Law Firm Financing in a Post-PACCAR World: Beyond Disputes and Into Growth

The UK Supreme Court’s judgment in the PACCAR case last July has prompted some significant developments in litigation funding, but it has also opened up new avenues for law firms to approach financing. Traditionally, law firm finance has focused on funding cases and supporting contingency fee models. Yet, as the landscape shifts, law firms are expanding their financing options, offering clients more fee alternatives and developing innovative funding portfolios. This includes not only financing disputes but also leveraging finance for other strategic objectives, including growth and mergers & acquisitions.

The PACCAR ruling concluded that third-party Litigation Funding Agreements (LFAs) were damages-based agreements (DBAs), which seemed poised to disrupt access to justice and the litigation funding sector. In response, the UK government introduced the Litigation Funding Agreements (Enforceability) Bill in March 2024 to reverse the ruling.

However, the government’s announcement in August that legislation to reverse or nullify the effects of PACCAR will be delayed, pending a full review by the Civil Justice Council in 2025 , has increased the competitive standing of law firms in financing. Because PACCAR left funders unable to price their financing as a percentage of damages, financing litigation now commonly operates through a multiple based pricing structure. This has made DBAs more attractive for some claimants with law firms seeking to finance themselves with a view to taking on more cases on a DBA basis. As they seek to manage the risk and liquidity challenges presented by the DBA regulations currently in place, law firm financing is often secured with the support of third-party funding and ‘behind the scenes’ insurance.

The rise in law firm financing originated in the financing of single claims, most commonly seen across group actions including the diesel-gate vehicle emissions case, and recently announced claims on behalf of residential leaseholders regarding secret insurance commissions, as well as commercial disputes and arbitrations. It has also become more prevalent in various securities claims under Section 90 of the Financial Services and Markets Act 2000 (FSMA), which gives shareholders the right to sue UK listed companies that publish misleading information to the market.

But law firm financing extends beyond traditional litigation finance, such as using finance to manage cash flow, fund firm expansion, and support fee arrangements that provide flexibility to clients. Funding is secured through a variety of methods, ranging from monetizing aged debt and recoverable non-contingent work-in-progress (WIP) to disbursements on- and off-balance sheet lending and realising value from their lockup and engaging in portfolio financing. This is particularly beneficial in areas like corporate growth, where firms seek investment to fuel expansion, hiring, or new practice areas.

Litigation boutiques are a notable development in this space, many of which are leveraging growth finance to position themselves as specialized players in the market. These new firms use external financing not just for litigation but also to launch and build their businesses, with funders stepping in to provide capital that enables them to take on large-scale cases or grow their teams.

This evolution mirrors the contingency fee law firm model in the United States, where financing is crucial to managing risk and liquidity, offering clients more innovative fee structures while balancing their own cash flow needs. In this way, law firms are beginning to compete in a space which was traditionally the exclusive preserve of litigation funders with financing becoming a strategic tool for growth, not just a mechanism for funding cases.

In the longer term, once new legislation is passed, law firms and litigation funders will likely work even more closely together, creating a stronger, more dynamic market that can better serve both clients and the legal sector. By embracing these new opportunities, law firms are positioning themselves to thrive in a post-PACCAR world.

Tom Steindler is a Managing Director at Exton Advisors