UK Civil Justice Council publishes its final report on litigation funding

On 2 June 2025, the Civil Justice Council (CJC) published its final report on its review of litigation funding. This follows the publication of its interim report in October 2024 and a comprehensive consultation that sought feedback from stakeholders on a range of issues, including the regulation of third party litigation funding.

Key recommendations

The comprehensive final report makes 58 recommendations for reforms to litigation funding, including:

• a proposal for a "formal, comprehensive regulatory scheme" for litigation funding (although the CJC emphasises that the intention is for "light-touch regulation" that is to be consistent with the approach taken in the Principles of the European Law Institute); and
• the introduction of legislation to reverse the effects of the Supreme Court's ruling in PACCAR Inc & Ors, R (on the application of) v Competition Appeal Tribunal & Ors (2023) to make clear that litigation funding is not a form of damages-based agreement (DBA), nor a form of claims management service, with full retrospective effect.

The CJC recommends that a "twin-track legislative approach" should be taken in respect of its recommendations, with priority to be given to its legislative proposal to reverse the effects of PACCAR. To the extent that its other recommendations are accepted, it proposes that these should be implemented through primary and secondary legislation.

Legislative reversal of the effects of PACCAR

The PACCAR ruling had significant implications for litigation funding agreements (LFAs) as it meant that certain LFAs would be construed as DBAs, rendering them unenforceable under the 2013 DBA regulations, unless amended.

This uncertainty prompted the previous government to introduce the Litigation Funding Agreements (Enforceability) Bill to guarantee the enforceability of LFAs, although the bill never made it through the wash-up before the 2024 general election. After the election, the new government opted to wait for the outcome of the CJC's review.

The CJC recommends that legislation is introduced to reverse the effects of PACCAR to clarify that litigation funding is not a form of DBA, and that it is distinct form of funding from that provided by a party's legal representative. It also recommends that the legislation should have prospective and retrospective effect.

Significantly, the CJC urges that its recommendation be implemented as soon as possible given the ongoing uncertainty around LFAs – which is timely in light of the Court of Appeal's impending ruling in Commercial and Interregional Card Claims Ltd v Mastercard and others which will address the validity of LFAs based on a multiple of funding provided.

With stakeholders across the litigation industry having previously urged the government to introduce legislation to reverse the effects of PACCAR, it is possible that there may be legislation in a form similar to the fallen LFA (Enforceability) Bill before the end of this year, if not sooner.

Regulatory scheme

The report recommends that third party litigation funding should be subject to a formal, comprehensive regulatory scheme that replaces the current voluntary, self-regulatory approach overseen by the Association of Litigation Funders.  The CJC clarifies that claims management services are a form of litigation funding and should therefore be regulated under the proposed scheme.

Although respondents to its consultation suggested that the Financial Conduct Authority (FCA) should be considered as a possible regulator, the CJC recommends that the Lord Chancellor would be granted statutory powers and responsibility for the independent regulation of litigation funding, effected through statutory instrument. The Lord Chancellor would also review the effective operation of the regulation after five years, and consider whether any regulatory responsibility should be transferred to the FCA.

Baseline for litigation funding

The CJC proposes that a minimum, baseline set of regulatory requirements should apply to all litigation funding, including:

• Ongoing case-specific capital adequacy requirements;
• The requirement to have after-the-event insurance with robust anti-avoidance endorsements where funding is provided for a non-commercial party or in collective/group proceedings.
• Compliance with anti-money laundering regulations.
• A prohibition on funders directly or indirectly controlling funded litigation, including settlement proceedings. Breach of this requirement risks rendering the LFA unenforceable as against the funded party and imposing liability on the funder for the funded party's costs, including adverse costs.
• Disclosure obligations to the court and all parties to the proceedings in relation to the existence of funding and details of the litigation funder and source of funding.
• Procedural safeguards to address conflicts of interest, the resolution of disputes between funders and funded parties and consequences for the breach of the proposed regulations that would render the regulated LFA unenforceable.
• Recovery of litigation funding costs in exceptional circumstances.

Reform of CFAs and DBAs

The report also recommends reforms relating to conditional fee agreements (CFAs) and DBAs, including:

• A single, simplified legislative contingency fee regime should replace current CFA and DBA legislation.
• Reform of the DBA regulations should be addressed urgently.
• DBAs should be permitted in opt-out collective proceedings in the Competition Appeals Tribunal (CAT).
• CFAs and DBAs entered into by commercial parties should not be subject to any cap on the legal representative’s return.

