Back to Basics: Ensuring Access to Justice

After stormy waters, UK funding market steers a steady ship

In June 2025, the UK Civil Justice Council (CJC) published its "Review of Litigation Funding" (Report), following a comprehensive review initiated in the wake of the UK Supreme Court’s controversial 2023 PACCAR decision.

The CJC urges swift legislative intervention and outlines a "light-touch" regulatory framework, except for arbitration which per the Review's Recommendation 6 "should remain a matter for arbitral centres to determine whether and, if so, how any such regulation should be implemented."

This article explores the CJC’s findings, rationale, and proposed reforms.

Background: The PACCAR Aftermath

Third-party litigation funding (TPF) provides access to justice, particularly for parties, usually claimants, who lack the financial means to pursue litigation. However, in September 2023, the Supreme Court ruled in PACCAR that funding agreements sharing a percentage of profits with funders qualified as damages-based agreements (DBA), rendering them unenforceable unless compliant with the Damages‑Based Agreements Regulations 2013. Such compliance "had not previously been considered to be the case, so calling into question a significant number of TPF agreements, which had not been entered into with the application of the DBA Regulations in mind" (Interim Report, para 1.3).

As a result, this watershed judgment invalidated, or at the very least undermined, most existing TPF arrangements. It was particularly an issue in opt-out collective claims before the Competition Appeal Tribunal (CAT), because DBAs were specifically prohibited by legislation.

The fallout was swift: multiple collective actions faced funding disruptions or collapse, generating an urgent need for clarity or renegotiation of TPF agreements. The previous UK (Sunak/Conservative) government proposed in March 2024 the “Litigation Funding Agreements (Enforceability)” legislation, though it stalled when a general election was called. The incoming Starmer/Labour administration decided to await the CJC’s final recommendations before charting a policy direction.

On 31 October 2024, the CJC issued an Interim Report and held a four-month public consultation until 3 March 2025. It detailed the issues regarding self-regulation, conflict-of-interest and funder capital adequacy concerns, and restrictions on court scrutiny to assess inter alia the "reasonableness of funding costs" (Interim Report, para 6.31). It also recognized the essential role of TPF in enabling access to justice, particularly for mass-claimants whose individual damages may be relatively minor but collectively substantial.

The Report recognizes therefore that inherent to ensuring access to justice is that wrongdoers, including large corporations with relatively unlimited financial resources for litigation, be held accountable, and that the courts be instrumental – and be seen to be active – in providing such recourse.

Final Report: Core Recommendations

The Report crystallizes the CJC’s position, advocating balanced reform that addresses access to justice and restores confidence in the TPF market.

1. Legislative Reversal of PACCAR: The CJC calls for urgent legislation to restore the enforceability of TPF agreements affected by the PACCAR decision "which should be both retrospective and prospective in effect" (Report, para 2.3; see also e.g. paras 2.21, 3.2, 5.1, 5.6). This reversal is central to rebuilding market confidence and enabling the funding of collective claims.

2. Introduction of Light-Touch Regulation: Despite acknowledging TPF’s benefits, the CJC identified its vulnerabilities: undercapitalized funders, opaque commercial terms, undisclosed conflicts of interest, and funder's apparent control of proceedings in some cases. To address these, the Report proposes a “light-touch” regulatory regime, including revisiting in five years the prospect of regulation by the Financial Conduct Authority (FCA) (Report, Recommendation 9; see also paras 2.4, 3.10).

3. Regulation of Portfolio Funding: The Report draws a distinction between single-case and portfolio funding – it recommends that "portfolio funding should be regulated as a form of loan and regulated by the FCA. Regulation should, particularly, require funders to comply with anti-money laundering regulation and to have sufficient capital adequacy. […] The Legal Services Board (LSB) and the Solicitors Regulation Authority (SRA) should consider the need for greater co-operation with the FCA concerning portfolio funding. Such consideration should include whether there is a need to introduce co-regulation by the SRA and FCA of portfolio funded law firms." (Report, Recommendations 28 and 30; paras 3.29, 3.31).

4. Capital Adequacy: The Report underlines that funders must maintain adequate capital buffers to ensure market stability (Report, Recommendations 10, 28, 43; paras 2.6, 3.11, 3.29, 3.44).

5. Transparency and Disclosure: Funders should disclose known conflicts and terms to courts/tribunals and funded parties to facilitate informed negotiations and settlement. These obligations align with emerging international best practices (Report, Recommendation 14; paras 3.15, 7.8(b), 7.9(a), 8.9(f), 8.21(g)).

6. Court Approval for Class‑Style Agreements: The Report proposes that courts should review and approve TPF arrangements in mass claims on a without-notice basis (Report, Recommendations 20-21; see also Recommendation 26; e.g. paras 2.7, 7.9(a)). Already, courts play similar roles in settlement approvals (e.g., the £200 m Mastercard settlement); the report seeks to extend that regime: "The court should adopt an inquisitorial approach when doing so. The court should particularly consider whether the funder’s return is fair, just and reasonable." (Recommendation 20)

7. No Caps on Funders’ Returns: Rejecting calls for statutory caps on funder profits, the Report argues judicial oversight provides sufficient safeguards. Arbitrary caps may deter investment and shrink access to justice (report, Recommendations 54-55; see also e.g. paras 2.7, 8.25)

There are also some more controversial recommendations including requiring funders to adopt standard terms for litigation funding agreements in at least some circumstances and requiring both funders and lawyers in group and collective actions to certify that they did not directly or indirectly approach the funded party to seek their agreement to pursue proceedings (which is precisely what usually happens at the moment). In the author's view, some of these more surprising recommendations will likely not be adopted in future legislation.

