Understanding the Latest Developments in Litigation Funding and What They Mean

If you have been following litigation funding, you will know the 2023 PACCAR decision caused quite a bit of uncertainty. The Supreme Court’s ruling classified certain Litigation Funding Agreements (LFAs) as Damages-Based Agreements (DBAs), bringing them under tighter regulation. This left many solicitors, funders, and claimants unsure about their position.

Back in March 2024, the previous Government tried to resolve this issue with draft legislation aimed at reversing PACCAR’s impact. However, the 2024 General Election stalled that progress, leaving things in limbo.

Then, in June 2025, the Civil Justice Council (CJC) published a report that I believe is a real step forward. The CJC recommends removing litigation funding agreements (LFAs) from the DBA rules altogether, which would finally give much-needed clarity and certainty. In doing so, the report explicitly calls for a reversal of the PACCAR decision, recognising the uncertainty and disruption it has caused across the sector.

They also suggest these changes apply retrospectively, so existing agreements do not get caught up in legal uncertainty. Importantly, the CJC makes clear that while LFAs should be exempt from DBA regulation, claimants still deserve transparency about the terms they agree to.

The report also highlights how enforceable funding agreements are vital for collective and group actions, where third-party funding often makes pursuing claims possible in the first place.

Adding further reassurance, the Court of Appeal’s recent judgment in Sony Interactive Entertainment Europe Ltd & Anor v Alex Neill Class Representative Ltd [2025] EWCA Civ 841 confirmed that well-drafted LFAs are enforceable. The Appellants had argued that the funding agreements provided for funders to be paid a multiple of their investment, but because that return was capped by reference to the damages recovered, they claimed the agreements were Damages-Based Agreements. The Court rejected that argument. It found the funders’ return was still based on their investment, not a share of the damages, so the agreements fell outside the DBA rules.

The Court also made an important and very practical point. It said that if simply including a cap linked to damages was enough to make an LFA a DBA, then it is hard to see how any LFA could avoid falling into that category. Since funders are paid from the proceeds recovered, applying that logic would make most LFAs in collective proceedings effectively unenforceable, unless they could somehow meet the strict DBA regulations. That would make funding group actions in the CAT almost impossible. The Court highlighted how perverse that outcome would be: under the Appellants’ approach, an uncapped return (offering no protection to the claimant group) would be enforceable, while a capped one (designed to safeguard the class) would not. Unsurprisingly, the Court was not persuaded.

So, what does all this mean in practice? Simply put, it is a positive shift. The CJC’s recommendations, the upcoming legislation, and the Sony judgment all point to a clearer and more workable future for litigation funding, particularly in group and collective actions. However, it is now for the Government to consider the CJC’s proposals and decide whether to legislate to reverse the effects of PACCAR. In the meantime, the courts continue to provide helpful guidance that brings some much-needed clarity.

At Costs Lawyer UK, we are here to help you navigate the ongoing changes to the costs landscape. Whether you need support with costs budgeting, management, billing, or any cost-related matters, we are here for you. If you would like to discuss how we can support your team, please contact us.