Civil Justice Council announces review of third-party funding

The Civil Justice Council (CJC) – the body chaired by the Master of the Rolls, Sir Geoffrey Vos, and charged with issuing recommendations to make the civil justice system more accessible, fair and efficient – has recently announced a review into third-party litigation funding.

Although proceeding in parallel with the passage of the Litigation Funding Agreements (Enforceability) Bill – the legislation introduced to reverse the effect of the Supreme Court’s seminal PACCAR decision last summer and to ensure the enforceability of litigation funding agreements – the CJC’s remit is wider. A working group, co-chaired by Picken J and Dr John Sorabji and including Nick Bacon KC (who previously worked on the draft Damages-Based Agreements (DBA) Regulations 2019) will seek to set out the current position of third-party funding, consider whether the current arrangements deliver effective access to justice, and make recommendations for reform where appropriate.

While the PACCAR decision (see our earlier articles for the Solicitors Journal – ‘The fallout from the Supreme Court’s PACCAR ruling’ (31 October 2023) and ‘The fracas post-PACCAR’ (23 November 2023)) threw litigation funding into the legal spotlight last summer, it has since emerged into the wider public consciousness thanks to a popular loss-making TV drama which aired at the beginning of the year. Both the Litigation Funding Agreements (Enforceability) Bill and the CJC review have been couched in the context of the dispute which was depicted by that drama – referring expressly to the vital role of litigation funding for the hundreds of sub-postmasters who relied on it to take legal action.

Funding for David and Goliath

In that context, one of the stated aims of the new legislation is to make it easier for members of the public to secure the financial backing of third parties for claims launched against large corporations. The CJC likewise has rightly emphasised the importance of litigation funding in ensuring that ‘citizens without means are not excluded from the civil justice system’. The wider CJC review should keep in mind though (and we are sure this is not lost on the working group; just as it has not been lost on the House of Lords) that, important as funding is in collective actions where individual claimants may lack the means to bring proceedings, the value of litigation funding (and, arguably, the value in litigation funding, for the funders) is not limited to David v Goliath type battles. Plenty of corporates big and small also avail themselves of funding for legitimate commercial reasons and to spread the costs and risks of litigation. For those parties, funding may be a commercial choice rather than a financial necessity. Any recommendations for reform, therefore, will also need to weigh and respond to these different parts of the market carefully.

Regulation

A key question for the CJC review will be whether, how and by whom, third-party funding should be regulated. There is a growing sense in this jurisdiction and others that the funding market now needs some guiderails, but what form should these take? Is self-regulation (building on the existing Association of Litigation Funders’ Code of Conduct) viable and sufficient? Could the market be effectively policed by the courts with the aid of some judiciously drafted Civil Procedure Rules?

Diminishing returns?

The CJC has also signalled that it will consider whether a funder’s return on a LFA should be capped – not least to protect claimants of the ‘David’ variety and ensure that when vindicated in court, their damages are not unfairly eroded by the respective shares of their advisers and funders. There is a compelling logic to answering ‘yes’ to that question – after all, solicitors’ CFAs and DBAs are already subject to regulatory caps. However, this would be somewhat at odds with the legislation currently passing through parliament, which acknowledges the status quo ante – that funding agreements are not DBAs. A careful balance, therefore, also needs to be struck here, so as to ensure that the market remains attractive for funders. Otherwise, there could be an overall negative impact on access to justice in the cases that need funding the most.

Sun-lounger reading

The working group anticipates issuing an interim report by summer 2024 and a final report by summer 2025 – completing a trilogy of sun-lounger reads after the PACCAR bombshell landed late last July! The working group and other interested readers will also have the benefit in September 2024 of the European Law Institute’s report on third-party litigation – demonstrating that these concerns are alive and prevalent in multiple jurisdictions.