The Civil Justice Council (“CJC”) has published its final report on third party funding of civil litigation (“TPF”) in England and Wales (“Final Report”). The Final Report follows on from the CJC’s interim report in October 2024 (“Interim Report”), which launched a comprehensive consultation on TPF and other alternative forms of funding disputes to which Stewarts responded.

In this article, Julian Chamberlayne and Olivia Amos review some of the key takeaways from the Final Report, specifically in relation to collective proceedings, representative actions, group actions and consumer actions. This article should be read alongside our previous analysis of how the Final Report impacts parties to commercial disputes, including important recommendations relating to the reversal of PACCAR, the key base-line requirements that should apply to all types of TPF and the rejection of caps on funders’ returns.

Preliminary observations

The Final Report’s proposals for regulation of funding differ depending on the party being funded. All funding should be subject to what the CJC described as minimal base-line requirements. However, where the funded party is a “party to collective proceedings, a representative action or group action or is a consumer”, more prescriptive requirements are recommended, but which are still said to be “light-touch”.

This article analyses and comments on the recommendations that specifically relate to collective proceedings, representative actions, or group actions (together “class actions”) or consumer actions. However, we start by making a preliminary observation. The Final Report does not define what is meant by a “group action”. We assume it to mean where either multiple joint claimants use a single claim form under Civil Procedure Rule (“CPR”) 7.3 or where the court manages multiple claims under a group litigation order (“GLO”) under CPRs 19.1-19.6. Both of these are “opt-in” types of proceedings in the sense that each claimant has to actively choose to bring their claim.

We query why funded parties to group actions are put in the same category as parties to collective proceedings, parties to representative actions and consumers, and seemingly subject to these additional requirements. Where the funded parties are commercial entities who have opted in to a group claim, they will likely have the means and awareness to take appropriate legal advice on, and may even negotiate, the terms of the funding agreement. Such parties are, consequently, able to make an informed decision whether to join the proceedings on those funding terms. Seeking to make group actions, in general, subject to these additional requirements seems unnecessary where consumers would be protected under the separate “consumer” category in any event.

Key recommendations

Some of the key requirements that are said to apply specifically to consumer or class actions are:

1. After the event (“ATE”) insurance with robust anti-avoidance endorsements (“AAE”) should be in place and the funder and the funded party’s legal representative must, jointly, certify to the court that: (i) robust ATE with AAE is in place; and (ii) the funder has and maintains sufficient capital adequacy.

Requiring ATE insurance with a robust AAE to be in place would codify what has become common practice (although large corporates that are content to accept the risk of adverse costs may proceed without such cover). The paid premiums for ATE and AAE are added to the funded budget, with the funder’s return commonly payable as a multiple of the sums incurred under that budget. If the claim is successful, these funding costs, plus any deferred and contingent premium, will, subject to any court controls (see further below), almost always be deducted from the sums recovered prior to the distribution of the balance to the claimants.

As highlighted in our previous analysis, the CJC has also recommended that all TPF be subject to ongoing case-specific capital adequacy requirements. However, the Final Report does not set out any proposals for how this should be proven (for example, by an opinion from an independent auditor) and then monitored.

Maintaining capital adequacy on a case-specific basis would be a significant new requirement that goes beyond the current requirements for funders who are members of the Association of Litigation Funders of England and Wales (“ALF”). ALF requires its members to maintain capacity to cover their aggregate funding liabilities under all of their funding agreements for a minimum period of 36 months and maintain access to a minimum sum of £5m.

Complex high-value litigation will often run for longer than three years, and the budgets of many of the largest collective actions are many multiples of the ALF’s £5m requirement. The precise wording of the certification (for example, the period the certification is covering and whether it is limited to the certifying party’s reasonable belief) and any guidance as to what steps the lawyer should take to satisfy themselves that they can provide such a certification will be crucial.

2. Independent legal advice from a KC should be given to the funded party (paid for by the funder) prior to entry into the funding agreement

Funding agreements are lengthy, complex documents, but appropriate legal advice can be provided by solicitors, or barristers who are not KCs, provided they have the necessary level of experience and knowledge of TPF. If this recommendation is adopted, thought needs to be given to how to ensure the advising individual is sufficiently experienced, specifically in TPF, to make them an appropriate advisor. For example, would a national panel of individuals approved by the government or a form of accreditation system be necessary? Thought would also need to be given as to what “independent” in this context means, including whether the legal representative instructed on the underlying dispute is permitted to provide such advice.

3. Standard terms for funding agreements should be developed and annexed to the proposed Litigation Funding Regulations.

Developing standard terms for funding agreements should, in time, simplify the process and provide clarity for funders, litigants and legal advisors. It is unclear from the Final Report whether it will be mandatory for parties to use the standard terms (and, if so, to what extent). However, the terms will need to have sufficient flexibility to be able to adapt to the needs of the case and, if mandatory to any extent, appropriate opt-out rights will also need to be considered.

4. The funder and the funded party’s lawyer should certify to the court, on a without-notice approval process, that they did not approach (either directly or indirectly) the funded party to seek their agreement to pursue proceedings.

As the Final Report does not explain the rationale for this recommendation, we are unclear as to its purpose and whether the recommendation is a necessary and proportionate means of achieving that purpose. Notably, solicitors are already subject to Solicitors Regulatory Authority (“SRA”) rules on how they may advertise their services, including that they do not make unsolicited approaches to members of the public. The Final Report does not explain why the existing SRA rules are considered insufficient. In our view, the recommendation also lacks an appreciation of the legal work required to identify and develop class actions, as claimants will rarely have the expertise or resources to identify and investigate whether they have suffered harm.