Access to Justice: The Guiding Principle

Underlying the Report is the imperative to preserve access to justice. Funders in England and Wales control approximately £2.2 billion in assets (2021 figure) (Report, para 7.10), playing a pivotal role in enabling collective redress that individual claimants simply could not finance alone.

Mass claims including consumer price-fixing claims, environmental and human-rights disputes, are effectively off-limits without TPF. Claimants with limited or relatively minor damages (see e.g. the Mastercard settlement which could theoretically result in claimants receiving as low as £2.50 each) cannot afford thousands of pounds in court fees, legal fees and disbursements, let alone adverse costs exposure (Report, e.g. paras 6.11, 8.27, 11.4). The Report notes that disabling TPF could collapse high-impact litigation entirely.

Overall, the Report reaffirms that TPF is not a luxury but a functional requirement for justice. Therefore, legislative reform needs to recognize TPF as an access-to-justice enabler, not just a commercial enterprise.

Improving the Litigation Funding Market in the UK

The Report raises several issues that could significantly – and positively – impact the litigation funding market in the UK:

1. Capital Adequacy: Ensuring that funders maintain adequate capital buffers is crucial for market stability and prevents undercapitalized entities from destabilizing the market. Similar provisions were introduced in Singapore (section 4(1)(b)) and Hong Kong's (section 98Q(1)(e)) light-touch regulations.

2. Transparency and Disclosure: In addition to having the requisite funds, transparency and disclosure would help in building trust and ensuring that all parties are aware of the financial arrangements and potential biases. The fear that this would result in inappropriate, inapplicable or otherwise unnecessary security for costs applications has been addressed in the Report, with such presumption being rejected (Report, Recommendation 43; see also e.g. paras 2.13). This results in funders remaining engaged in funding disputes without the automatically having to factor in additional costs that would not otherwise apply.

3. Regulatory Oversight: The introduction of a light-touch regulatory regime, with a review in five years, aims to balance the need for oversight with the flexibility required for the market to thrive. This hopefully will foster innovation while protecting litigants.

Global Impact of the Report

The recommendations in the Report could have far-reaching implications for third-party funding globally, particularly in jurisdictions like Singapore, Hong Kong, Australia, and EMEA:

1. Singapore and Hong Kong: Both jurisdictions have established TPF regimes that are supportive of arbitration. The Report's emphasis on transparency and regulatory oversight could influence similar reforms in these regions, enhancing their attractiveness as arbitration hubs and extending TPF into litigation.

2. Australia: Australia has a mature TPF, self-regulated market. The Report's recommendations on capital adequacy and transparency could herald the need for some regulation to promote best practices.

3. Europe, Middle East & Africa: The TPF market is still developing in most of these regions. The Report could serve as a model for emerging markets, providing a framework for establishing robust TPF regimes that ensure access to justice while maintaining market integrity.

Potential Challenges Ahead

While the Report's recommendations aim to improve the litigation funding market, several challenges could arise in their implementation:

1. Legislative Hurdles: The proposed legislative reversal of the PACCAR decision requires swift action from the government. However, political changes and legislative processes can, and already have, delayed and complicated the enactment of such laws. Ensuring bipartisan support and navigating the legislative landscape will be crucial.

2. Regulatory Complexity: Introducing a light-touch regulatory regime involves balancing oversight with flexibility. Determining the appropriate level of regulation without stifling innovation or burdening funders with excessive compliance costs will be challenging. The prospect of revisiting regulation by the FCA in five years adds another layer of complexity.

3. Capital Adequacy Requirements: Ensuring that funders maintain adequate capital buffers is essential for market stability. However, smaller funders may struggle to meet these requirements, potentially leading to market consolidation and reduced competition. This could impact the diversity and availability of funding options for claimants.

4. Transparency and Disclosure: While increased transparency and disclosure are beneficial, they may also lead to increased scrutiny and potential conflicts. Funders will need to navigate the balance between transparency and protecting sensitive commercial information. Ensuring that all parties understand and comply with disclosure requirements will be critical.

5. Global Coordination: The Report's recommendations could influence third-party funding globally, but coordinating these changes across different jurisdictions presents challenges. Each region has its own legal and regulatory framework, and aligning these with the CJC's recommendations will require significant effort and collaboration. Of course, the discussion and debate in various jurisdictions itself creates a positive focus and momentum towards enhancing the funding market.

6. Market Adaptation: The litigation funding market will need to adapt to the new regulatory environment. Funders, law firms, and funded parties will need to understand and comply with the new rules, which may involve changes to existing practices and agreements. Ensuring a smooth transition and minimizing disruptions will be important.

7. Monitoring and Enforcement: Implementing periodic independent audits to ensure compliance with capital adequacy and transparency requirements will require effective monitoring and enforcement mechanisms, whether through the courts, FCA or otherwise. Establishing these mechanisms and ensuring they are robust and efficient will be a key challenge.

Conclusion

The Report on litigation funding presents a comprehensive framework for reform that balances the need for access to justice with market stability. By addressing key issues such as capital adequacy, transparency, and regulatory oversight, the Report aims to restore confidence in the TPF market. However, the potential challenges ahead underscore the importance of thoughtful implementation and ongoing collaboration to ensure the success of these reforms.