UK Government to Mitigate Impact of Supreme Court's 2023 Decision on Litigation Funding in PACCAR

On 17 December, the Minister of State for Justice, Sarah Sackman KC MP, announced that the UK Government intends to take action to mitigate the impact of the 2023 Supreme Court judgment in PACCAR and implement proportionate regulation of third-party litigation funding agreements ("LFAs").

The announcement acknowledged that LFAs are used in high-value commercial cases where there is a power imbalance between parties, and that the uncertainty caused by the decision in PACCAR risks undermining the competitiveness of England and Wales as a global hub for commercial litigation and arbitration, both of which bring significant benefit to the UK economy.

The government has indicated that it plans to balance consideration of this with steps to ensure that LFAs are fair and transparent for the claimants using them, calling for greater regulation of the litigation funding market, which currently operates under a system of voluntary self-regulation.

The announcement follows careful consideration of the Civil Justice Council's ("CJC") comprehensive and wide-ranging review of litigation funding published earlier this year. The government has said that it intends to accept CJC's two primary recommendations, namely (1) the introduction of legislation to clarify that LFAs are not Damages Based Agreements, with prospective effect, and (2) the introduction of proportionate regulation of LFAs. Those on the claimant side will no doubt hope that these measures will reassure funders that LFAs can be used to fund cases, while those on the defendant side will look for improved transparency and fairness in funding arrangements.

The timing for the anticipated legislation is unclear, as it is to be introduced when parliamentary time allows, following which more detailed consideration will be given to the CJC's wider litigation funding recommendations, with any further changes to be announced in due course.

As we have previously commented in our Legal Update on the CJC's final report on litigation funding, the swift reversal of the PACCAR decision is the most high-profile of the recommendations made in the CJC report, and the government's announcement should help to bring certainty back to the sector and alleviate some of the litigation over the enforceability of amendments to several LFAs intended as workarounds to PACCAR. However, it remains to be seen how the remainder of the CJC's wider recommendations are to be implemented, including the regulatory guardrails that would bring welcome protection for businesses at risk of proliferating funded claims (particularly collective actions).

This is an important first step in delivering the effect of suggested regulations envisaged by Sir Geoffrey Vos, Master of the Rolls and Chair of the CJC, as "form[ing] the foundation for a more transparent, fair and effective litigation funding framework in England and Wales."