UK to Repeal PACCAR Ruling and Clarify Litigation
What is Happening?
The UK government has confirmed plans to legislate to overturn the Supreme Court’s 2023 PACCAR decision that treated certain litigation funding agreements (LFAs) as damages-based agreements (DBAs). LFAs are contracts where a third party funds legal costs in return for a share of the damages, and the 2023 ruling led to confusion and uncertainty about their legality. The government’s move is aimed at providing clear statutory treatment for LFAs and ensuring litigation funding remains a viable option in the UK legal market.
Background on the PACCAR Ruling
In the PACCAR case, the UK Supreme Court ruled that some third-party litigation funding agreements, where funders take a share of damages, fall within the statutory definition of a DBA. DBAs are regulated under UK law and generally prohibited unless they meet strict conditions. Because many LFAs do not meet those conditions, the ruling left many existing funding arrangements in doubt and raised questions about their enforceability. This was particularly problematic in collective claims and complex commercial litigation, where funding often plays a critical role for claimants without deep pockets.
Why the Government Is Acting
Ministry of Justice officials have framed the legislative change as essential to “access to justice.” Without clear statutory backing for third-party funding, claimants may find it harder to pursue claims against well-resourced defendants because they cannot secure third-party backing. The government also expressed concern that continued uncertainty could deter international dispute resolution work being conducted in England and Wales and harm the UK’s reputation as a global legal center.
According to ministers, the legislative fix is meant to clarify that litigation funding agreements are not to be treated as DBAs and therefore should not be subject to the strict regulatory regime that applies to traditional DBAs. The government sees this as restoring confidence in the litigation funding market.
Next Steps and Timing
No specific timetable has been shared for when the legislation will be introduced. Officials indicated that it will be brought forward “when parliamentary time allows.” Alongside the legislation, the government is considering broader reforms to ensure litigation funding works transparently and fairly. This may include additional regulation or oversight mechanisms recommended by the Civil Justice Council following its review of the market.
Reactions from the Legal Community
The announcement was welcomed by claimant lawyers, funders, and industry bodies who had raised concerns about the continuing legal uncertainty. However, the lack of a firm timetable and details about how the new statutory regime will work means debate will continue. Some parts of the business community have also voiced concerns about how the reform might affect defendants’ exposure in funded litigation.
What This Means in Practice
If passed, the legislation could help stabilize the UK litigation funding sector and encourage more investment in legal claims that would otherwise remain unfunded. It may increase predictability for all sides in litigation and maintain London’s role as an international disputes hub. But until the bill is drafted and debated, uncertainty, particularly about detailed rules and protections, remains.