Civil Justice Council Recommends "Light Touch" Regulation of Litigation Funding in United Kingdom
The Civil Justice Council ("CJC") has published its final report, recommending that the UK government regulate litigation funding and pass legislation to enable funders to be remunerated by way of a percentage of any damages recovered in the litigation.
The report contains 58 recommendations, which would require legislation and new court rules if they are to be enacted.
Key recommendations include:
Reversal of PACCAR
Legislation should be passed to reverse the effects of the UK Supreme Court's decision in R (PACCAR) v Competition Appeal Tribunal [2023] UKSC 28, to enable funders to be remunerated based on a percentage of any damages recovered in the litigation.
Funder Returns
No statutory cap on funder returns.
Costs Recovery
In exceptional cases, funded litigants should be permitted to recover funding costs from their opponents. Funders should continue to be potentially liable for third-party adverse costs orders.
Disclosure
The name of the funder and the source of funds should be disclosed to the court and the parties. Disclosure of funding terms should not be the norm.
"Light Touch" Regulation
All forms of litigation funding (apart from funding of arbitral proceedings) should be subject to "light touch" statutory regulation, which should:
- Impose case-specific capital adequacy requirements;
- Ensure anti-money laundering regulations apply to litigation funders; and
- Codify the prohibition on litigation funders directly or indirectly controlling the conduct or settlement of litigation.
The CJC considers that these requirements obviate the need for security for costs, which should not generally be available against a funder that has complied with capital adequacy requirements and has suitable after-the-event ("ATE") insurance in place.
Enhanced Regulation for Funding Group Actions and Consumer Claims
- Court approval of funding terms (including whether the funder's return is fair, just, and reasonable);
- Funded party to receive clear, simple, and transparent information about funding terms, and independent legal advice from King's Counsel;
- Certification by the funder and the funded party's lawyers that neither of them had approached the funded party to pursue the claim/funding—i.e., the funded party sought the legal representation and funding;
- Mandatory costs budgeting and costs management for all funded group actions; and
- Requirement for ATE insurance with robust anti-avoidance endorsements.
If implemented, the CJC's recommendations would reshape the litigation funding landscape in the United Kingdom, with the intention of enhancing access to justice while addressing concerns about the effectiveness of the current regulatory approach.
