Understanding Litigation Funding in England and Wales: Key Insights and Future Directions

Why funding matters

Civil litigation is expensive. Legal fees, expert evidence, disclosure, adverse costs risk and trial preparation can make even strong claims practically impossible for individuals, small businesses and consumer groups. Litigation funding responds to that problem by moving some or all of the financial risk to a third party.

That distinction matters. A claimant may have a meritorious case but no realistic ability to bring it. A defendant may have the resources to defend aggressively. A group of consumers may each have a modest claim that is only viable if aggregated. Litigation funding can change that balance by making the claim financially possible.

The access-to-justice argument is therefore real. But so is the risk. A funder is not a charity. It invests in litigation for return. That means the legal system must ask how funding affects settlement pressure, claimant autonomy, lawyers’ duties, adverse costs exposure, case selection, consumer protection and the share of recovery left for claimants.

What litigation funding is

Litigation funding usually means a third party finances a legal claim in return for a share of the proceeds, a multiple of the funding advanced, or another agreed return if the case succeeds. If the case fails, the funding is normally non-recourse: the funded party does not repay the funder simply because the claim lost.

That is different from other funding tools. Conditional fee agreements, damages-based agreements, before-the-event insurance, after-the-event insurance, trade union support, crowdfunding and litigation loans each operate differently. They shift risk in different ways, create different incentives and raise different regulatory concerns.

Where it is used

The supplied draft identifies collective actions as a central use case. That is the clearest public-interest example. Collective proceedings can aggregate claims against large companies, allowing consumers or small businesses to pursue alleged harm that would be uneconomic to litigate individually.

Litigation funding is also used outside consumer collective actions. It may support commercial claims, insolvency claims, arbitration, group litigation, competition claims and other civil disputes. The common theme is financial risk. Funding is attractive where the claim has potential value but the claimant cannot or does not wish to bear the litigation cost and adverse costs exposure alone.

The regulatory position

The supplied draft describes the current framework as primarily self-regulatory, with the Association of Litigation Funders and its Code of Conduct playing an important role. That is a fair starting point, but the policy debate should not stop there. Self-regulation can support standards, but it depends on membership, compliance, transparency and effective enforcement.

The key issues are practical. Does the funder have enough capital to meet its obligations? Can the funder withdraw funding too easily? Can it influence settlement or strategy? Does the client receive independent advice before signing? Is the return structure clear? Are conflicts managed? Is adverse costs exposure addressed? Can the court see enough about the funding arrangement where fairness requires disclosure?

PACCAR and uncertainty

The PACCAR litigation funding issue matters because it exposed uncertainty about whether certain funding agreements fall within the statutory regime for damages-based agreements. Where a funding return is calculated by reference to damages or proceeds, the legal classification of the agreement can affect enforceability.

The practical consequence is not merely technical. If funding agreements are uncertain, claimants, funders and defendants may spend time and money fighting about the funding mechanism rather than the underlying claim. That can increase satellite litigation, discourage funding, raise the cost of capital and make collective claims harder to bring.

The public lesson is simple. Litigation funding needs a framework that is legally certain enough to support access to justice, but controlled enough to protect funded parties and the integrity of litigation.

Safeguards that matter

The case for litigation funding is strongest where the claimant keeps meaningful control, the agreement is intelligible, the funder has adequate capital, the lawyers’ duties remain clear, and the court can intervene where funding threatens fairness. The case against funding is strongest where agreements are opaque, returns are disproportionate, claimants do not understand the bargain, or funders obtain de facto control over the litigation.

That distinction matters. The aim should not be to drive litigation funding out of the market. Nor should the law assume that every funding agreement promotes justice. The better approach is evidence-led regulation: identify the risks, require proper disclosure where necessary, protect funded parties, preserve lawyer independence, and ensure that collective proceedings do not become primarily a revenue mechanism for funders and lawyers.

A practical reform test

The debate should be judged by a practical test. Does the framework make good claims easier to bring without creating opaque, funder-driven litigation? Does it support collective redress without turning consumers into nominal participants in claims run mainly for financial intermediaries? Does it give defendants enough transparency to challenge unfair arrangements without enabling tactical obstruction?

Litigation funding sits at the intersection of justice and finance. That is why the regulatory answer must be balanced. Too little certainty may block access to justice. Too little control may undermine confidence in the justice system.

The final point is direct. Litigation funding can be a route to justice, but only if the system keeps the justice in view. The funding mechanism should serve the claim. It should not become the claim.