Civil Justice Council final report on litigation funding – the key issues

On 2 June 2025 the Civil Justice Council (“CJC”) published its Final Report on litigation funding (the “Report”).  The 150 page Report is a comprehensive review of how third-party litigation funding (“TPLF”) operates in England and Wales. It identifies numerous areas of concern, setting out 58 recommendations.  Headline proposals are:

1. Introduction of statutory regulation to replace the current self-regulatory regime for litigation funding.
2. The statutory regime will apply to all forms of litigation funding, and – in line with principles of consumer protection – more stringent rules should apply to funding for consumer claims and class actions. 
3. The new statutory regime will not extend to funding used in arbitration proceedings. Self-regulation will continue for that activity. 
4. Recognising the lack of reliable data on the use of litigation funding, the CJC recommends establishment of a Standing Committee on Litigation Funding (the “Standing Committee”), responsible for collecting data on the operation of litigation funding, CFAs and DBAs. Market participants including law firms should be obliged to provide such data.
5. Legislation should be passed to reverse the impact of the PACCAR decision. [1]     

Background

In April 2024, the Lord Chancellor tasked the CJC with conducting a wide-ranging review into TPLF, prompted by the UK Supreme Court’s decision in July 2023 in PACCAR.   

The very rapid growth of the TPLF industry in the UK is further important context, with England and Wales now the second largest TPLF market in the world.^[2]  Further significant growth is expected. “In 2022, PwC UK predicted assets under management would grow by 8.7% per annum over 5 years, from £2.2bn in 2023 to £3.7bn by 2028.”^[3] The growth of class actions is also a proxy for the growth of the TPLF market. The UK continues to see the fastest growth in Europe, with cumulative claimed quantum in the region of EUR 145 billion by the end of 2023, growing by a factor of 10x from 2016.^[4]

Relatedly, there have also been some high-profile examples of where use of TPLF has had questionable benefits for funded parties. In the litigation by former sub-postmasters against the Post Office claim, it was reported that the sub-postmasters paid were left with only c. 20%[5] of the settlement sum once fees were paid to the litigation funder and claimant lawyers.

Key recommendations in more detail

Rules to apply to all forms of funding

The Report recommends that all litigation funding be subject to “a minimum, base-line, set of regulatory requirements”, being:

1. Funders must maintain adequate capital adequacy for their portfolio of cases.[6] Furthermore, both the funder and the funded party’s legal representative must “certify to the court and any other party to the funded litigation that the funder has and maintains sufficient capital adequacy.”[7]
2. A prohibition on funder control of litigation[8] “either direct[ly] or indirect[ly]… including [in relation to] settlements and settlement negotiation.”[9]
3. Rules prohibiting conflicts of interest.[10]
4. Application of anti-money laundering rules.[11]
5. Use of funding should be disclosed to the Court and other parties to the proceeding, along with  the name of the funder and “the ultimate source of the funding… at the earliest opportunity after the funding agreement is entered into.”[12]

Further rules which apply to the funding of consumer claims and class actions

1. Funded parties should be provided with “independent” advice from a Kings Counsel prior to their entering into a funding agreement.[13] Although not directly stated, inclusion of the word “independent” presumably means that the barrister providing this advice cannot be directly involved in the underlying litigation. This is contrary to the current position whereby solicitors acting on claims may have sourced funding and also advise their own clients on the funding agreements.[14] 
    
2. The Court will consider whether or not to approve the funding agreement and, in doing so, it shall consider “whether the litigation funder’s return is fair, just and reasonable. In considering the funder’s return, the court should have the power to take an inquisitorial role in order to ensure that it can properly consider and protect the funded party and any absent class’s interests.”[15]
   
   The Report proposes that this process should take place ex parte and thereby the Defendant will not have the opportunity to make submissions. Realistically, there are limitations to conducting this type of assessment at the beginning of proceedings when it is unclear whether the claimant law firm budget is accurate and/or whether the stated claim value is overvalued.[16] Thus, to meaningfully assess whether a return is “fair, just and reasonable” it is likely necessary to perform a further assessment at or near the end of a claim.
   
