The case, R (on the application of PACCAR Inc and others) v Competition Appeal Tribunal and others (“PACCAR”), centered on whether litigation funding agreements (LFAs) constituted damages-based agreements (DBAs), which are subject to statutory regulation.
The Supreme Court ruled in favor of the respondents, holding that LFAs were indeed DBAs. This classification rendered many existing LFAs unenforceable, throwing the third-party litigation funding (TPLF) industry into turmoil. The decision also undermined confidence in the UK as a forum for complex disputes, with funders allocating less capital due to the uncertainty.
Impact on Access to Justice
The PACCAR judgment impacts claimants relying on TPLF, potentially impeding access to justice for those pursuing meritorious claims. For decades, TPLF has acted as a financial equalizer, enabling individuals and small enterprises to seek redress from corporate giants. Without TPLF, many claims would likely not be brought due to prohibitive litigation costs.
Notable examples include the Post Office scandal litigation and the Municipio de Mariana v BHP Group case, where TPLF played a vital role in enabling claimants to establish the truth and obtain redress. The PACCAR judgment threatens to undermine TPLF’s role as a gateway to justice, potentially leaving claimants vulnerable to the power of large corporate defendants.
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Government Response and Proposed Reforms
In response to the PACCAR judgment, the government commissioned the Civil Justice Council (CJC) to review TPLF and introduced a bill to overturn the decision retrospectively.
The Ministry of Justice (MoJ) announced in December 2025 that the government plans to introduce legislation clarifying that LFAs are not DBAs and implementing proportionate regulation. However, this legislation will only apply prospectively, leaving many existing LFAs vulnerable to the PACCAR judgment.
While reversing the decision is essential, it may not suffice. The litigation funding market has outgrown its voluntary regulatory framework, and the proposed regulation must address critical issues such as protecting claimants’ interests, enhancing costs budgeting, and ensuring capital adequacy. The government’s move to reverse PACCAR is a vital first step, but deeper reform is necessary to ensure TPLF remains a gateway to justice, providing a fair fight for claimants against corporate giants.
The CJC report identifies several areas for reform, including safeguards to prevent litigation funding from becoming a vehicle for claims that primarily benefit funders and legal teams. Enhanced costs budgeting and transparency requirements are also essential to ensure legal costs remain reasonable and proportionate, and that claimants are fully informed about the terms and risks of funding.
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Proposed Reforms and Regulatory Framework
The CJC report, released in June 2025, recommends legislation to clarify retrospectively that LFAs are not DBAs and that TPLF is not a form of claims management service. It also calls for TPLF to be subject to formal regulation, replacing the current self-regulatory approach.
The proposed regulatory framework aims to address key concerns. One major issue is protecting claimants’ interests, as seen in the Post Office scandal litigation, where funders and legal teams received a significant portion of the settlement. The CJC report stresses the need for safeguards to prevent TPLF from primarily benefiting funders and legal teams. Enhanced costs budgeting is another critical aspect, ensuring legal costs remain reasonable and proportionate. This is particularly important to prevent defendants from outspending claimants to force compromise or discontinuance of meritorious claims.
Additional Regulatory Considerations
The CJC report also addresses the recoverability of funding costs, suggesting that the general prohibition on recovering these costs should be reevaluated. It recommends granting courts discretion to award recovery of certain costs in appropriate circumstances, especially when claimants incur significant expenses due to the defendant’s actions. Capital adequacy is another focus, as litigation funders currently lack stringent capital requirements. Ensuring funders have sufficient financial resources is key to prevent claimants from being left unsupported if a funder becomes insolvent.
Transparency is another key element of the proposed reforms. Claimants must receive clear information about funding terms, associated risks, and likely costs. There is also growing consensus that the existence and identity of funders should be disclosed in proceedings. However, this disclosure must be carefully balanced to avoid creating asymmetry between parties or unnecessary satellite litigation. The government’s commitment to these reforms reflects its recognition of TPLF’s importance in ensuring access to justice and maintaining the UK’s reputation as a predictable jurisdiction for complex disputes.