Funder's liability for adverse costs

The CJC recommends changing the current approach to the Arkin Cap (the rule that states that the funder's potential liability for adverse costs is to be limited to the amount of funding provided).

Currently, the application of the cap is assessed on a case-by-case basis. Instead, the report recommends that it be codified in the Civil Procedure Rules and the CAT rules.

No presumption of security for costs

The CJC has rejected a presumption of security for costs to be ordered against a funder or funded party, given its recommendations for capital adequacy requirements and other costs protections.

Nevertheless, it recommends that security for costs should be required if a litigation funder breaches regulatory requirements concerning capital adequacy.

Arbitration proceedings

The CJC recommends that funding for arbitration proceedings should not be subject to formal regulation. It should remain a matter for arbitral centres to determine whether, and if so how, any such regulation should be implemented.

No caps on funders' returns

Despite some consultation respondents calling for statutory caps on funders' returns with a view to promoting consumer protection and preventing excessive profiteering from litigation, the CJC has rejected this on the basis that statutory caps are a "blunt instrument" and do not take proper account of the variable risks of funding different claims.

It rejected calls that caps are necessary to secure effective consumer protection. Further, it considers that non-commercial parties, or claimants or class members of collective or group proceedings are protected by making provision for the court to approve that the level of return is fair, just and reasonable.

Consumers or mass claims

Where consumers are involved, or there is funding of mass claims, collective proceedings, representative and group actions, the CJC recommends additional safeguards. These include:

• Funding to be subject to a regulatory Consumer Duty, which would be based on the FCA's Consumer Duty.
• Independent legal advice from a King's Counsel to be given to the funding party before entering any LFA.
• The development of standard terms for LFAs to be annexed to the proposed regulations.
• Certification by the funder and funded party's lawyer that they did not approach, either directly or indirectly, the funded party to seek their agreement to pursue proceedings.
• Court approval of the terms of the LFA, with the court to consider whether the funder's return is fair, just and reasonable.

It also recommends that consideration should also be given to the following:

• Cooperation between the Civil Procedure Rules Committee and the CAT ensure that they both take a consistent approach to litigation funding.
• The civil courts and the CAT to consider whether there are available non-court based forms of redress available such as consumer or regulatory redress schemes.
• The potential development of a pre-action protocol for mass claims brought in the court and the CAT.
• Mandatory cost budgeting and costs management.

Osborne Clarke comment

The CJC's final report paves the way for a regulated litigation funding landscape – one that aims to reconcile access to justice and consumer protection with the commercial realities of the litigation funding market.  

This approach is reflected in its wide-ranging recommendations, which stop short of imposing caps on funders' returns and a presumption for security for costs but also provide for greater transparency,  accountability and judicial oversight in civil and collective proceedings.

As anticipated, the final report comprehensively addressed the relationship between litigation funding and the growth of group and collective proceedings in the UK and, in particular, the question as to whether litigation funding promoted unmeritorious and speculative claims.

While the CJC rejected examples cited by consultation respondents, such as Merricks v Mastercard (2025), as evidence that litigation funding can promote unmeritorious and speculative claims, it cautioned that this may not reflect the true picture. Accordingly, it recommends additional safeguards for collective proceedings and group and representative actions.  

A noteworthy recommendation is its proposal for the funder and funded party's lawyer to certify that they did not approach, either directly or indirectly, the funded party to seek their agreement to pursue proceedings. While this proposal appears, on the face of it, to be an effort to reduce the risk of undue influence from lawyers and funders, in reality there may be other consequences. For example, it could give rise to a parallel industry of intermediaries, such as claims management companies, who would not be subject to the certification requirements. This, in turn, could add to the complexity as well as increasing the costs of the litigation. 

Further, claimant firms and funders would still be able to indirectly attract instructions from funded parties through other marketing initiatives, such as the publication of articles and media commentary.   

The final report will now be considered by the Lord Chancellor. While we expect that the proposal for legislation to reverse the effects of PACCAR could come to fruition sooner rather than later, it is likely to take some time – at least until 2026, before a comprehensive legislative proposal is drafted in respect of the CJC's other recommendations.   

Should you wish require advice on existing or proposed litigation funding arrangements, or funding options for litigation in England and Wales generally, please contact one of our experts.