   Prior to the Report being published there was speculation on whether the CJC would recommend imposing objectively measurable caps on the return to funders, e.g., 50% of any recovery. The Report rejected this proposal,[17] but its alternative approach that returns to funders should be no more than is “fair, just and reasonable” may prove just as significant in practice.
    
3. The funder and the lawyer to the funded party/parties must certify to the Court that they did not directly or indirectly approach the funded party “to seek their agreement to pursue proceedings.”[18] It seems likely that this recommendation was influenced by research from the Class Representatives Network into the degree of involvement and agency that Proposed Class Representatives (“PCRs”) have in selecting a funder prior to initiating competition class actions in the CAT. This research[19] found that “PCRs have not typically led their own tendering process for litigation funding arrangements. Rather, responsibility for selecting prospective funders has usually fallen to the PCR’s solicitors, often before the PCR is even involved in the case”.[20]
   
   The CJC’s recommendation against approaching PCRs and clients is not restricted to class-actions in the CAT and, instead, extends to all forms of collective redress. Depending on how it is implemented, it could also preclude direct email and social media approaches to potential clients as part of “bookbuilding” exercises.
    
4. Litigation funders should be subject to a regulatory Consumer Duty.[21] To date the Consumer Duty only applies to financial services firms regulated by the FCA. It is a principles and outcome-based regime which requires regulated entities to “act to deliver good outcomes for consumers”. Central principles of the Consumer Duty are: to act in good faith; avoid causing foreseeable harm; and enable and support retail customers to pursue their financial objectives.
   
   For FCA regulated firms, consumers can complain about breaches of the Consumer Duty to the Financial Ombudsmen Service (the “FOS”), which can take enforcement action including awarding compensation.  Furthermore, the FCA itself can investigate and take action in relation to breaches of the Consumer Duty. However, there is no statutory cause of action for a consumer to take a direct claim in Court against a regulated entity for breach of the Consumer Duty. We comment briefly below on how the Consumer Duty may operate in the TPLF industry.

The regulator and enforcement

A regulated industry requires a regulator. The Report envisages a “light touch” approach and, to that end, has proposed that responsibility for regulation will sit with the Lord Chancellor.[22] The CJC recommends that there should be a review after five years to consider whether regulatory responsibility should then be passed to the Financial Conduct Authority.[23] 

Breaches of the regulations must be reported to the Standing Committee which will itself issue an annual report on breaches to the Lord Chancellor, who may then take enforcement steps including prohibiting the relevant funder from further funding activity.[24] There are many questions on how enforcement will work in practice. If the Standing Committee only reports annually, it is clear that the Lord Chancellor may only intervene intermittently. Aside from through receipt of annual reports from the Standing Committee, it is unclear whether or not the Lord Chancellor will investigate proactively and take enforcement action against funders in breach of the proposed rules, potentially prompted by complaints from funded parties.  If not, then it will be left up to funded parties to enforce their own rights. There is a very significant power asymmetry between consumers who are party to funded agreements and their funders, and it is doubtful whether many individuals would wish to take legal action against a funder. The Report recommends that there should be an “independent, binding dispute resolution process to resolve disputes between litigation funders and funded parties”[25] but there is little detail on how this would operate in practice.    

The Report also envisages a role for the FOS: “Complaints concerning [non-compliance] with the [consumer] duty should be referred to the FOS.”[26] As indicated above, the FOS has the ability to make binding findings on conduct within its remit including to order payment of compensation. Given that the Report proposes a suite of regulations to protect consumers it is not immediately obvious why the FOS’s remit should be restricted to beaches of the Consumer Duty, but the scope of regulatory enforcement will no doubt be considered in more detail as the regulatory regime takes shape.

