Civil Justice Council publishes Interim Report and Consultation on Litigation Funding

The Civil Justice Council (CJC) has today published its interim report and consultation in its ongoing review of the litigation funder sector. The report sets out an extensive list of questions for consultation, which are summarised below. The working group behind the report is co-chaired by Mr Justice Simon Picken and Dr John Sorabji, both CJC members, and the wider consultation group includes Stephen Wisking, a partner in our Competition, Regulation and Trade group who specialises in competition disputes.

The review was initiated by the last government in the wake of the Supreme Court's decision in Paccar in July 2023, which established that litigation funding agreements that provide for the funder to receive 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 (see our blog post here).

The government announced the CJC review at the same time as introducing to Parliament the Litigation Funding Agreements (Enforceability) Bill, which would have reversed the effect of the Paccar but which fell in the pre-election wash-up. The new Labour government has made it clear that it does not intend to re-introduce legislation on the question of litigation funding until after the Civil Justice Council has completed its review.

The CJC has said that it intends to release its final report, with recommendations to the Lord Chancellor, by summer 2025.

Responses to the consultation are due on 31 January 2025 and Herbert Smith Freehills will be submitting a response. If any clients would like to discuss the consultation, please do get in touch.

In broad summary, the questions for consultation include questions as to:

• The benefits of third party funding, including the extent to which it currently secures effective access to justice or promotes equality of arms between parties to litigation.
• The extent to which the current regulatory framework (ie voluntary regulation via the Code of Conduct of the Association of Litigation Funders of England and Wales) operates sufficiently and how it could be improved.
• The major risks or harms to which third party funding gives rise, and how they may be prevented, controlled or rectified (whether through some form of regulation or otherwise).
• Whether the costs of third party funding should be recoverable as a cost of litigation.
• Whether third party funders should remain exposed to a risk of paying adverse costs in proceedings they have funded, and if so to what extent.
• Whether a funder's return should be subject to controls, such as a cap, and if so how and at what level that cap should be set.
• The drawbacks of third party funding and the alternatives to it, how they compare to one another, and whether any alternatives should be encouraged in preference to third party funding.
• Whether any reforms are needed to Conditional Fee Agreements (CFAs), DBAs or legal expenses insurance in order to promote effective litigation funding.
• What role (if any) the court should play in controlling litigation supported by third party funding.
• Whether the existence or terms of third party funding arrangements should be disclosed to the court or the funded party's opponents in proceedings.
• The extent to which third party funders should be able to exercise control over litigation.
• Whether the court should be required to approve the settlement of funded proceedings.
• The extent to which the third party funding market enables claimants to compare funding options effectively.
• Whether there is a need to reform the current approach to conflicts of interest that may arise where litigation is supported by third party funders.
• The extent to which third party funding encourage specific forms of litigation, including meritorious claims, vexatious litigation and class actions.