While opinions on the need for tighter regulation of litigation funders in England and Wales will inevitably differ, one thing is certain.

The long-awaited interim report into litigation funding by the Civil Justice Council (CJC), which was released last week, devotes a considerable amount of space to a comprehensive review of how oversight of funders has operated up to this point.

And for James Walton, a finance partner at Charles Russell Speechlys, the report makes a “compelling case” for mandatory regulation of litigation funders by highlighting the limitations of voluntary self-regulation. That is despite the CJC’s efforts to take a neutral stance as it begins a consultation exercise that will run until the end of January.

The report notes that only 16 of the estimated 44 funders in England and Wales belong to the Association of Litigation Funders (ALF) and points to “questions” raised by courts about the “efficacy” of the ALF’s code of conduct. It further questions whether a £500 cap on fines for member misconduct “is able to provide a sufficient deterrent”.

Walton writes a commentary: “Whilst the CJC does not, of course, nail its colours to the mast, the multiple pages of commentary on the inadequacies of a self-regulatory regime put forward a compelling case for some form of mandatory regulation.”

An alternative perspective, however, is potentially offered by a report published last month by the European Law Institute (ELI) which is co-authored by former Commercial Court head Mrs Justice Cockerill, a member of the CJC working party. It argues for light touch regulation where possible given funding’s role fostering access to justice.  

ALF chair Susan Dunn sees parallels with this stance in the CJC report. “Like the European Law Institute, the report reflects the widely held view that self-regulation of the industry is working and that the imposition of onerous regulation will restrict funders’ ability to provide litigation funding,” she says.

“The consequences of restricting access to funding would be severe: many businesses and consumers who have meritorious claims against Goliaths will no longer be able to enforce their legal rights, which will be bad for small businesses and consumers and bad for the rule of law in the UK.”

The CJC review was commissioned in April by the former Conservative Lord Chancellor, Alex Chalk, against the background of controversy over the share of damages that can be paid to funders and the introduction of emergency legislation to aid litigation funders by reversing the impact of the Supreme Court’s landmark 2023 Paccar ruling.

The July 2023 decision had rendered most litigation funding agreements (LFAs) unenforceable by determining that agreements entitling funders to a share of damages are Damages-Based Agreements (DBAs) and therefore subject to DBA rules.

The legislation lapsed ahead of July’s general election, with the incoming Labour government choosing not to revive it, instead awaiting the review’s findings, expected in September 2025.

The interim report confirms that the CJC is conducting a comprehensive review of litigation funding. It will examine the benefits of third-party funding, particularly its impact on access to justice, and explore the need to balance power within litigation.

The review highlights issues such as the recoverability of funding costs, exposure to adverse costs and the potential for regulatory caps on funders’ returns. The consultation also considers whether Conditional Fee Agreements (CFAs), DBAs and legal expense insurance (LEI) require reform to strengthen litigation funding frameworks.

Further areas of focus include the role of courts in managing funded litigation, disclosure requirements for funding arrangements and the influence of funders on litigation management. The consultation also addresses the market’s ability to help claimants compare funding options effectively and examines potential conflicts of interest for third-party funders.

The review is chaired by commercial court judge Mr Justice Simon Picken and Dr John Sorabji, principal legal adviser to the Lord Chief Justice and the Master of the Rolls. Alongside Cockerill, the working party also includes Professor Christopher Hodges, chair of the Regulatory Horizons Council; Lucy Castledine, head of department, mortgages and mutual at the Financial Conduct Authority; and costs expert Nicholas Bacon KC, of 4 New Square.

A wider consultation group includes City lawyers such as Stephen Wisking from Herbert Smith Freehills, Alistair Kinley from Clyde & Co and CMS partner Kenny Henderson, who advises the pro-business lobbying group Fair Civil Justice.

Claimant lawyers are represented by Jennifer Morrissey of Harcus Parker (Law Society representative) and Julian Chamberlayne of Stewarts.

Litigation financiers in the group include Neil Purslow of Therium, who chairs the International Legal Finance Association, Susan Dunn from Harbour and the ALF and Tom Steindler of Exton Advisors.

The review forms part of a broader CJC reform programme, which also includes a concurrent review of the Solicitors Act 1974.

Sir Geoffrey Vos, Master of the Rolls and chair of the CJC, commented: “I welcome the publication of the CJC’s interim report and consultation on litigation funding. Litigation funding plays a vital role in ensuring access to justice. I am grateful to co-chairs Dr John Sorabji and Mr Justice Simon Picken and their working group for this report.”

In a LinkedIn post, Hudgell Solicitors legal services director John Cuss, who sits on the CJC council and is a senior adviser to the Association of Consumer Support Organisations, urged “all in the industry to consider the interim report and to submit a response to the consultation questions where relevant”.

He added: “I would draw your attention to the inclusion of LEI, CFAs and DBAs in section 7 of the report and the review question inviting views on evidence relating to the operation of CFAs and DBAs.”

The International Legal Finance Association, meanwhile, while welcoming the interim report, has called on the government to resolve the Paccar uncertainty without delay.

Chairman Neil Purslow said: “Solving the Paccar problem falls outside the scope of the CJC review, and has cross-party support and backing from claimants like Sir Alan Bates. There is no reason for the government to delay bringing forward a simple and swift solution.”