Separately, the Report recommends that LFAs should be unenforceable if the funders do not comply with the regulatory regime, including the proposed rules around: capital adequacy; anti-money laundering rules; and prohibition of control.[27]  The spectre of a funding agreement being unenforceable could be an effective incentive to ensure compliance. Recognising that not all breaches are equal, the Report provides that “the court [may] waive an inadvertent breach of the Regulations where it is just and reasonable to do so on such terms as it considers fair and reasonable. However, this should only be on notice to and having heard from all parties to proceedings”.[28]  

Further Proposals

The Report includes the following further recommendations:

1. For consumer claims/class actions, robust After the Event insurance (“ATE”) and Anti-Avoidance Endorsements (“AAE”) will be mandatory.[29] These are sensible proposals as they will ensure that the relevant insurance policies will respond in circumstances where the defendant is entitled to its legal costs. Thus, these recommendations protect both the consumer class members and defendants. Relatedly, defendants will not be able to seek security for costs where a funder complies with the regulatory regime and where there is adequate ATE and AAE.[30] This is also a sensible proposal and helpful for defendants: Claimants often resist Security for Costs applications, or at least drag their feet, but these measures will provide sufficient protection for defendants such that they will not need security for costs. 
2. Less positively, the Report recommends that claimants should be entitled to recover the costs of litigation funding in “exceptional circumstances.”[31] A similar mechanism exists in arbitration proceedings and it is unwelcome that it may spread to litigation. One respondent to the consultation argued that this change “would discourage defendants from running a ‘strategy of attrition’ under which they deliberately pursued an unmeritorious defence and/or made repeated procedural applications the true aim of which was to drive up claimant’s costs.”[32] Unfortunately the Report did not identify that defendants are highly motivated to keep their own legal costs down or that claimants do on occasion run up extraordinary legal costs.[33]  Furthermore, if a Defendant is at risk of paying the claimants’ costs of funding they should arguably be entitled to detailed information on funding, the terms of the LFA and how costs have been incurred.
3. Recognising the complexities that litigation funding can add to litigation, the Report proposes that funded cases should generally only be heard by specialised judges that have undergone training.[34]  Related to this complexity, the CJC recommends that all funded cases and class actions should be subject to cost budgeting which limits the amount of inter-partes costs recoverable from the other side.[35] This will help put downward costs pressure on all parties.
4. The Report recommends that DBAs should be permitted in opt-out class actions in the CAT.[36] At present, DBAs are prohibited in those claims and so the claimant law firm must work on an hourly rate albeit with the possibility of an uplift to those hourly rates. The report suggests that recoveries under DBAs should be “fair, just and reasonable”. It would be unedifying if claimant lawyers made extraordinary recoveries.
5. The Report raises significant concerns on the use of portfolio funding.[37] The CJC proposes that portfolio funding should be considered a form of loan and, unlike other forms of litigation funding, should immediately become regulated by the Financial Conduct Authority.[38] The Report considered that further research is required into portfolio funding, recommending that the “Government should investigate the impact of portfolio funding on the legal profession… and whether issues concerning regulation funding require regulatory reform of the legal profession.”[39]
6. The Report also recommends that the Legal Services Regulators should review and improve the regulation of the legal profession where litigation funding is concerned.[40] This is a sensible proposal as, particularly in class actions, there is a far looser connection between the client and lawyer than the traditional solicitor/client relationship. The Report also states, “Disclosure of any connection between the lawyer, law firm and funder should be declared.”[41]
7. The Report proposes that the Government should consider introducing an Access to Justice Fund that would be paid for by a small percentage of profits from litigation funding, CFAs and DBAs.[42]

Next steps

The CJC has proposed that its recommendations be implemented on a twin track. First, that the Government should introduce legislation to reverse PACCAR “at the earliest opportunity”.[43] Second, that separate primary legislation be passed, the Litigation Funding, Courts and Redress Act 2025 (the “Litigation Funding Act”), which would codify the pre-Report law on litigation funding and implement the CJC’s other recommendations both in the body of the Litigation Funding Act and through delegated legislation.

There is much detail to be worked through in the Report’s recommendations. While the CJC process has formally concluded, it is inevitable that interested parties will work to influence the regime before it is implemented. The Report is a comprehensive piece of work and with 58 recommendations, it is unquestionably ambitious. But the final shape of regulation will remain up for grabs until the relevant primary and secondary legislation is passed.
 

