June 2025 has been an eventful month for third party funding (TPF) in England and Wales. On 2 June, the Civil Justice Council (CJC) published its Final Report on the Review of Litigation Funding (the Report), setting out 58 recommendations regarding the regulation of TPF. The review was undertaken by the CJC’s Litigation Funding Working Party, co-chaired by Mr Justice Simon Picken and Dr John Sorabji.
Two days later, many of the Report’s key themes were subject of a lively debate on “The Growth of Group Litigation and Funding in British Courts – A blessing or a curse?”. The event was staged by CORLA as part of the London International Disputes Week pitting Patrick Green KC of Henderson Chambers and CORLA co-chair David Greene on behalf of claimants against Ronit Kreisberger KC of Monckton Chambers and Kenny Henderson of CMS representing the interests of defendants. The event was chaired by Nick Bacon KC of 4 New Square.
This article explores the key themes arising from the Report and the LIDW debate.
Background to the Report and the PACCAR decision
The CJC was commissioned in Spring 2024 by the Lord Chancellor to report on litigation funding , following the Supreme Court’s decision in R (PACCAR) v Competition Appeal Tribunal [2023] UKSC 28. This decision resulted from a challenge to the claimant litigation funding arrangements by three of the cartelists in the Trucks Litigation, which consist of many interrelated follow-on damages proceedings before the Competition Appeal Tribunal (CAT). The cartelists argued that litigation funding agreements (LFAs) in which the funder agrees to loan money to pay for the litigation in return for receiving a share of any damages recovered in the proceedings should be regarded as damages-based agreements (DBAs), which are prohibited in the CAT. The Supreme Court agreed (Lady Rose dissenting).
The decision called into question the validity of many LFAs and resulted in the renegotiation of a substantial proportion of such agreements, as well as swathes of satellite litigation. This led to vast legal expenditure and considerable delay to many proceedings. It is hard to find a better example of a deep-pocketed corporate defendant exploiting uncertainty around the regulation of funding as a legal tactic to delay the substantive proceedings and subvert the administration of justice. As David Greene noted during the CORLA debate, the message from the well-resourced defendant is: “we will fight everything”. Getting regulatory reform in this area right is therefore of fundamental importance to minimising the scope for such tactics.
The Working Party published an interim report and consultation on 31 October 2024. There followed a four-month public consultation. The final report provides a comprehensive analysis of the consultation responses. Its recommendations are grounded in evidence and are well-reasoned.
The proposals are intended to be consistent with the European Law Institute’s Principles Governing the Third Party Funding of Litigation (the ELI Principles) published in August 2024 by a reporting team co-led by Mrs Justice Sara Cockerill. Chief among them is the principle that regulation is only justified where there is an identifiable problem or market failure.
Recommended reversal of PACCAR
The Report’s first and most pressing recommendation is to reverse the effect of PACCAR through prospective and retrospective legislation making clear that litigation funding is a distinct form of funding from that provided by a party’s lawyers, and is neither a DBA nor a form of claims management service. The previous Government’s Litigation Funding Agreements (Enforceability) Bill 2024 was more limited in scope. The consultation responses provided overwhelming support for this recommendation and a bill reflecting the proposal should make its way through Parliament without delay.
Access to Justice
Access to justice is a key consideration in any meaningful discussion of Third Party Funding (TPF). Patrick Green KC focussed on this issue in his opening submissions in the debate, remarking that the loss of civil legal aid is a societal failure requiring rectification. He then used the example of the Post Office scandal to show that TPF can redress the balance by promoting access to justice, and equality of arms, where other avenues have failed.
Ronit Kreisberger KC’s counterargument was that the collective proceedings regime “is bearing limited fruit for the consumer”. The example offered was the £45 per claimant achieved in Merricks v Mastercard [2025] CAT 22 (assuming distribution to about 5% of those eligible, i.e. around 2.2 million people; the settlement is currently under challenge by the funder, Innsworth). Kenny Henderson observed that there is a tendency to equate “access to litigation” with “access to justice”. The latter must be measured by outcomes and, in this regard, there is a concern about low distribution rates for opt-out proceedings. Data from other jurisdictions suggest likely uptake for a typical claim may be below the 5% assumed in the Merricks settlement.
