In the context of English law, few technicalities have threatened to derail the machinery of justice as profoundly as the Supreme Court’s decision in R (on the application of PACCAR Inc and others) v Competition Appeal Tribunal and others (“PACCAR”).

Raised in the context of collective proceedings in the Competition Appeal Tribunal (the “Tribunal”), the Respondents alleged the Applicants’ litigation funding agreements (“LFAs”) constituted damages based agreements (“DBAs”) which fell foul of statutory regulation.  The resulting judgment sent shockwaves through the litigation funding industry, rendering many LFAs unenforceable and threatening to undo decades of progress in improving access to justice.

As the government moves to reverse the judgment, debate has shifted from whether litigation funding should be permitted to how it should be governed. With proposed reforms aimed at restoring certainty, stability and confidence in the market, the question remains whether reversal is enough, or whether more profound reform and/or regulation is required.

The PACCAR Judgment

In 2016, the European Commission fined five major European truck manufacturers a record £2.93bn for operating a 14-year price-fixing cartel in breach of competition law.  Two entities subsequently applied to the Tribunal for collective proceedings orders to bring claims on behalf of the victims.  Both applicants were funded by LFAs whereby the funders would receive a share of any damages awarded.  There was no question as to liability and the key issues to be determined were whether loss had been suffered by the victims and the quantum of damages to be awarded.

However, the Respondents raised a novel argument: that the LFAs constituted DBAs which were unenforceable for non-compliance with the DBA Regulations 2013. The Respondents’ position was dismissed by the Tribunal and the Court of Appeal, but by a majority of four to one the Supreme Court agreed and held that the LFAs were, in fact, DBAs.

This classification was not merely semantic.  Most existing LFAs, drafted on the long-held assumption that they were not DBAs because funders do not provide “claims management services”, were rendered unenforceable.  The third party litigation funding (“TPLF”) industry was thrown into turmoil, with extant litigation in a state of procedural limbo and funders scrambling to renegotiate now unenforceable LFAs. The judgment also undermined confidence in the UK as a forum for complex disputes – with funders allocating less capital in the UK due to the uncertainty and chilling effect of the decision.

Litigation Funding: A Gateway to Justice

The fallout from PACCAR impacts not only funders; it has the potential to impede access to justice for innumerable Claimants relying on TPLF in order to advance meritorious claims that they otherwise would not have the means to pursue.

For decades, TPLF has acted as a financial equaliser – a gateway to justice for those without the deep pockets required to conduct litigation.  This is particularly the case for complex disputes and David -v- Goliath claims where individuals or small enterprises seek redress from corporate behemoths.  Without TPLF many of those claims would never be brought.  The costs of litigation – not to mention the inevitable hurdle of Security for Costs and substantial adverse costs risks – are simply prohibitive.

One of the most poignant recent examples is the Post Office scandal litigation (Bates and others v Post Office Ltd).  TPLF is widely recognised as the Claimants’ saviour in that matter, allowing them to establish the truth and obtain redress which would otherwise have been impossible given the Defendants’ vast resources.  Similarly the Municipio de Mariana v BHP Group litigation, involving over 600,000 victims of a Brazilian dam collapse, demonstrates the importance of TPLF on a global scale. The cost of advancing these claims is significant and prohibitive for victims who in many cases are already in financial ruin due to the wrongdoing of their counterparty.  TPLF levels the playing field: ensuring a fair fight by affording Claimants the resources required to advance their claims and overcome the oppressive might of large corporate Defendants with seemingly endless funds.

Proposed Reversal

The PACCAR judgment was handed down in the final days of the Conservative government, which commissioned the Civil Justice Council (“CJC”) to conduct a review of TPLF.  It also introduced a bill intended to overturn the judgment on a retrospective basis, which did not pass before the 2024 general election and was suspended thereafter.

In June 2025 the CJC issued its final report, recommending inter alia that:

1. Legislation be introduced to clarify (retrospectively) that LFAs are not DBAs and that TPLF is not a form of claims management service; and
2. TPLF be subject to formal regulation instead of the current self-regulatory approach.

