Litigation funders await clarity as market reform nears

The litigation funding market is entering a decisive phase as the profession waits on the Civil Justice Council’s work on how third-party finance should be governed. The review was commissioned in the wake of the Supreme Court’s decision in PACCAR, which found that many funding agreements amounted to damages-based agreements and were therefore unenforceable unless they met a separate set of formal requirements.

That ruling sent funders and their lawyers scrambling to renegotiate contracts, and it cast doubt over the recovery of returns in a swathe of group actions, including claims running through the Competition Appeal Tribunal. An attempt to reverse the effect of the decision through primary legislation stalled amid the change of government, leaving the market to operate under a cloud of uncertainty that practitioners say has weighed on the willingness of some funders to commit capital.

Claimant lawyers argue that third-party funding is now indispensable to access to justice, allowing consumers, small businesses and shareholders to bring cases they could never finance alone. Defendant interests counter that the sector needs firmer oversight, pointing to questions about the share of damages that reaches claimants once funders and lawyers have taken their cut. The Civil Justice Council has been weighing whether the answer lies in a statutory framework, a strengthened voluntary code, or some combination of the two.

Much of the debate turns on transparency and control. Regulators and judges have shown increasing interest in who is funding litigation and on what terms, particularly in the large collective actions that have become a feature of the competition landscape. Funders insist that their involvement is passive and that decision-making rests with claimants and their lawyers, but critics remain unconvinced.

Whatever the review recommends, firms expect its findings to shape the economics of group litigation for years. For now, funders are pressing ahead with mandates while keeping a close eye on Westminster, aware that the enforceability of their agreements may ultimately depend on legislation that has yet to arrive.