risk on the success of the claim, including paying counsel's fees in the event of a loss, has greatly reduced their use.

The CJC proposes a single regulatory, contingency fee regime, covering both DBAs and Conditional Fee Agreements (CFAs) and introducing greater flexibility. The basis for these should be the 2019 Mulheron-Bacon reforms that proposed changes to the DBA regime and were widely well-received. Regulations based on these should clarify that hybrid arrangements (a reduced fee payable regardless of result, with a damages-based uplift in the event of success) are lawful, with no cap on the lawyer's return when acting for commercial parties and the indemnity principle abrogated for both litigation funding and contingency fee funding. The CJC also recommends that DBAs should be permitted in opt-out collective proceedings in the CAT.

Other recommendations

The CJC's view is that the courts should have a statutory power to manage and budget the costs of funding claims and an obligation to consider where non-court-based forms of redress are available.

The report suggests that the Civil Procedure Rules (CPR) be updated in how they deal with funding. In particular, CPR Pt 19 on representative actions should be revised to be consistent with the CAT Rules where provision for litigation funding is concerned. There should also be consideration of a Pre-Action Protocol (PAP) for mass claims, plus enhanced costs budgeting and costs management for funded collective proceedings, representative actions and group litigation.

Another sensible proposal is the codification of the current approach to the maximum liability a funder can have for adverse costs. Uncertainty currently exists as to when the so-called Arkin Cap applies, limiting a funder's potential liability to an amount equal to the amount of funding it has provided. Given the recommendations concerning capital adequacy requirements and other costs protections, the CJC rejects a presumption of security for costs.

The report also considers portfolio loans and crowdfunding as forms of litigation funding and suggests regulation should be introduced, with the SRA and other regulators to consider what additional guidance, regulatory oversight or training requirements are needed.  The CJC recommends that sections 85 and 86 of the Criminal Justice and Courts Act 2015 be brought into force so as to apply to crowdfunded judicial review proceedings.

The likely impact

This is a wide-ranging report with many sensible proposals that are likely to be welcomed by lawyers and funders. The funding industry may be cautious regarding statutory regulation, but what is proposed is certainly at the lighter end of possible approaches. The two-track approach, dealing with PACCAR immediately, with more substantive and comprehensive legislation following behind, has much to commend it. If the government act upon the CJC's recommendations on CFAs and DBAs, there is a real opportunity to reset funding options and sweep away the 2013 DBA Regulations and the uncertainty they created.

Some recommendations will be more controversial. The process of court approval of funding agreements and inquiry into whether the funder's return is fair, just and reasonable is likely to be opposed by funders, who will fear that commercial realities and risk levels inherent in litigation will be overlooked. The requirement for funders and the lawyers of funded parties to certify that they did not approach the funded party seeking their agreement to pursue proceedings would also require a fundamental change in the way in which many mass claims are currently instigated. Where many consumers may be unaware of wrongdoing, funders will argue access to justice is improved by funders and lawyers identifying and approaching potential claimants, particularly where a large number of claimants is necessary to make the claim viable. However, the concern over litigation being pursued mainly for the benefit of funders makes this recommendation one that may well be acted upon in some form.