How litigation funding is reshaping the UK market
From Supreme Court rulings to private equity involvement, the funding ecosystem is evolving—and raising new questions and complexities.
UK litigation funding is facing upheaval. Court rulings have thrown enforceability into doubt, while monetary moves have squeezed traditional models. Funders are now buying stakes in law firms themselves, raising new questions about who really controls litigation—and whose interests come first. Explore this dynamic picture with Idris Mhiri, Principal Research Specialist at Chambers and Partners.
PACCAR Raises Enforceability Questions
A key turning point came in July 2023, when the Supreme Court ruled in the case of PACCAR Inc that certain litigation funding agreements (LFAs) constitute damages-based agreements (DBAs). This classification triggered widespread concern: many LFAs had not been drafted to comply with DBA regulations, raising the spectre of unenforceability.
Although the Court of Appeal later confirmed that major funded cases—including ones against Mastercard, Visa and Apple —could proceed, the damage was done. Funders began reassessing their exposure, and firms scrambled to understand the implications.
“PACCAR highlighted a real area of risk. The worry was that all this funding might not be enforceable anymore. Even after the Court of Appeal decisions, some uncertainty remains, which has made funders much more cautious.”
Idris Mhiri, Principal Research Specialist, UK/USA, Chambers and Partners
The UK government has faced pressure to legislate in response to PACCAR, but progress has stalled after a draft bill failed to survive the 2024 change of government. The Civil Justice Council (CJC) has this year reviewed the situation and recommended overturning the ruling via statute, yet political appetite remains low.
On the one hand, litigation funding enables access to justice, but it also raises questions about fairness, control and public perception.
Portfolio and Firm-Level Funding Increase Complexity
Two factors recently caused litigation funding to lose some of its lustre as an asset class. The PACCAR judgment coincided with a time of rising interest rates, which made litigation funding in its traditional form less attractive to investors.
Faced with the dual headwinds of legal uncertainty and higher financial cost, funders increasingly look to spread their risk by financing bundles of cases.
"In response to PACCAR and the change in interest rates, we've seen a general increase in portfolio funding. Funding a bundle of cases is a way of mitigating risk. However, it potentially raises questions about the level of attention given to each case, as well as introducing increasingly complex financial instruments."
Idris Mhiri, Principal Research Specialist, UK/USA, Chambers and Partners
Firm-Level Funding and Conflict Risk
Beyond case-by-case financing, a more structural shift is emerging: litigation funders are now backing entire law firms. This may take the form of part ownership, strategic equity stakes or substantial loans—each raising new questions about control, independence and client alignment.
The appeal for funders is clear. Investing at the firm level offers broader exposure and a more predictable return than backing individual cases. But blurring the line between financier and stakeholder has other implications. Potential conflicts of interest could arise, whereby the best return on the case (for example, an early settlement) might not necessarily be in the client’s best interests.
This tension is at play in the lawsuit against BHP Group following the collapse of the Fundão dam in Brazil. Brought by SPG Law (now Pogust Goodhead), the case saw disputes over funder involvement and control right from the beginning. Defending counsel questioned the funding arrangements, and eventually key lawyers departed due to conflicts with funders.
Litigation Funding Regulation: Lessons from Offshore
As litigation funding arrangements grow more complex and embedded in UK practice, it’s interesting to note the existence of tighter offshore regulatory models. In jurisdictions such as Jersey, Guernsey and Bermuda, funder involvement is tightly controlled—particularly in restructuring and insolvency litigation, where financial risk is acute and outcomes are highly sensitive to timing.
“If you look at some offshore territories where doctrines of champerty and maintenance still apply, they have really strict rules on the involvement of litigation funders. There have been some calls for something similar in the UK, mostly from defence-side lawyers who fight the funded firms in court.”
Idris Mhiri, Principal Research Specialist, UK/USA, Chambers and Partners
Are calls for similar regulation in the UK likely to be answered? So far, they have not gained much traction. Even the CJC report recommended a light touch. This is perhaps in part because litigation funding is widely seen as a tool for access to justice, especially in group actions and consumer claims.
Furthermore, some offshore territories have abandoned these historic legal doctrines and are very open to third-party funding. This speaks to another economic pressure on legal systems – to remain globally competitive as venues for dispute resolution. In the immediate future, it looks likely that the rules will continue to develop via case law and landmark rulings, rather than any statutory initiatives.
Conclusion: What Next for UK Litigation?
The UK litigation funding market is still morphing. The PACCAR judgment exposed legal uncertainty that has yet to be fully resolved, yet attempts to address this have faltered in the absence of political will. The UK's light-touch approach has enabled rapid innovation and expanded access to justice — but may also have fostered an environment prone to conflicts of interest.
Meanwhile, economic pressures have pushed funders towards portfolio-based and firm-level investment strategies. As these structural changes work through the system over the coming years, the market may be left to regulate itself through reputation and case law alone. Whether that proves sufficient remains to be seen.
Key Takeaways
- The PACCAR Supreme Court judgment created uncertainty about enforceability of litigation funding arrangements that persists despite subsequent Court of Appeal clarifications.
- Rising interest rates have pushed funders towards portfolio funding models that spread risk across multiple cases rather than backing individual disputes.
- Funders are increasingly taking ownership stakes in law firms or providing major loans, raising questions about conflicts of interest when funder returns might not align with client interests.
- While offshore jurisdictions have implemented strict regulations on funder involvement, the UK continues to develop rules primarily through case law with little appetite for comprehensive statutory reform.
- Despite calls for greater regulation, litigation funding remains widely viewed as a tool for access to justice, making significant regulatory intervention unlikely in the near term.
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