[1] R (on the application of PACCAR Inc and others) (Appellants) v Competition Appeal Tribunal and others (Respondents) [2023] UKSC 28. In brief, the PACCAR decision confirmed that a large proportion of what had previously been considered Litigation Funding Agreements (“LFAs”) had the potential to be DBAs. This is significant because DBAs are not permitted in opt-out proceedings in the CAT and, for other types of claims, they must comply with the Damages Bases Agreements Regulations 2013 (the “DBA Regulations”) and it is questionable whether a DBA with a litigation funder is capable of complying with the DBA Regulations. If that is correct, then a large proportion of funding agreements currently in use will be unenforceable.   More information is available here: https://cms--lawnow-com.webpkgcache.com/doc/-/s/cms-lawnow.com/en/ealerts/2023/07/the-supreme-court-deals-blow-to-litigation-funding-and-collective-proceedings-regimes-in-the-uk.

[2] Latham S and Ress G, "The Third Party Litigation Funding Law Review 2022” (6th Edition, 2022). Available here: https://www.augustaventures.com/news/the-third-party-litigation-funding-law-review-2022-6th-edition/

[3] Chartered Insurance Institute, ‘Litigation funding’ by Carolyn Mackenzie, CII Claims Community Board Member dated 23 April 2024 and updated 25 February 2025. Available here: https://www.cii.co.uk/learning/learning-content-hub/articles/litigation-funding/0685bcd6-9932-4f51-82af-08496f0b4699 

[4] Swiss RE Institute, "Litigation costs drive claims inflation: indexing liability loss trends" (2024) Available here: https://www.swissre.com/institute/research/sigma-research/sigma-2024-04-social-inflation.html 

[5] Civil Justice Council, "Review of Litigation Funding Interim Report and Consultation" (2024) 15-16 para. 2.20 <https://www.judiciary.uk/wp-content/uploads/2024/10/CJC-Review-of-Litigation-Funding-Interim-Report.pdf>.

[6] Recommendation 10.

[7] Paragraph 8.21.a).  Requiring the lawyers for the funded party to certify that the funder has sufficient capital adequacy would put those lawyers on a duty of inquiry.

[8] Recommendation 12. 

[9] Paragraph 8.21.d).

[10] Recommendation 14.

[11] Recommendation 11.

[12] Recommendation 13 and paragraph 8.21.e).

[13] Recommendation 18.

[14] See the response to Q32 of the submission by the Association of Litigation Funders and the International Legal Finance Association to the CJC consultation: https://www.judiciary.uk/wp-content/uploads/2025/05/Neil-Purslow-ILFA-and-ALF.pdf.

[15] Recommendation 20 and paragraph 8.22.c).

[16] Even where there is liability, true value is often significantly lower than claimed at the beginning of litigation.

[17] Paragraph 2.7.

[18] Recommendation 21.

[19] Gupta R, "Selecting Litigation Funders and Negotiating Funding Agreements" Class Representatives Network (20 September 2024). Available here : https://classrepresentativesnetwork.org/resources/september-2024-report-selecting-funders-and-negotiating-litigation-funding-agreements/ 

[20] Ibid, page 23.

[21] Recommendation 17.

[22] Recommendation 8.

[23] Recommendation 9.

[24] Paragraph 8.24.

[25] Recommendation 15.

[26] Paragraph 8.22.a).

[27] Paragraph 8.21.

[28] Paragraph 8.21.f).

[29] Recommendation 10.

[30] Recommendation 43.

[31] Recommendation 41.

[32] Paragraph 11.18.

[33] In the Pan-NOx emissions costs budgeting hearing the claimants proposed a budget of £208m. After hearing the argument, the Court’s judgment ([2024] EWHC 1728 (KB)) cut this figure by around 75%, commenting on the claimants’ budget, “'There appears to be little effort - nor, it seems, incentive - to run this litigation in a manner so as to minimise, as far as reasonably possible, the number of lawyers and the hours they suggest they need to work in order sensibly to progress this litigation'” and that “the Claimants’ approach to budgeting is redolent of financial incontinence”.

[34] Recommendation 40.

[35] Recommendation 38.

[36] Recommendation 54.

[37] Portfolio funding is a where a facility is put in place for a number of very similar commoditised cases. It can either be provided via the claimant law firm or direct to the clients.

[38] Recommendation 28.

[39] Recommendation 29.

[40] Recommendation 23.

[41] Paragraph 8.26.

[42] Recommendation 57.

[43] Paragraph 5.46.