"Third-Party Funding Review: How the CJC's Investigation Will Shape the UK Litigation Landscape"

The Civil Justice Council (CJC) is currently conducting a comprehensive review of litigation funding, with a particular focus on third-party funding (TPF). This review, which aims to enhance access to justice and ensure the efficiency and fairness of civil litigation, is set to have a significant impact on the UK legal landscape. The CJC's efforts come at a critical time when TPF has grown substantially and is under increased scrutiny, especially following high-profile cases like PACCAR. As the CJC prepares to release its final report by summer 2025, we examine the key points that will shape the future of this sector.

Introduction to Third-Party Funding

Third-party funding involves external financiers covering legal costs for claimants in exchange for a portion of any awarded damages. This model has become a crucial component in supporting access to justice, especially for individuals and small to medium-sized enterprises (SMEs) who might otherwise face financial barriers to pursuing legal claims.

Background to the Review

The CJC's review is a response to the evolving landscape of litigation funding. Initially, TPF was largely self-regulated, with the Association of Litigation Funders (ALF) introducing a Code of Conduct in 2011. However, recent Supreme Court judgments, such as PACCAR, have raised concerns about the enforceability and regulation of TPF agreements. For instance, PACCAR highlighted issues with how funders' returns are calculated, often based on the damages recovered, leading to questions about caps on these returns[2][3].

Key Points of the Review

The CJC's review will address several key areas:

Access to Justice and Effectiveness

• Promoting Access to Justice: Litigation funding is recognized for providing access to justice, particularly for those who cannot afford legal costs. The review aims to ensure that TPF continues to support this goal while also protecting claimants[1][5].
• Effectiveness of Current Arrangements: The effectiveness of current self-regulatory models and how they might be enhanced or replaced will be a central focus of the review[2].

Regulatory Options

• Regulation Models: The review will consider different regulatory models, comparing the UK's self-regulatory approach with statutory regimes in other jurisdictions. The goal is to determine if a more formal framework is necessary[1][2].
• Capping Funder's Returns: One of the proposed reforms includes capping the funder's return to ensure claimants retain more of their awarded damages. This could impact the sustainability of TPF, as funders may be less inclined to support claims if their returns are capped[3].

Relationship with Other Funding Options

• Diverse Funding Sources: The review will examine how TPF compares to other funding methods, such as conditional fee agreements, portfolio funding, and crowdfunding. This will help determine how these options interact and complement each other[3].
• Legal Expenses Insurance: The role of legal expenses insurance in the broader litigation funding landscape will also be assessed to identify potential synergies or conflicts[1].

Litigation Costs and Behavior

• Impact on Litigation Costs: The review will analyze how TPF affects overall litigation costs, including whether funders' costs are passed on to claimants and if there is scope for renegotiation[2].
• Litigation Behavior: There are concerns that TPF may encourage unmeritorious or vexatious claims. The CJC will explore if TPF filters out weak cases, as initially thought, or if it leads to unnecessary litigation[3].

Input from Stakeholders

Stakeholders such as the Association of Litigation Funders (ALF) and the International Legal Finance Association (ILFA) have provided insights into the benefits of TPF. They highlight that TPF not only facilitates access to justice but also supports the UK's role as a global legal hub[4][5].

Their joint submission emphasizes the importance of striking a balance between regulation and maintaining an attractive environment for funders. This includes considering whether the same regulatory framework applies across different claim types or if tailored approaches are needed[5].

Conclusion and Future Directions

The CJC's final report, expected by summer 2025, will be a pivotal moment for the UK's litigation funding sector. The recommendations are likely to influence legislative changes and could fundamentally alter how TPF operates in England and Wales. With the growing importance of third-party funding, both for enhancing access to justice and supporting the UK legal industry, the review's findings will be closely watched by stakeholders across the sector.

As the consultation process closes and the CJC prepares its final recommendations, the key will be finding a regulatory balance that maintains access to justice while ensuring the sustainability of litigation funding practices. Whether through self-regulation or statutory oversight, the outcome of this review will have far-reaching implications for how legal disputes are funded in the UK for years to come.