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Litigation funding clarity is on the horizon: the Post Office, PACCAR and the Civil Justice Council review

The Post Office Horizon scandal rightly provoked widespread public outrage across the UK, with the wrongful prosecution and conviction of innocent sub-postmasters being a scandal that shook the British justice system. The recent ITV dramatization of the saga, Mr Bates v The Post Office, powerfully brought home the human stories behind this unprecedented miscarriage of justice. Yet it also incidentally introduced the public at large to the relatively novel and arcane concept of third-party litigation funding. 

New legislation has been promised to protect the burgeoning sector, and a major new review is set to help shape the legal underpinnings of litigation funding in the UK for decades to come.

The Post Office scandal vividly demonstrated how litigation funding made the vindication of those wrongly accused possible, by facilitating access to justice where it might otherwise have been financially prohibitive. However, the legal position of third-party litigation funding within the UK legal system is still not altogether clear and there remains areas of significant uncertainty, with the courts finding their way through the issues on a case-by-case basis.  

Only last year, the UK’s litigation funding sector suddenly was put in jeopardy by a landmark UK Supreme Court judgment PACCAR and others v Competition Appeal Tribunal and others. The court held that many litigation funding agreements (LFAs), which allow funders to recover a percentage of damages are, in fact, damages-based agreements (DBAs), which are enforceable only if they comply with the relevant regulatory regime. 

The potential ramifications for the viability of opt-out collective proceedings were enormous and, in practice, implied that many future claims would simply become impossible for litigation funders to even consider.

Almost certainly influenced by public support for funded group litigation in the wake of the Post Office scandal, the UK government swiftly announced its intention to protect litigation funding and reverse the controversial PACCAR judgment with Justice Secretary Alex Chalk stating the government’s intention to legislate to counteract the “damaging effects” of the judgment. This legislation is designed to ensure that securing litigation funding will be more easily accessible to consumers. 

This announcement of new legislation has in turn prompted a major third-party review of third-party litigation funding in the UK by the Civil Justice Council (CJC). It is hoped that this will help to provide the necessary clarity and analysis to help reduce legal uncertainty and risk following the PACCAR judgment. A six-member working group, co-chaired by Mr Justice Simon Picken and Dr John Sorabji, is to provide an interim report by this summer, and a full report by summer 2025.

The working group looks set to analyse a series of recommendations for reform of litigation funding. Its report will set out the current position in relation to third-party funding, including the existing self-regulatory approach. 

Fundamentally, the expert group will ultimately ask whether the current arrangements deliver effective access to justice for consumers. It will also list recommendations, including whether, by whom, and how third-party funding should be regulated. If the group decides that regulation is required, it will state to what extent a funder’s return should be subject to a cap. Furthermore, the group will make suggestions as to how third-party funding should be best deployed relative to other sources of funding, including legal expenses insurance and crowdfunding. 

The report will also analyse how the rules of court, and the courts themselves, may oversee or impact the conduct of funded litigation. The group will analyse whether claimants whose litigant is backed by a funder require particular protections.

The question of conflicts of interests will be a key area of consideration for the group, and they will make recommendations based on the relationship between litigation funders and litigation costs, and whether there are potential conflicts of interest between funders, legal representatives and funded litigants. 

Perhaps most important of all, however, will be their consideration of whether litigation funding encourages specific litigation behaviour such as group actions. As the example of the Post Office scandal case shows, it is already clear that several significant collective actions would have been impossible to launch without the aid of third party funding.

While the Post Office scandal and subsequent ITV dramatization served as a much-needed catalyst, it is vital that this momentum is continued and conversations around the future of litigation funding will doubtless be renewed as the findings and recommendations of the CJC review are rolled out. 

The precise shape of any future regulatory regime is not yet known, with the announcement of a UK general election on 4 July meaning that the ‘PACCAR’ legislation needs to be completed within the ‘Wash Up’ before cessation of Parliament or else will roll over to a perhaps uncertain future in the Autumn. 

What remains certain, however, is that litigation funding in the UK is an essential component of the legal industry and, in one form or another, is here to stay.

Tom Davey is a Co-Founder and Director of Factor Risk Management. With more than 20 years in the industry, Tom has a wealth of litigation finance experience, from arranging insurance policies and providing underwriting services to consultancy on catastrophic loss projects for clients. 

Factor Risk Management is a leading independent global advisor and broker of litigation finance and after-the-event legal expenses insurance.