On 31 October 2024 the Civil Justice Council (CJC) published its interim report on litigation funding and posed a lengthy and wide-ranging series of consultation questions with a deadline for responses by 31 January 2025. The CJC is then due to provide a full report with recommendations by summer 2025.

Julian Chamberlayne, Risk and Funding Partner at Stewarts, is part of the CJC’s wider consultation group working on this review. Stewarts is preparing a response to the consultation based on its extensive experience of third party funding and alternative fee agreements for many different types of clients and cases. If any clients would like to input into the response, please get in touch.

In this article, Julian and partner Zachary Sananes explain the scope of the report and consultation including implications for institutional investors in securities cases in particular.

Background to the review

This review of litigation funding was, in part, precipitated by the Supreme Court’s decision in the case of PACAAR in July 2023. Contrary to the underlying policy intention of the long criticised Damages Based Agreement (DBA) Regulations 2013, the judgment in PACAAR interpreted third party funding agreements as DBAs. This decision immediately caused uncertainty and an effective restriction of funding terms, with disrupted access to justice for business and individual claimants ensuing.

The controversial impact of PACCAR called for immediate government intervention, which was then highlighted and amplified by Alan Bates’ strong support for litigation funding in the sub-postmasters’ fight against the Post Office. The last government responded quickly by introducing The Litigation Funding (Enforceability) Bill in the House of Lords in March. However, the Bill has stalled following the subsequent general election and the current government has indicated they do not intend to proceed with legislation of this type until the CJC completes this review and makes its recommendations in 2025.

CJC interim report and consultation

The key aims of this review are:

• to set out the current position of litigation/third party funding,
• to consider access to justice, effectiveness and regulatory options, and
• to make recommendations for reform, as necessary.

The working group’s interim report does not make any recommendations at this stage, but instead reports on the development of third party funding in England and Wales. It goes on to set out how self-regulation has developed, the different approaches available to regulation and how it works in other jurisdictions. It also sets out the relationship between costs and funding, and considers different funding options.

The interim report includes a series of consultation questions posed to all those with an interest in litigation funding. The responses to those questions will help this CJC working group to form its full report and ultimate recommendations.

The consultation questions can be found here.

What does this mean for institutional investors in securities cases?

This review gives institutional investors an opportunity to have their say about the future regulatory environment that will govern third-party litigation in England and Wales, as any resulting legislation from the review could impact the availability of funding.

There is a danger that the review will focus heavily on consumer cases, influenced by the highly publicised Post Office scandal. This poses a risk that highly sophisticated institutional claimants may be made subject to rules and restrictions that were designed to protect consumers. If rules are imposed that do not allow funders to achieve an adequate return on risk in high value, complex and long running securities claims, some funders may either withdraw from the UK funding market or limit their funding commitments.

We would encourage institutional investors to either respond directly to the review or contact us to include their views in our consultation response.