The funding industry has been contending with a state of flux since the July 2023 judgment of the Supreme Court in the PACCAR case. The Supreme Court held that, contrary to industry practice, litigation-funding agreements (“LFAs”), which provide for the funder’s return to be calculated as a percentage of the damages awarded, do constitute damages-based agreements (“DBA”) and therefore are required to comply with the DBA Regulations 2013.  Prior to PACCAR most LFAs did not.

Given the impact of the judgment on the litigation funding industry, the expectation was that legislation would be introduced in short order to rectify the uncertainty.  The previous government introduced a bill intended to reverse the impact of the PACCAR judgment. However, the progress of the bill was halted as a result of the UK general election in June 2024.  The new government has indicated an intention to consider broader reforms and has opted to wait for the Civil Justice Council (“CJC”) to issue its report on the litigation funding industry prior to introducing new legislation.

The CJC has now issued its Interim Report as a pre-cursor to the consultation and Final Report which is due to be published in September 2025.

Hints of future change from the Interim Report

Whilst the Interim Report is aimed primarily at examining the background of litigation funding and reviewing the different possible approaches that could be taken to future regulation of the industry as a basis from which to launch its consultation, the analysis does provide some early insights into the CJC's current thinking. 

Amongst other points, the Interim Report focusses heavily on the fact that the litigation funding industry is a self-regulated regime, dependent on funders subscribing to a voluntary code of conduct.  The CJC highlights concerns with the voluntary code, including the fact that the code makes no provision as to the purpose for which funding can be provided, and the fact that the code's capital adequacy provision is insufficient. The Interim Report further points out that only 16 of the 44 specialist funders identified as having operated in this jurisdiction in 2021 subscribe to the voluntary code.

Taken in the round, the focus of the Interim Report would appear to suggest the CJC may be inclined to recommend the introduction of significant legislation to regulate the litigation funding industry. This would be an important step, given the significant role litigation funding plays in the current litigation landscape in the UK, for example in underpinning many of the group and class actions currently being brought.