In December 2025 the MoJ announced the Labour government’s intention to take steps to mitigate the effect of PACCAR.  Noting that TPLF “plays a vital role in ensuring access to justice”, it confirmed the government’s intention to introduce legislation: (1) clarifying (prospectively) that LFAs are not DBAs; and (2) introducing proportionate regulation. With such legislation to be introduced “when parliamentary time allows”, uncertainty currently continues to prevail.

Beyond the Reversal: Further Action Required

While the reversal is widely accepted as a necessary correction, the risk remains that such action proves insufficient.  Of key concern is the indication that clarificatory legislation will be effective only prospectively, and not retrospectively as recommended by the CJC.  While prospective certainty is welcomed, many existing LFAs remain tainted by PACCAR.  Without retrospective implementation, there remains a significant number of potentially unenforceable LFAs and a significant volume of litigation vulnerable to strike out and satellite litigation over funding arrangements.

PACCAR also exposed a deeper vulnerability – the litigation funding market has outgrown its current voluntary regulatory framework. The detail of the proposed regulation will therefore be central to ensuring that TPLF continues its role as a key gateway to justice, protecting the interests of the funded as well as the funders.  In that regard, several issues were identified by the CJC that should be considered:

1. Protecting Claimants’ interests.  While the Post Office litigation highlighted the essential role of TPLF in ensuring access to justice, the funders’ and legal team’s entitlement to 80% of the £58m settlement cannot be overlooked.  Suitable safe guards are required to ensure that litigation funding does not become a vehicle for litigation that serves only the funders and the legal team, leaving Claimants with only pyrrhic victories.
2. Enhanced costs budgeting.  Introducing wider requirements for costs budgeting will ensure legal costs remain reasonable and proportionate.  Defendants have often been criticised for seeking to outspend Claimants to force compromise or discontinuance of meritorious claims.  The scales of justice should not be affected by the weight of one party’s purse, and in funded cases those tactics can lead to legal costs spiralling for all parties. Managing legal spend should therefore be central to reform.
3. Recoverability of funding costs. Given that TPLF is often required as a direct result of Defendants’ conduct, the general prohibition on recoverability of funding costs should be revisited and the Courts granted discretion to award recovery of certain costs in appropriate circumstances.  While such circumstances would likely be limited in scope – perhaps only in exceptional circumstances, as recommended by the CJC – it would undoubtedly be justified in certain scenarios.  For example, in the context of premiums for ATE insurance incepted in response to actual or threatened applications for security for costs – if the Claimant is put to that cost by the Defendant, there is a strong argument that the Defendant should ultimately be responsible for some or all of that cost if the claim succeeds.
4. Capital adequacy.  Unlike traditional financial institutions, litigation funders are not currently subject to stringent capital adequacy requirements. A funder’s insolvency part-way through litigation would leave its funded Claimants stranded – a catastrophic outcome for any David who has committed to lengthy and expensive litigation against their Goliath. Reform must include provision to ensure funders have the deep pockets they claim to have.
5. Transparency.  Claimants need to receive clear information about the terms of the funding, the risks involved and the likely cost.  There is also a growing consensus that the existence and identity of funders should be disclosed in proceedings.  It is important, however, to strike a careful balance – ensuring that disclosure obligations do not create an asymmetry between the parties or otherwise create the risk of unnecessary satellite litigation.

Conclusion: A Defining Point for Litigation Funding

The government’s move to reverse PACCAR is a vital first step in stabilising TPLF in the UK and ensuring this gateway to justice remains open. By clarifying that LFAs are not DBAs, ministers are effectively signaling that England & Wales remains a predictable jurisdiction and is open for business as a global litigation center.

However, the reversal should be viewed as the floor of reform, not the ceiling. The PACCAR saga has proven that TPLF is too important to modern justice to be self-regulated. To protect both Claimants and funders, the industry must embrace a framework that ensures that the David -v- Goliath cases of the future are not just funded, but are fundamentally fair.

Scott Sobczyk, Senior Associate at Henderson and Jones