Even consumer organisations do not have the resources to identify and investigate all the potential claims consumers might be able to bring. If this recommendation were adopted, it would present a serious access to justice concern, as the lawyer may well be informing the claimant of the possibility of them making a claim that they might not otherwise know about or understand. This is often the case for consumer claims and Competition Appeal Tribunal (“CAT”) opt-out proceedings. This will need careful consideration from the government. If the recommendation is adopted, those drafting the proposed Litigation Funding Regulations will need to ensure that the precise wording of the certification goes no further than necessary.

5. The development of the regulatory structure for funders should be informed by principles 4 to 12 of the European Law Institute (“ELI”) Principles (in so far as they are consistent with recommendations 10 to 21 of the Final Report).

We endorse the adoption of the ELI principles as a blueprint for the TPF industry generally, subject to some exceptions and observations made in Stewarts’ response to the Interim Report. (See here for our previous analysis of the ELI principles and here for a webinar on the principles on which Julian Chamberlayne appeared.)

6. CPR Part 19 should be revised to make it consistent with the CAT rules applicable to funding agreements (including the approval of funding agreements and settlements); both sets of rules should adopt a consistent approach as regards funding.

Stewarts’ response to the consultation had proposed that CPR 19.8 representative action proceedings should be subject to similar rules on approval of funding and settlements as currently apply to CAT collective proceedings. This is because, in the same way, the represented parties will ordinarily not have negotiated and approved the terms of the funding and the terms of any settlement agreement.

While we were pleased to see the CJC adopt that recommendation, we are concerned it has gone too far by suggesting this be extended to all Part 19 proceedings, including group litigation brought under a GLO. As noted above, this recommendation appears to overlook the fact that funded parties in some group actions are commercial entities who are sophisticated users of legal services with the means and opportunity to obtain legal advice on the funding arrangements and any settlement.

7. The funded party should disclose to the court, on a without notice basis, the terms of the funding agreement (appropriately redacted to protect privileged or commercially sensitive information) to enable the court to consider whether to approve the agreement and, in particular, whether the funder’s return is fair, just and reasonable.

We agree that this is appropriate for opt-out collective proceedings, opt-out representative actions and any action where the funded party is a consumer. However, for the reasons explained in our preliminary observations above, we do not think that this recommendation should extend to funding agreements with commercial entities in other forms of group action.

8. CPR Part 19 and the CAT Rules should be amended to include a requirement that upon certification of an opt-out collective proceeding or representative action that is funded, the opt-out notice (the notice that must be given to class members telling them the date by which they must opt-out of the proceedings if they wish to do so) must state that the litigation is being funded by TPF, the funder’s name and details and the funder’s approved return in the event of success.

We agree that to make an informed decision as to whether to opt out, class members should be informed that the litigation is being funded and details of the funder’s approved return in the event of success.

9. Costs budgeting and costs management should be mandatory for all funded collective proceedings, representative actions and group actions.

The Final Report concludes that there is a direct relationship between TPF and increased costs and that it can “be said with some force” that funders have an incentive to increase costs for their own benefit. This does not match our experience. Universally, we see the funders we work with taking an active and conservative approach to cost budgeting, which tends to have a moderating effect on the costs incurred. This includes, for example, requiring a detailed phase-by-phase budget from the outset of a claim, challenging any budgeted costs they do not think are realistic, encouraging various contingencies to be budgeted for and requiring monthly reporting on costs incurred (with any deviation from the budgeted costs explained).

Notwithstanding this difference in perspective, we welcome this recommendation. If implemented, it should reduce the risk of well-resourced defendants deploying a strategy of attrition (in which they deliberately seek to drive up the costs of litigation to force an early settlement, usually on sub-optimal terms for the claimant).

As costs budgeting and costs management should give funded parties a degree of certainty as to their potential adverse costs liability, it should also help funded parties obtain an appropriate amount of ATE cover earlier in the proceedings.

10. Damages-based agreements (“DBAs”) should be permitted in opt-out collective proceedings in the CAT. Such DBAs should not be subject to any cap, but the return to the legal representative under them should be subject to approval by the CAT on the same basis as the return to a funder under funding agreements is subject to approval.

We fully support this recommendation and proposed the same in Stewarts’ response to the consultation. Permitting uncapped DBAs in opt-out collective proceedings in the CAT may facilitate access to justice for claims that are insufficiently large to attract TPF (or leave the class with a sufficiently large net distribution). If law firms offer DBAs, then that may also reduce the costs to the class as compared to funded alternatives. However, for DBAs to be a realistic option for law firms to offer to these claimants, the wider reforms of the DBA regulatory regime recommended in the Final Report (see our previous analysis of these) must take place as a matter of urgency.

Conclusion

The proposals for regulation of TPF rightly differ depending on the party being funded. All funding should be subject to what the CJC described as minimal base-line requirements, whereas funding to consumers and parties to class actions should be more prescriptive but still “light-touch”.

It is right that consumer and class actions should be subject to greater protections. However, we suggest that the government give careful thought to the rationale for certain of these recommendations and ensure that when drafting the Litigation Funding Regulations, they go no further than is necessary. In particular, the regulations should not make corporate parties to group claims subject to a consumer-centric regime, nor restrict access to justice for claimants (particularly consumers) through the proposed additional restrictions on approaching prospective funded parties.