UK urged to reverse ruling on litigation funding, introduce 'light-touch regulation'

Reuters

2 days ago

LONDON, June 2 (Reuters) - Britain should urgently reverse a landmark ruling that threw third-party funding of lawsuits into disarray, an influential advisory body recommended on Monday in a report which was welcomed by funders and industry critics alike.
The Civil Justice Council (CJC) also called for "light-touch regulation" of the litigation funding sector, which is currently self-regulated, particularly where funding is provided for class action-style lawsuits or to consumers.
Monday's report comes after Britain's funding industry was dealt a surprise blow in 2023, when the UK Supreme Court ruled that agreements used to fund many mass lawsuits were unenforceable as they did not comply with rules on so-called damages-based agreements.
The CJC said the government should pass legislation to overturn the Supreme Court's decision "as soon as possible", citing the importance of funding for access to justice.
Britain's previous government, which asked the CJC to review the sector, said last year it would reverse the Supreme Court decision, before the current government put legislation on hold pending the CJC's report.
The Ministry of Justice said in a statement that it welcomed the report and would "outline next steps in due course."
The CJC – which advises the government and judiciary on the civil justice system – called for some regulation, including requirements for funders to have adequate capital and provisions to prevent conflicts of interest.
It also recommended that class action-style cases need court approval of funding agreements, to allow the court to consider whether the funder's return is fair, just and reasonable.
The report rejected, however, the introduction of caps on funders' returns, which the CJC said could not properly take account of the risks of funding cases and was unnecessary for consumer protection if courts had to approve funding deals.
Neil Purslow – chair of industry body the International Legal Finance Association, who also founded litigation funder Therium – welcomed the CJC's recommendation to legislate to reverse the Supreme Court ruling.
Seema Kennedy, executive director of Fair Civil Justice, which has called for greater regulation of litigation funding, said the CJC's call to regulate the industry was "long overdue".
She said: "Proper oversight is essential to protect consumers, ensure transparency, and restore public confidence in a sector that currently operates without sufficient safeguards."
Litigation funding is increasingly used in Britain, with the CJC citing figures that funders in England and Wales had assets of 2.2 billion pounds ($3 billion) in 2021.
English courts have repeatedly recognised the need for funding to bring mass lawsuits, where the case's total value is often in the billions but payouts to individual consumers can be as low as double figures.
The CJC report comes after court approval of a 200 million-pound settlement in a case against Mastercard, despite the opposition of funder Innsworth, which stands to receive around 68 million pounds.