The Civil Justice Council's Final Report on Litigation Funding – Key Recommendations and Market Implications

On 2 June 2025, the UK Civil Justice Council ("CJC") published its long-awaited Final Report on the regulation and future of litigation funding in England and Wales (the "Report"). The Report makes 58 recommendations, which would amount to a fundamental overhaul of the current UK litigation funding regime. The recommendations include statutory regulation, clearer distinctions between funding types, enhanced consumer protections, and new mechanisms for data collection and dispute resolution.

Highlighted below are the key recommendations in the Report, which (if implemented) will significantly impact funders, parties to funded disputes, legal professionals, and the broader litigation market. 

1. Reversal of the PACCAR Judgment: urgent legislation should be implemented to reverse the effect of the decision in R (PACCAR Inc and other) v Competition Appeal Tribunal and others [2023] UKSC 28 ("PACCAR"), with retrospective effect.

   In PACCAR, the Supreme Court held that litigation funding agreements ("LFA") were damages-based agreements ("DBA") and therefore unenforceable as they did not comply with the strict requirements of the Damages-Based Agreements Regulations 2013. The Report highlights the need to resolve the subsequent uncertainty caused by PACCAR, which it says resulted in the forced renegotiation of many LFAs and reduced confidence in England and Wales as a litigation forum. As recently highlighted in the Court of Appeal, litigation in respect of the enforceability of subsequent amendments to LFAs (made in response to PACCAR), continues and is noted further below.

2. Regulation of Litigation Funding: a "light-touch" statutory regime regulating litigation funding should replace the current self-regulatory approach (recommendations 10-16), including:
• LFAs being regulated separately to DBA and Conditional Fee Agreements ("CFA");
• no statutory caps on funder returns, but in collective proceedings court approval should be required to ensure the returns are, "fair, just and reasonable";
• early disclosure by funded litigants of the existence of the funding, the funder's identity, and the ultimate source of funds - both to the court and other parties;
• ongoing case-specific capital adequacy requirements for funders;
• mandatory anti-money laundering compliance for funders;
• prohibition on direct or indirect funder control over litigation, including settlements;
• independent, binding dispute resolution for funder-fundee disputes, with costs borne by the funder; and
• standard terms for litigation funding.


3. "Enhanced" regulation for consumer protection: despite the general light-touch approach, greater consumer protections should be implemented for collective proceedings and consumer claims (recommendations 17-23), including:
• imposing a regulatory Consumer Duty based on the FCA's Consumer Duty;
• mandatory provision of independent legal advice to funded parties from a King's Counsel (a senior barrister) on the terms of the LFA, prior to entering into it; and
• mandatory disclosure of the LFA to the court at the commencement of proceedings, following which the court will determine whether the terms should be approved.


4. Mandatory after-the-event ("ATE") insurance: where funding is provided for a non-commercial party or for collective proceedings, it should be mandatory for the funded party to (a) put in place ATE insurance with robust anti-avoidance endorsements and (b) ensure capital adequacy is maintained, set on a case-by-case basis (recommendation 10). A funder's failure to comply with these requirements would enable the court to order security for costs against the funder (recommendations 43 and 44).
5. Costs management: compulsory costs budgeting should be implemented for all funded collective proceedings. For other types of proceedings, it suggests that the CPRs are amended so that the court must take into account whether a party has received litigation funding when deciding if costs budgeting should apply. Additionally, the Report recommends that the court is empowered to make pre-action costs budgeting and case management orders, enabling early measures for managing costs (recommendation 38).
6. "No-approach" certification: for collective actions, the court should require certification from the funder and the funded party's lawyer that they did not approach, directly or indirectly, the funded party to seek their agreement to pursue proceedings (recommendation 21).
7. No application to arbitration: third-party funding of arbitration should not be subject to the formal regulation discussed above - it should remain a matter for arbitral centres to determine whether and how any regulation should be implemented (recommendation 6).
8. Implementation: the reversal of PACCAR (see point 1 above) should be implemented as soon as possible. The other recommendations should be implemented separately by primary and secondary legislation.

Commentary

The move from self-regulation to the introduction of sensible guardrails for the sector to operate within, particularly those recommendations that afford greater scrutiny and costs protection, is welcome and timely, given the swift proliferation of funded cases, particularly in the collective actions space. Recommendations 10, 20, 43 and 44 are particularly encouraging. The provision for court scrutiny and approval of funding terms could reduce the number of more speculative claims which clients' still need to defend; often at significant cost. The introduction of capital adequacy requirements and ATE insurance with strong anti-avoidance provisions should provide more robust costs protections, further strengthened by the risk of the court ordering security for costs against the funder if they fail to comply with such requirements. 

Additionally, the proposed requirement on funders and lawyers to certify that they did not approach funded parties would result in a significant change in how opt-in collective actions are brought in the UK, as claimant law firms and funders currently deploy significant marketing efforts to "book-build" classes of potential claimants.

The most high profile recommendation in the Report is for the swift reversal of PACCAR to bring certainty back to the sector. In the meantime, litigation continues over the enforceability of amendments to several LFAs intended as workarounds to PACCAR, with the Court of Appeal recently upholding the Competition Appeal Tribunal's approval of several amended LFAs in opt-out class actions, on the basis that they now calculate funder returns by reference to a multiplier of the funding provided and not a percentage of damages awarded.

However, it is to be hoped that key elements of the suggested regulatory model accompany any such reversal, with time, care and thought taken to how such recommendations are implemented to ensure that the effect envisaged by Sir Geoffrey Vos (Master of the Rolls and Chair of the CJC) is delivered: "[they should] form the foundation for a more transparent, fair and effective litigation funding framework in England and Wales".