UK litigation funding bill delayed until summer 2025 at the earliest

Lord Ponsonby, parliamentary under-secretary for the Ministry of Justice, confirmed the position in a recent answer to a question posed in the House of Lords.

The previous Conservative government introduced the Litigation Funding Agreements (Enforceability) Bill into the UK parliament in March. It was designed to reverse the impact of the UK Supreme Court’s so-called PACCAR decision on third party litigation funding agreements, from July 2023.

The Supreme Court held that third party litigation funding agreements (LFAs) which provide for the funder to receive a fee calculated by reference to the damages achieved by the funded claimant were damages-based agreements (DBAs). This had the effect that such LFAs, which included many LFAs then in place in the market, were completely unenforceable in opt-out collective proceedings before the UK’s Competition Appeal Tribunal (CAT); and unenforceable in other matters unless they complied with requirements set out in the DBA Regulations 2013, which many LFAs did not.

When the recent general election was called in the UK, however, the Bill had not been finalised and it failed to make it through the parliamentary ‘wash up’ – a short period pre-election during which proposed legislation can be finalised and enacted before parliament is dissolved.

Conservative peer Lord Sandhurst asked the new Labour government whether it plans to reintroduce the Litigation Funding Agreements (Enforceability) Bill and, if not, what steps it plans to take to mitigate the impact on third party litigation funding of the PACCAR judgment.

In response, Lord Ponsonby of the new Labour government said the government would wait for a project being undertaken by the Civil Justice Council (CJC) to conclude before deciding on action to take.

In April, the previous government tasked the CJC with conducting a review of the litigation funding market in England and Wales and its regulation. A CJC working group is leading the review. It is expected to publish an interim report this summer and a full report by summer 2025, which could make recommendations for reform.

Lord Ponsonby said: “The government recognises the critical role third-party litigation funding plays in ensuring access to justice. Following the PACCAR judgment, concerns have been raised about the need for greater regulation of Litigation Funding Agreements, or greater safeguards for claimants. The government is keen to ensure access to justice in large-scale and expensive cases, whilst also setting up adequate safeguards to protect claimants from unfair terms.”

“The Civil Justice Council is considering these questions and others in its review of third-party litigation funding, and hopes to report in summer 2025. The government will take a more comprehensive view of any legislation to address issues in the round once that review is concluded,” he said.

The new Labour government set out a packed legislative agenda for the next parliament, with 40 new legislative initiatives announced in the King’s speech last month.

Emilie Jones, an expert in dispute resolution at Pinsent Masons, said: “The litigation funding community will of course be disappointed that the effects of PACCAR will continue, at least for the time being. However, many will welcome the government’s decision to look at the third-party litigation funding landscape in England and Wales in the round, before enacting legislation.”

“The CJC’s review will look at topical and important issues, such as how funding is regulated and whether funders’ returns should be subject to certain limits. Its consideration of those issues also aligns with work currently being done in Europe by the European Law Institute (ELI), which is developing principles for litigation funding that aim to balance the availability of funding as a tool with the interests of claimants and defendants and a healthy litigation market. The ELI’s project is due to end in October 2024. As a result, there may also be insights to be gained from international views and experience before the CJC reaches its conclusions and the government revisits the idea of new legislation in this area,” she said.