Following the assessment of consultation responses, the Working Party was unequivocal in its conclusion that TPF is “an essential means to secure effective access to justice”. Indeed, for some types of dispute “it is the only viable means by which dispute resolution can be funded.” With regard to Merricks, the Report makes the sober remark that the alternative to such a claim would be no access to justice, and no damages at all.
The Working Party considered that while TPF is an important part of the solution for broadening access to justice, it need not be the only one. The Report recommends that the Government consider alternative means of securing redress for low value mass or collective claims, including regulatory redress schemes and a class proceedings fund.
The Report also stresses that access to justice is broader than “access to courts” and that it should be promoted by those who profit from litigation. It therefore recommends the introduction of an Access to Justice Fund, funded by a small percentage of profits from litigation funding and contingency fee agreements, which could provide funding for the provision of early legal advice and alternative (non-court-based) forms of dispute resolution. This is an ambitious proposal and there are uncertainties as to how it could be implemented in practice, not least as regards calculation of ‘profits’ and their collection.
Private enforcement
Kenny Henderson stated during the debate that “mass unconstrained class actions” are not the appropriate avenue for disincentivising corporate misconduct and the policing of corporates is better achieved through “appropriate powers from well-funded regulators”. However, he recognised that there might be a shortage of such regulators.
The Report observes, by reference to Lloyd v Google [2021] UKSC 50, that Parliament has enacted legislation to enable such claims not only to enable those claims to be vindicated and compensation paid, but also to enable private enforcement of the law to complement public enforcement. In this way, the regime provides an effective means to deter potentially tortious behaviour. David Greene explained that this reasoning applies with great force to deliberate corporate wrongdoing, such as the Volkswagen Dieselgate which was “a crime orchestrated from the very top”. This crime was uncovered and prosecuted in this jurisdiction by private actors rather than regulators, who took no enforcement action despite being aware of wrongdoing on a mass scale.
Regulation of TPF
The Report makes a series of recommendations for the introduction of light-touch regulation of litigation funding to replace the current self-regulatory approach. This would require the creation of a comprehensive regulatory scheme setting out, among other matters:
- capital adequacy requirements;
- requirement for ATE insurance with robust anti-avoidance endorsements for non-commercial, collective or group proceedings;
- prohibition on litigation funders controlling funded litigation, including their settlement;
- conflict of interest rules;
- imposition of a regulatory Consumer Duty on litigation funders;
- an independent dispute resolution process to resolve disputes between funders and funded parties;
- standard terms for LFAs;
- disclosure requirements on funded parties, including the provision of (redacted) copies of funding agreements to the court; and
- requirement for the funder and the funded party’s lawyer to certify to the court that they did not approach the funded party to seek their agreement to pursue proceedings.
Most of these recommendations either reflect current best practice or are generally consistent with the principle that regulation is only justified where there is an identifiable problem or market failure. The final recommendation, however, is undoubtedly the most questionable. As observed by Ronit Kreisberger KC during the debate, many of the class representatives in opt-out proceedings before the CAT were identified and approached by the lawyers developing the claim. In practice, even if the claim is based on a client enquiry, the strict class representative suitability requirements almost always make it necessary to identify a different individual for the role of the class representative. The CAT’s recent refusal to certify the proposed class representative in Riefa v Apple [2025] CAT 5, on the ground that she did not have the appropriate financial expertise, is a case in point. Indeed, as the Report recognises, there is now an emergent body of quasi-professional, suitably qualified class representatives. This is a product of the collective proceedings and representative action regimes in the CAT and under the CPR and not an aspect of litigation funding.
Who should regulate?
The Report proposes for that the Lord Chancellor be responsible for issuing regulations prescribing the terms on which TPF can be carried out as a regulated activity. The Working Party did not consider that regulation by the Financial Conduct Authority (the FCA) would be appropriate at this stage but called for a review of the position in 5 years’ time.
The exception to this is portfolio funding, for which the Report recommends regulation by the FCA as a form of loan, requiring as a minimum compliance with anti-money laundering regulation and capital adequacy rules. Given the increase in the prevalence of portfolio funding, and the serious nature of associated risks, illustrated by the collapse of SSB Law, the Report recommends greater co-operation by the Legal Services Board (LSB) and the Solicitors Regulation Authority (SRA) with the FCA in this area, including consideration of whether co-regulation of portfolio funded law firms by the SRA and FCA is desirable.
