The Civil Justice Council (CJC) has published its “Review of Litigation Funding – Final Report”, offering a comprehensive analysis and a series of recommendations aimed at reforming the landscape of litigation funding in England and Wales. The report, finalized on June 2, 2025, addresses critical issues impacting funders, legal professionals, and access to justice.
Key Takeaways for Funders:
- Reversal of PACCAR Decision: The report strongly recommends legislative action to reverse the effect of the Supreme Court’s R (PACCAR) v Competition Appeal Tribunal (2023) decision. This legislation should clarify that litigation funding agreements (LFAs) are not a form of damages-based agreement (DBA) and are distinct from funding provided by legal representatives. This reversal is proposed to be both retrospective and prospective. The current self-regulatory approach, where LFAs were often treated as DBAs, led to confusion and renegotiation of agreements.
- Formal, Light-Touch Regulation: The CJC recommends replacing the current self-regulatory approach with a formal, comprehensive statutory regulatory scheme for litigation funding. This regulation would be primarily overseen by the Lord Chancellor initially, with a review in five years to consider transferring responsibility to the Financial Conduct Authority (FCA). The aim is to introduce clarity and consistent standards across the industry.
- Differential Regulation: The proposed regulatory scheme would apply differently to commercial parties and consumer parties, as well as those involved in collective proceedings, representative actions, and group litigation. While regulation for commercial parties would be minimal, greater (but still light-touch) regulation is proposed for consumer-funded cases and collective actions.
- New Regulatory Requirements: A baseline set of requirements would apply generally, including case-specific capital adequacy, prohibition of funder control over litigation, conflict of interest provisions, and anti-money laundering requirements. Disclosure of the fact of funding, the funder’s name, and the ultimate source of funding would be mandatory at the earliest opportunity. However, the terms of LFAs would generally not be subject to disclosure.
- Enhanced Protections for Consumers and Collective Actions: For consumer and collective proceedings, additional requirements include a regulatory Consumer Duty and mandatory independent legal advice for funded parties regarding proposed LFAs. Court approval of the LFA terms, particularly concerning the fairness of the funder’s return, would be required on a without-notice basis in collective proceedings.
- Rejection of Caps on Funder Returns: The Working Party rejects the introduction of statutory caps on litigation funder returns, deeming them a “blunt instrument” that cannot account for the variable risks of different claims.
- Portfolio Funding Regulation: Portfolio funding should be regulated as a form of loan by the FCA, subject to anti-money laundering rules and capital adequacy requirements. The government should also investigate its impact on the legal profession.
- Crowdfunding Regulation: All forms of crowdfunding litigation should be regulated. If a financial reward is involved, it should be treated as litigation funding. If not, it should be subject to a separate regime focusing on transparency, donor protection, and anti-money laundering measures.
- Arkin Cap Maintained and Codified: The post-Chapelgate approach to the Arkin Cap, where a funder’s liability for adverse costs is decided on a case-by-case basis, should be maintained and codified in the Civil Procedure Rules (CPR) and CAT Rules.
- No Presumption of Security for Costs: There should be no presumption that security for costs will be ordered against a funder or funded party, provided the funder complies with capital adequacy and has adequate After-The-Event (ATE) insurance.
- Data Collection: A Standing Committee on Litigation Funding should be established to collect data on the operation of various funding types, including litigation funding, CFAs, and DBAs. Law firms, funders, and HMCTS would be under a duty to provide this data.
The report emphasizes that while litigation funding is essential for access to justice, particularly for complex and collective proceedings, effective regulation is necessary to protect all parties and maintain confidence in the justice system.
