Civil Justice Council Calls For Overhaul Of English Litigation Funding And Lawyer Fees Arrangements

Published: 2025-06-06 04:12:06 ET PCAR

Published on 06/06/2025 at 04:12

The report recommends that the Government urgently implements legislation to reverse the UK Supreme Court's July 2023 decision in PACCAR. This would enable third-party funders—who fund claims but are neither parties nor legal advisers—to be paid a damages-based return without their litigation funding agreements being regulated as damages-based agreements and potentially rendered unenforceable. It would also permit funders to earn a damages-based return in the rapidly growing sphere of opt-out collective proceedings, where damages-based agreements are currently prohibited.

The report additionally makes extensive further recommendations in relation to both litigation funding agreements and lawyer fee arrangements, including conditional fee agreements and damages-based agreements. If implemented, these recommendations would significantly reshape regulation and practice in both areas. They will be seen as a green light for the continued expansion of litigation funding in England; and would encourage a more permissive approach towards lawyer fees, particularly in cases involving commercial parties.

Recommendation to reverse PACCAR

In July 2023 a majority of the UK Supreme Court decided, by adopting an expansive interpretation of the relevant legislation, that a litigation funding agreement is regulated as a damages-based agreement if the funder's return is determined by reference to the amount of damages recovered.

The decision ran contrary to the expectations and practices of most funders and litigation practitioners and, since damages-based returns were very common, it had widespread implications:

The response to the PACCAR decision was a rapid re-negotiation of litigation funding arrangements, with funders typically agreeing to be paid a multiple of their investment in place of a share of damages. This produced the unintended effect of reducing the alignment of interests between funders and claimants, since it meant funders would no longer have a direct interest in the quantum of the damages recovered (albeit usually they would retain an interest in there being sufficient damages to cover their return).

The decision also led to a series of disputes about its wider implications, for example whether it prevented a litigation funding agreement from being capped by the total amount of damages. Those arguments were rejected at first instance by the Competition Appeal Tribunal (see for example Neill v Sony), but are due to be heard by the Court of Appeal in a conjoined appeal on June 10, 2025.

The previous UK Government had proposed legislation (the Litigation Funding Agreements (Enforceability) Bill 2024) which would have reversed PACCAR. But following the 2024 general election, the new Government decided to wait for the Council's report before deciding how to proceed.

The Council describes the decision in PACCAR as an unintended consequence of the way the legislation in this area has evolved over several decades, arguing that it has the effect of wrongly conflating the regulation of third-party litigation funding with the regulation of lawyer fees. The Council identifies that distinction as important to enable funders and lawyers to be subject to different sets of rules (with the former potentially subject to less stringent restrictions), as is common in other jurisdictions and appears to have been the original intention of Parliament when restrictions on conditional lawyer fees were partially relaxed in 1990.

The Council's recommendation is that the Government should now urgently introduce legislation to reverse the effect of PACCAR by taking litigation funding agreements entirely outside the regulatory ambit of damages-based agreements with both prospective and retrospective effect. If that recommendation is accepted, it would enable funders to revert to a model where they share a proportion of any damages recovered. The pre-PACCAR landscape suggests that funders consider this more commercially attractive, and it also better aligns their interests with those whom they fund.

Recommendations that would reshape third-party litigation funding and lawyer fee arrangements

The Council has also carried out a wide-ranging review of both third-party litigation funding and lawyer fee arrangements. Amongst its dozens of recommendations are the following key points:

If implemented, these recommendations would significantly reshape regulation and practice of both third-party litigation funding and lawyer fee arrangements. They would be likely to both facilitate the continued expansion of third-party litigation funding in England; and would encourage the adoption of conditional fee agreements or damages-based agreements, particularly when lawyers are acting for commercial parties.

The Council's recommendations have been provided to the UK Government, and we now await its response.

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