Changes possible as England reviews regulatory approaches towards litigation funding

The review will be conducted by the Civil Justice Council (CJC), following the request of Lord Chancellor Alex Chalk. A CJC working group has been formed to lead the review on the third-party litigation funding market in England and Wales and it is expected to publish an interim report this summer and a full report by summer 2025, which could make recommendations for reform.

Andrew Robertson of Pinsent Masons said that it is the CJC’s function to help make access to justice more accessible, fair and efficient for all parties to disputes, and that this review will consider and give recommendations on a number of issues widely viewed as central to these three principles.

According to terms of reference published last week, the review will set out the current position of third-party funding (TPF), evaluate whether the current TPF arrangements deliver effective access to justice, and consider regulatory options. It is expected to set out clear recommendations for reform, where considered appropriate.

There are several questions the review will focus on. They include whether and how TPF should be regulated, beyond its current system of self-regulation; whether a funder’s return on any TPF arrangement should be subject to a cap and to what extent; and how TPF should be best deployed compared to other sources of funding, such as legal expenses insurance and crowdfunding.

The CJC’s working group will also consider the role the court and rules of court may play in controlling the conduct of TPF-supported litigation, as well as if any provision is needed to protect claimants whose litigation is funded via TPF.

The interaction between pre-action and post-commencement funding of disputes, the relationship between TPF and litigation costs, and ethical issues such as potential conflicts of interest between funders, legal representatives, and funded litigants, are other main areas of concern. In addition, the review will determine whether funding encourages specific litigation behaviour such as collective action.

“The CJC’s findings on each of these issues is likely to be of significant interest to the market – including litigation funders; funded and potentially funded parties; and law firms, whether representing claimants or defendants,” Robertson said.

The review comes at a time when litigation funding arrangements are also being reviewed elsewhere in the world, including in the EU. The European Law Institute (ELI) is currently developing principles on how TPF should be governed, in a bid to provide an environment in which litigation funding is allowed but balances the availability of the tool with the interests of claimants and defendants and a healthy litigation market. 

The ELI’s working group on this project includes Mrs Justice Sara Cockerill, judge of the English Commercial Court who is also a member of the CJC working group, as a project reporter. “There may be a level of sharing of ideas with and from experts in other jurisdictions, given for example Mrs Justice Cockerill’s involvement in both the English and European projects on this topic, and other international connections of dispute resolution experts who are involved in or feed into the CJC’s review,” said Robertson. “Indeed, the terms of reference expressly require the CJC to consider approaches to the regulation of TPF in other jurisdictions.”

The CJC’s working group consists of six members at present, including legal practitioners along with representatives from the Financial Conduct Authority and the Regulatory Horizons Council, that looks at the impact of technology. It may be expanded to include a consumer representative and solicitor with expertise in group litigation.

The CJC working group is also currently calling for expressions of interest to join a wider consultation group, which will directly inform the work of the review and provide a wider forum for expert discussion to support the review.

Importantly, the CJC’s review is set to run alongside discussion in the UK parliament during the passage of the Litigation Funding Agreements (Enforceability) Bill, which was introduced in the House of Lords on 19 March. The Bill is the legislation the UK government has published to reverse the impact of the UK Supreme Court’s so-called PACCAR decision on third party litigation funding agreements of July 2023. 

The Supreme Court held that third party litigation funding agreements (LFAs) which provide for the funder to receive a fee calculated by reference to the damages achieved by the funded claimant were damages-based agreements (DBAs). This had the effect that such LFAs, which included many LFAs then in place in the market, were completely unenforceable in opt-out collective proceedings before the UK’s Competition Appeal Tribunal (CAT); and unenforceable in other matters unless they complied with requirements set out in the DBA Regulations 2013, which many LFAs did not. Since the PACCAR decision, the litigation funding market has argued for legislation to reverse its effects.

Commercial litigation expert Emilie Jones of Pinsent Masons said: “The Litigation Funding Agreements (Enforceability) Bill has been published quickly following the PACCAR decision.  It is a short piece of proposed legislation, and does not include any measures concerning the regulation of, or other safeguards in relation to, litigation funding. The CJC’s review is therefore an important project in terms of ensuring that key issues concerning funding are aired and debated.  A wide range of stakeholders are likely to wish to engage with the project.”