The Civil Justice Council’s Final Report reserves some of its most radical proposals for Part 9. Here it calls for a reconfiguration of conditional fee agreements (CFAs) and damages-based agreements (DBAs), including the potential abolition of the indemnity principle and the transfer of regulatory power from the Ministry of Justice to the Civil Procedure Rule Committee. Success fees may be uprated. DBAs may become viable. And in opt-out collective actions, they may even become uncapped. In this final article, we assess what these changes mean in principle and practice—and why the Competition Appeal Tribunal remains the true engine room of reform.
The Civil Justice Council’s proposals for the future of CFAs and DBAs are, in some ways, the most far-reaching of all. After years of tinkering with funding arrangements, Part 9 of the Final Report signals a more fundamental reappraisal of how litigation is paid for, and what returns lawyers may lawfully receive.
The headline is Recommendation 45: the removal of the indemnity principle. This is no small step. For over a century, the indemnity principle has underpinned recoverable costs. A litigant cannot recover from their opponent more than they are themselves liable to pay. It is a rule born of fairness, but in practice it has generated volumes of technical disputes. The CJC proposes its abolition. That would mean that costs recovery is governed not by the claimant’s liability, but by what is deemed reasonable and proportionate. The rules of the court, not the parties’ agreement, would determine what the losing party pays.
The effect of that change would be both legal and cultural. Technical challenges to CFAs based on non-compliance or inconsistencies would fall away. So too would arguments about enforceability and form. The rules would become simpler, but the discretion of the court would loom larger. Whether that brings clarity or uncertainty depends on your perspective. For those who favour substance over form, it is a welcome move. For those who rely on the discipline of contract, it may feel like an erosion.
The Report also proposes that the regulation of funding arrangements should be transferred from the Ministry of Justice to the Civil Procedure Rule Committee. This reflects the view that funding and costs are no longer merely matters of policy, but integral to the conduct of proceedings. The CPRC, with its judicial and practitioner membership, is seen as better placed to craft rules that reflect practical realities.
There is also a suggestion, floated in Recommendation 49, that success fees under CFAs may need to be increased to account for inflation. But this needs to be treated with caution. Inflation does not erode the value of a percentage uplift; it inflates the base costs to which the uplift is applied. Since those base costs remain recoverable between the parties, the success fee, calculated as a percentage of those costs, rises with them. To increase the percentage itself would be to double count the effects of inflation. It would also risk recreating the conditions that led to the LASPO reforms in the first place.
In contrast to England and Wales, Scotland has already legislated for a more liberal approach to success fees. Under the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018, solicitors may agree damages-based success fees with clients, subject to statutory caps. Those caps differ by case type, and the regime applies more readily to personal injury and consumer claims. There is a single system, no separate CFA and DBA structures, and greater flexibility. But it remains too soon to say whether the Scottish model has delivered materially greater access to justice or market stability.
The Report turns next to damages-based agreements, which remain a regulatory backwater. Introduced by section 45 of LASPO and governed by the Damages-Based Agreements Regulations 2013, DBAs were heralded as a modern funding tool. But their use has been stunted. The Regulations are inflexible, the drafting is opaque, and their structure is commercially unattractive. Few firms offer DBAs. Fewer still use them in large-scale litigation.
The Mulheron-Bacon proposal,an attempt to revise the Regulations to make them more workable, has been with the Ministry of Justice for years. It recommends a series of technical amendments to allow hybrid DBAs, clarify termination provisions, and enable partial success. The CJC endorses that reform package, but goes further. It proposes that DBAs should be permitted in opt-out collective proceedings, where they are currently barred. That would align DBAs with CFAs and litigation funding agreements, both of which are now widely used in the CAT.
The idea is to provide claimants with a menu of options. The court would have to approve any DBA in a collective case, and the risk of abuse would be managed through transparency and judicial oversight. But one striking suggestion is that in such cases, the representative’s return might be uncapped. At present, caps exist to ensure that claimants retain a reasonable share of damages—often two-thirds or more. But in large group claims, where the amounts are significant and the risks high, the CJC floats the idea that no cap may be needed. That would mark a departure from current thinking. It would also reopen the broader policy debate about what share of damages a lawyer—or funder—is entitled to.
There are arguments on both sides. Those in favour of uncapped returns say that they reflect the real economics of litigation and reward those who take the biggest risks. Those against say that the claimant should always come first, and that access to justice should not come at a premium. The CJC does not resolve that tension. It simply acknowledges it.
The Report closes its substantive proposals here. It does not deal in detail with crowd funding, before-the-event (BTE) insurance, or supplementary legal aid schemes. That is no oversight. These are marginal topics. Crowd funding has niche appeal but limited traction. BTE is declining, not growing. Supplementary legal aid has not taken off, despite occasional interest. There is little prospect of these mechanisms becoming central to litigation funding in England and Wales. They remain, as they have always been, peripheral.
What matters now is what happens next. The Competition Appeal Tribunal has become the crucible in which modern litigation funding is being tested and forged. It has developed a body of case law on funder approvals, returns, conflicts, and enforceability. It has adapted its rules to reflect the realities of group litigation. And it is here that the proposed reforms, if adopted, will first be tested in practice. The CAT is no longer a specialist tribunal. It is the laboratory of the new regime.
Practitioners would do well to watch it closely. The CJC Report is the theory. The CAT is the experiment. What emerges may well shape the future of civil justice for years to come.