Litigation funding – CJC issues interim report and opens consultation

The Civil Justice Council (CJC) has released its keenly-anticipated interim report and consultation in its review of litigation funding.

Background to the review

Earlier this year, the Lord Chancellor tasked the CJC with reviewing the operation of litigation funding in England & Wales. The review was to be informed by the CJC’s function to make civil justice more accessible, fair and efficient, and was to cover:

• the current position of litigation funding (including its regulation)
• whether litigation funding delivers access to justice; including identifying alternatives and limitations
• recommendations for reform – including as to options for regulation, whether a TPF’s return should be capped etc

The review of funding was commissioned in the wake of the 2023 UK Supreme Court decision in PACCAR, which made certain types of litigation funding agreements unenforceable. In tandem with the CJC Review, the previous Government had progressed the Litigation Funding Agreements (Enforceability) Bill – draft legislation which sought to reverse the effect of the PACCAR decision. However, that Bill did not pass before the UK General Election, and the new UK Government has indicated that it will not seek to revive the Bill or otherwise legislate in this area pending the CJC’s Final Report, due in summer 2025.        

The CJC has now issued its interim report and launched a consultation seeking evidence on the current use and future regulation of third party funding. It has not however, at this stage, made any recommendations.

Interim Report

The interim report surveys the history and development of third party funding in England and Wales –from its prohibition historically under maintenance and champerty laws, to its role in the last 30 years as a means of promoting access to justice (particularly as an effective means of funding collective or representative actions) by providing equality of arms – but also as an effective means for corporate litigants to pursue proceedings off the balance sheet. Against those benefits, the report highlights arguments about problems caused by third party funding, including the promotion of unmeritorious or vexatious litigation, and the artificial inflation of claim values, leading to reduced prospects of settlement, and the risk of under-compensation of claimants after deduction of a funder’s return.

The report then reviews approaches to the regulation of funding, both in this jurisdiction and abroad – looking at the development of the current model of self-regulation, and questioning whether, in light of the significant expansion of the funding market in the 13 years since the Association of Litigation Funders’ Code was introduced, this model (unique to the UK) remains appropriate, or if statutory regulation is now required or desirable. The report and consultation seeks to identify the most effective and proportionate regulation method(s) for third party funding – recognising that differential approaches may be desirable for different types of litigation and litigant.

It continues by considering the relationship between funding and litigation costs (including the additional cost of the funding itself), and the range of funding options, including legal expenses insurance, conditional fee agreements, damages based agreements, crowdfunding, pure funding and civil legal aid. For an introduction to options for litigation funding, see our article: A guide to litigation finance: how does litigation funding work in the UK?

Consultation

The second phase of the CJC’s Review is the launch of a consultation, which is open for responses until Friday 31 January 2025. Broadly speaking, the CJC seeks evidence in the following key areas:

• Whether, how and by whom third party funding should be regulated
• Whether and if so, to what extent a funder’s return should be capped
• How third party funding should be deployed relative to other sources of funding
• The role that should be played by rules of court in controlling funded litigation
• Potential provisions to protect claimants
• The extent to which availability of funding encourages litigation

The detailed consultation questions are available here, and responses can be submitted by PDF or Word document to CJCLitigationFundingReview@judiciary.uk.

Final Report

Following the consultation, the CJC will begin phase 3 of its work, preparing a final report and recommendations which will be submitted to the Lord Chancellor and published. The working party  intends to complete phase 3 by summer 2025.