Tom Webster, Sentry Funding
By Tom Webster at Legal Futures Associate Sentry Funding [1]
The Civil Justice Council has recently published [2] a comprehensive set of recommendations for reform of the litigation funding sector. The reforms are aimed at promoting effective access to justice and ensuring the fair and proportionate regulation of the sector.
Some key highlights from the recommendations are as follows:
- The number one recommendation is that the Supreme Court ruling in R (PACCAR) v Competition Appeal Tribunal [2023] UKSC 28 should be reversed through legislation, which should be both retrospective and prospective in effect. The court ruling called into question the validity of many litigation funding agreements (LFAs), and the CJC said legislation is needed ‘at the earliest opportunity’ to resolve this.
The CJC’s report then includes a raft of other measures, which, if approved, should be introduced through separate legislation – with less urgency. These include:
- The introduction of ‘light touch’ statutory regulation of litigation funding through Regulations issued by the Lord Chancellor. The CJC does not recommend regulation by the Financial Conduct Authority (FCA) at this stage, but this should be reconsidered five years into the new regulatory regime. Significantly, the regulations themselves should not apply to the funding of arbitration proceedings. Regulation of funding for arbitration should be left as a matter for arbitral centres, the CJC concluded.
- Importantly, the CJC proposes that ‘differential regulation’ should apply to litigation funding for commercial parties as opposed to for consumers, or parties engaged in collective proceedings, representation actions and group litigation. Regulation where commercial parties are concerned need be minimal, the CJC said, while greater – but still light-touch – regulation is needed for consumers and collective actions.
- A minimum, ‘base-line’ set of regulatory requirements should to apply to litigation funding in general. These should include provision for: case-specific capital adequacy requirements; codification of the requirement that litigation funders should not control funded litigation; conflict of interest provisions; the application of anti-money laundering requirements; and disclosure ‘at the earliest opportunity’ of the fact of funding, the name of the funder, and the ultimate source of the funding. However, the terms of LFAs should not generally be subject to disclosure.
One point of particular interest is that the CJC did not propose setting any cap on the level of a funder’s return. The CJC working party said it had rejected the imposition of statutory caps on the basis that these were a blunt instrument that could not take proper account of the variable risks of funding different claims. In relation to consumers, effective protection would instead be achieved by a proposal for the court to approve that the level of return is ‘fair, just and reasonable’, for non-commercial parties and for claimants or class members in collective or group proceedings.
The CJC’s report is very broad ranging, and will no doubt take time for the legal profession and the funding industry to digest. The Ministry of Justice has welcomed the review, which it said will ‘help inform’ its approach to potential reforms. Which of the many proposals it will choose to take forward – and when – remains to be seen.