In a recent written statement, Minister of State for Justice announced that the 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 PACCAR case
The Supreme Court in the PACCAR case ([2023] UKSC 28) decided that litigation funding agreements which entitle the funder to recover a percentage of damages awarded is a Damages Based Agreement (DBA) and is accordingly unenforceable unless compliant with the DBA Regulations 2013.
This judgment introduced significant uncertainty in the third party funding market, including as to the validity of many funding agreements, and a drop in class action claims. As recognised by the Government, this adversely impacted access to justice, particularly for less powerful or well-resourced claimants who need funding to bring large cases against more powerful and wealthy opponents.
Legislative background and the CJC
Following PACCAR, the Conservative Government introduced legislation with the purpose of reversing the effect of the decision. However, this did not proceed through Parliament to be passed as legislation before the change in government.
The incoming Labour Government then commissioned a review of litigation funding by the Civil Justice Council (CJC). The Government on 17 December 2025 accepted two of the CJC's recommendations:
- To legislate to clarify, with prospective effect, that LFAs are not DBAs (contrary to what was decided in PACCAR).
- To introduce "proportionate regulation of LFAs".
The timetable for bringing forward the legislation remains unclear, however the Government has indicated that legislation will be implemented "when parliamentary time allows".
What does this mean?
This development helps to support the growth of the litigation funding market and promote access to justice.
The Government has confirmed that once these two changes have been implemented, it will consider the CJC's further recommendations in due course. We will watch this space to see what "proportionate regulation" looks like in practice and what further announcements will be made.
Lewis Silkin works closely with litigation funders to identify the best options for funding cases for our clients. For a discussion about funding and insurance options, contact Andrew Wanambwa and Leo Meredith.