Recoverability of TPF costs and other costs recommendations
The Working Party examined the relationship between the costs of litigation and TPF. Its most ground-breaking conclusion is that litigation funding costs should be recoverable in exceptional circumstances. These may include scenarios in which the funding costs were incurred by reason of the conduct of the paying party, such as in the Post Office scandal. Patrick Green KC pointed out during the debate that this recommendation would address “some of the worst behaviour on the defendant side, by imposing some potential discipline”. Adopting this recommendation in appropriate cases would reduce the perceived problem with low compensation for individual claimants.
Another of the Report’s recommendations in this area concerns mandatory costs budgeting and costs management for all funded collective proceedings, representative actions and group actions. Many such proceedings already have costs budgeting in place and, as the Report recognises, in funded cases costs discipline can often be achieved through funding agreements requiring adherence to agreed budgets or project spends.
The Report also makes recommendations regarding orders for security for costs against funders and funded parties:
- security for costs should not be required where the funder has complied with regulatory capital adequacy requirements and where a suitable ATE insurance policy with anti-avoidance endorsements is in place; and
- if a funder fails to comply with those requirements, security may be ordered and the funder should be liable for paying the costs of providing such security; no cross-undertaking in damages from the defendant would be appropriate in such circumstances.
A simplified CFA/DBA regime
Another series of recommendations concerns the simplification of the CFA/DBA regime. These include:
- urgent reform of the DBA Regulations in line with the Mulheron-Bacon 2019 reform proposals, with some adjustments;
- ultimately, the replacement of the current CFA and DBA legislation with a single, simplified legislative contingency fee regime; claims management services ought not to come within the scope of that regime but should be regulated as a form of TPF;
- abrogation of the indemnity principle, which currently limits the recovery of costs from the defendant to the amount the claimant is obliged to pay their legal representative;
- provision for court discretion to enable non-compliant CFAs and DBAs to be enforceable;
- uprating current CFA success fee levels for inflation, particularly as regards mesothelioma claims;
- statutory legalisation of hybrid funding arrangements;
- CFAs and DBAs entered into by commercial parties should not be subject to any cap on the legal representative’s return; and
- allowing for DBAs in opt-out collective proceedings in the CAT without any cap.
These recommendations are eminently sensible. The most controversial among them is possibly the introduction of DBAs at the CAT. However, no principled objection can be raised to this proposal in circumstances where return to the legal representative would be subject to approval by the CAT on the same basis as the return to a funder is currently subject to approval. The availability of DBAs could promote greater competition in funding such proceedings, leading to more competitive (and therefore cheaper) litigation funding options, as well as offering access to justice for lower value collective claims which, despite being meritorious, may be unable to attract litigation funding due to an insufficiently large pool of potential damages.
Reform of CPR r.19.8
The CJC’s review was limited to funding and broader changes to the class action processes were outside of its terms of reference. Nonetheless, these issues are heavily interlinked and there is a perceived need for reform of the representative action procedure in CPR r.19.8 to allow for the funding of such claims. This arises, because a party bringing proceedings to obtain a liability judgment pursuant to CPR r.19.8 would subsequently be exposed to the free rider problem, preventing it from recouping the expense of bringing proceedings in the first place.
While the Working Party did not provide any recommendations in this regard, it reported on consultation responses. These suggested that the representative action procedure contained in CPR r.19.8 should be reformed so that it functions in an equivalent fashion to collective proceedings in the CAT, so as to operate as generic class or collective action. This would help alleviate the issue, mentioned by Ronit Kreisberger KC, that certain of the claims currently before the CAT appear to have been shoehorned into the form of competition claims primarily to take advantage of the CAT’s favourable opt-out regime.
Conclusion
The Report paves the way for the reform of litigation funding which will shape the future of collective redress in this jurisdiction. It identifies practical solutions to complex funding issues which have hitherto created additional hurdles for claimants to overcome. The Report’s recommendations aim at reducing the risk of satellite litigation and shift the focus to obtaining outcomes promoting access to justice. This is welcome, but requires skilful implementation. All parties agree that the there is still much work to be done to improve the process for redress.
Published on June 23, 2025 by CORLA