Civil Justice Council's final report on litigation funding recommends "light touch" statutory regulation

The Civil Justice Council (CJC) has published its final report in its review of litigation funding. This comprehensively addresses the issues identified in its interim report published last October (see our blog post here).

The review was set up in April 2024 in the light of the Supreme Court's decision in Paccar in July 2023, which established that litigation funding agreements based on a share of damages are Damages-Based Agreements (or DBAs) and are therefore unenforceable unless they comply with the restrictive regulatory regime for such agreements under the 2013 DBA Regulations (see our blog post here).

The key recommendations from the CJC's report are as follows:

• Reversal of Paccar. Legislation should be introduced as soon as possible to reverse the effect of Paccar, with retrospective effect, so that litigation funding agreements will be enforceable regardless of whether they provide for the funder to receive a percentage share of damages and whether they comply with the DBA Regulations.
• Regulatory framework for litigation funding. A new system of "light-touch" statutory regulation should be implemented for litigation funding through Regulations issued by the Lord Chancellor. This should not apply to the funding of arbitration proceedings. Regulation by the FCA is not recommended at this stage, but that should be revisited after five years.
• Regulatory requirements for all cases. There should be a base-line set of requirements for all litigation funding, including for example capital adequacy requirements, restrictions on funders controlling litigation, and disclosure of the fact and source (but not the terms) of funding.
• Additional requirements for funding class actions and consumer claims. Additional requirements should apply to funding for consumers and class actions, including, for example, a requirement for independent legal advice and court approval of funding agreements. Interestingly, the funder and legal representative would have to certify that they did not approach the funded party directly or indirectly in respect of the claim – ie that pursuit of the claim was initiated by the funded party and not the funder or legal representative.
• Funder's return not capped. There should be no cap on the amount litigation funders can receive as a return from the litigation.
• Recoverability of litigation funding costs. Litigation funding costs should be recoverable in litigation in exceptional circumstances.
• Contingency fee agreements. The current legislation relating to contingency fee agreements provided by lawyers, ie Conditional Fee Agreements (CFAs) and DBAs, should be replaced by a single, simplified legislative contingency fee regime.

For more details on the recommendations, please see our Litigation blog post.