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Director Tom Davey discusses the Civil Justice Council’s upcoming review of third-party funding

Following the highly publicised role of third-party funding in the Post Office Horizon scandal, Director Tom Davey explores how the upcoming Civil Justice Council review could provide much-needed clarity for post-PACCAR litigation funding.

Tom’s article was published in Thomson Reuters’ Regulatory Intelligence, 9 May 2024, and can be found here.

A version of this article was published in Litigation Finance Insider, 24 May 2024, and can be found here.

The personal tragedies of the sub-postmasters wrongly prosecuted in the Post Office Horizon scandal rightly provoked unprecedented public outrage. While viewers of the ITV series Mr Bates v The Post Office were focused on the heart-rending suffering of innocent people, the dramatisation also brought the role of litigation funding into the spotlight in a manner that would previously have been unthinkable.

What the series showed was that the vindication of those wrongly accused was made possible by litigation funding, which facilitated access to justice in the face of regulatory inaction. In an incredibly vivid way, it demonstrated the vital role of third-party funding in allowing litigation that would have otherwise been unaffordable to proceed all the way to court.

Despite this very welcome increase in public awareness of litigation funding, significant action is still required to ensure that other claimants can receive the same parity of arms in future David vs Goliath disputes.

Hopefully, the upcoming review of third-party funding by the Civil Justice Council (CJC) will provide much needed clarity for lawyers, funders and claimants alike. Established last month at the request of the Justice Secretary Alex Chalk, the six-member working group, co-chaired by Mr Justice Simon Picken and Dr John Sorabji, aims to provide an interim report by summer 2024 and a full report by summer 2025.

The focus of the working group’s work will be a series of recommendations for reform of litigation funding, if such a course of action is decided to be appropriate. Its report will set out the current position in relation to third-party funding, including the existing self-regulatory approach, and approaches to regulation in other jurisdictions. Additionally, it will explore whether the current arrangements for litigation funding deliver effective access to justice, a quandary which has in part already been resolved when the UK Supreme Court acknowledged the vital role litigation funding can play in helping consumers secure access to justice.

The group recommendations will include whether, and by whom, third-party funding should be regulated. If they decide that regulation is needed, they will also state to what extent a funder’s return should be subject to a cap. Furthermore, the group will make suggestions as to how third-party funding should be best deployed relative to other sources of funding, including legal expenses insurance and crowdfunding.

Another area of focus will be the role that rules of court, and the court itself, may play in controlling the conduct of litigation supported by funding. In looking at this issue, the members of the working group will analyse whether provision needs to be made for the protection of claimants whose litigant is backed by a funder.

They will also make a recommendation based on the relationship between litigation funders and litigation costs, and whether there are potential conflicts of interest between funders, legal representatives and funded litigants. Perhaps most important of all will be their consideration of whether litigation funding encourages specific litigation behaviour such as group actions. As the example of the Post Office scandal case shows, whatever they recommend on this fundamental issue will have to be in tandem with an analysis of how some very important collective actions would have been impossible to launch without that very funding.

This review comes in the wake of the legislative changes which the Government announced following the Post Office scandal to make securing litigation funding more accessible.

Remarkably, given what everyone now knows, the UK’s litigation funding sector was put in jeopardy in July last year by a landmark UK Supreme Court judgment in PACCAR and others v Competition Appeal Tribunal and others. By a majority of four to one, the judges held that many litigation funding agreements (LFAs), which allow funders to recover a percentage of damages are, in fact, damages-based agreements (DBAs), enforceable only if they comply with the relevant regulatory regime.

This was a judgment with serious consequences for public access to justice. The potential ramifications for the viability of class actions were enormous and, in practice, meant that many future group actions would simply become impossible for litigation funders to even consider.

Fortunately for funders, law firms and consumers alike, the UK government’s reaction to the PACCAR judgment following the Post Office scandal shows a willingness to legislate pragmatically to protect litigation funding. The Justice Secretary recently announced the government’s intention to legislate to counteract what he called the “damaging effects” of the controversial judgment, to protect the UK’s litigation funding sector. This legislation is designed to ensure that securing litigation funding can be more accessible.

Frankly, given the level of public support for the sub-postmasters’ group action, not giving unequivocal support to the legal funding provision which enabled it would have been highly unusual.

Building on this important legislation, the CJC review will provide an effective roadmap for reform of the post-PACCAR funding landscape. This is of vital importance for litigation funding as an industry, and its role in helping consumers secure access to justice.

Litigation funding is a global industry, with its own recognised asset class, and an estimated US$17bn global market, which looks set to more than double in the next 10 years. With increasing numbers of US states permitting litigation funding, as well as Indian firms also finding a greater role for such funding in a jurisdiction where it faces no statutory or regulatory bars, it is clear that this is becoming a global trend.

While the dramatisation of Mr Bates vs The Post Office served as a much-needed catalyst which saw important reform to the legal system, it is vital that this momentum is continued, to allow more victims to secure much needed funding and effective access to justice. Conversations around the future of litigation funding must be ongoing, both through the CJC review and wider discussions across the legal sector, to ensure that the remaining victims receive the access to justice they deserve, and future miscarriages of justice are effectively addressed.