The Civil Justice Council’s Final Report on litigation funding proposes a formal system of statutory regulation, replacing the existing patchwork of common law and self-regulation. Parts 4, 5, and 6 of the Report outline this new framework, which is intended to safeguard consumers, encourage transparency, and reduce uncertainty. Drawing on European principles and domestic precedent, the proposals echo past regulatory efforts such as the CFA and DBA regimes. Yet the model raises familiar concerns: over-enforcement by private parties, burdens on funders, and whether regulation in this form solves more problems than it creates. This article explores the structure, rationale, and implications of what’s proposed.
The Civil Justice Council’s Final Report on litigation funding sets out its most ambitious recommendations in Parts 4, 5, and 6. Its core proposal is that third-party funding should be subject to formal statutory regulation. This marks a deliberate shift away from the current mix of self-regulation and judicial oversight. While the Report characterises its approach as “light-touch,” the structure it recommends is substantial, and its practical effects are likely to be far-reaching.
Part 4 of the Report outlines the foundations. Regulation will be introduced by way of statutory instrument, giving the Lord Chancellor the power to define litigation funding agreements, impose conditions on their enforceability, and introduce a regime of oversight. Notably, arbitration proceedings are excluded. The Report recognises that arbitration, particularly international arbitration seated in London, depends on its flexibility and competitiveness. Funders in that space, it concludes, should remain subject to market forces and the rules of arbitral institutions.
The framework in Part 4 is meant to evolve. The Lord Chancellor will be responsible in the first instance, but a new Standing Committee on Litigation Funding will be tasked with reviewing the regime after five years, with an eye to whether more formal supervision, perhaps by the Financial Conduct Authority, should follow.
Part 5 provides the detailed design. It begins by reaffirming the core objective: to ensure that litigation funding supports access to justice while providing protection for consumers, parties to collective actions, and the courts. The regulatory scheme is intended to codify best practice and avoid the uncertainties exposed by the PACCAR decision. The key features are grouped into three broad categories: the general structure, the substantive content of the regulations, and additional safeguards for collective and consumer litigation.
On structure, the proposal is that regulation should focus not on the funders themselves, but on the agreements they enter into. Litigation funding agreements (LFAs) will be subject to enforceability conditions, much like conditional fee agreements (CFAs) and damages-based agreements (DBAs) have been under earlier regimes. Enforcement will be private rather than administrative: if a party challenges the validity of an LFA on the basis of non-compliance, the court may find it unenforceable. There will also be scope for waivers, where non-compliance is deemed minor or where strict enforcement would be unjust.
The content of the regulations, as set out in Recommendations 10 to 16, is more extensive than the “light-touch” label might suggest. Funders must meet capital adequacy requirements on a case-specific basis, particularly where claims are brought by consumers or involve collective redress. If insurance is used to meet this standard, it must include robust anti-avoidance measures.
Regulations will also prohibit funders from exercising control over litigation or settlement. Any such control would render the agreement unenforceable and may expose the funder to liability for costs. Transparency is another cornerstone: the fact of funding, the identity of the funder, and the source of funds must be disclosed at the earliest opportunity. The terms of the agreement, however, generally remain confidential unless disclosure is required under the special rules applicable to collective proceedings.
Additional requirements include compliance with anti-money laundering legislation, rules on conflicts of interest, and provision for independent dispute resolution between funders and funded parties. All of this is to be set out in a new set of Litigation Funding Regulations, which in substance and structure are direct descendants of earlier statutory regimes: the Conditional Fee Agreement Regulations 2000, the Conditional Fee Agreements Order 2013, and the Damages-Based Agreements Regulations 2013.
Those earlier instruments were well-intentioned but proved difficult in practice. They created fertile ground for procedural challenge. Parties frequently used technical breaches of the regulations to contest the enforceability of funding arrangements. That litigation came to be known as the “Costs Wars” of the early 2000s—a wave of disputes that generated more case law than the underlying claims themselves. The risk now is that the new Litigation Funding Regulations will continue that tradition, empowering litigants to challenge LFAs on grounds of non-compliance, even where no substantive unfairness has occurred. Rather than empowering a regulator to enforce rules, the scheme places enforcement squarely in the hands of the parties and the courts.
That dynamic is sharpened in Recommendations 17 to 23, which introduce special provisions for consumer claims and collective proceedings. In these cases, further safeguards apply. Funders will be subject to a regulatory Consumer Duty, and funded parties will be required to obtain independent legal advice before entering into an LFA. Specifically, the Report recommends that such advice be provided by King’s Counsel.
This is a striking requirement. The Report offers no empirical or legal basis for requiring a silk to advise on the fairness of a commercial funding arrangement. It’s not clear that junior counsel or an experienced solicitor could not provide equally effective advice. Nor is it obvious how many KCs would be willing to undertake what is, in effect, a form of certification, particularly if the LFA later becomes controversial. Or indeed, how many may then find themselves conflicted out of involvement in the substantive or satellite proceedings.
Other proposals raise similar questions. Regulation 21 will require the solicitor and funder to certify that they did not solicit or induce the claimant to bring proceedings. This is intended to guard against manufactured claims, but it’s likely to prove difficult to apply in practice. What about claims promoted via advertising, crowdfunding platforms, or litigation PR? How much indirect encouragement is too much? These uncertainties may not be fatal, but they do introduce an element of complexity that could frustrate the very certainty regulation is meant to promote.
Behind all this lies a larger question. What problem is this regulatory regime designed to solve? The Report does not cite any particular scandal, systemic failure, or pattern of abuse. There are well known “hard cases” such as the Post Office litigation, which suggests that funded parties have suffered substantial deductions from their compensation, but to what extent are these cases outliers, or examples of a larger problem? There is little empirical data on which to base the need for regulation. The most that can be said is that litigation funding is growing, and that PACCAR created legal uncertainty. Whether that justifies a regime as detailed as the one proposed is a matter of judgment.
One strand of the Report’s reasoning is that Parliament has already signalled its intent to regulate, by enacting section 58B of the 1990 Act. But that section was never brought into force. It has remained dormant for more than 25 years. If anything, its neglect suggests a legislative reluctance to regulate this field, not a commitment to do so.
There is, too, a broader caution about regulation as a cure-all. History teaches that regulation often works better in theory than in practice. The CFA Regulations 2000 led to a decade of litigation about technical compliance. The DBA regime has seen minimal uptake, in part because of regulatory inflexibility. And in the wider regulatory landscape—whether financial, professional, or institutional, failures of enforcement and oversight are not uncommon. Light-touch regulation, once enacted, often becomes anything but.
What the Report proposes is thoughtful and comprehensive. It seeks to build on best practice and respond to real concerns about access to justice, transparency, and fairness. But as the history of legal regulation shows, good intentions alone are not enough. Rules designed to help can easily become hurdles to navigate. And in the absence of clear evidence that the system is broken, the risk is that regulation may solve problems that do not yet exist, while creating new ones along the way.