Earlier this week, and of particular reference to litigation funders and those specialist funders active in the space, the Civil Justice Council (CJC) published its final report following a comprehensive review of litigation funding in England & Wales.

The report is lengthy, and makes almost 60 separate recommendations, so this brief summary is of only limited utility. The Macfarlanes team will continue to analyse the report and will continue its discussions with a wide range of funders and other market stakeholders, and more commentary may follow. However, a handful of immediate observations (with references to specific paragraphs of the executive summary of the report):

1. the PACCAR decision should be reversed as soon as possible via legislation, separate to that which may be needed to implement any other recommendations of the report (para 2.3 / 2.21);
2. a clear distinction must be drawn between funding which is provided by (a) a law firm via a conditional fee agreement (CFA) or damages-based agreement (DBA), and (b) a third-party funder via a litigation funding agreement (LFA) (para 2.3);
3. a distinction should be drawn between funding provided to (a) commercial parties, and (b) consumers and the like (para 2.5);
4. “light touch” regulation of funding should apply to litigation funding generally, and additional (but still light touch) requirements should apply to funding provided to consumers (para 2.7);
5. the precise detail of such regulation is not specified, although outline principles which might be enshrined in legislation are listed (see para 8.21 et seq);
6. no cap should be placed on funder returns (para 2.7);
7. reference is made to the imposition of “standard terms for LFAs” in relation to consumer claims (para 2.8 / 8.22(b));
8. “portfolio funding” should be regulated as a form of loan by the Financial Conduct Authority (FCA) (para 2.14); and
9. a litigation funding standing committee should be established by the Ministry of Justice, with responsibility for the on-going scrutiny and review of the litigation funding sector (para 2.20).

The proposal for a prompt reversal of PACCAR is welcome, and, if implemented, will bring some much-needed clarity to the UK litigation funding market. Similarly, the suggested distinction between commercial and consumer funding arrangements and the regulatory burden which would apply to each is helpful, although great care will be needed when framing any legislation to ensure that any regulatory regime is indeed “light touch”. The CJC’s rejection of any cap on funder returns is also noteworthy.

One topic which will need further thought is the suggestion that “portfolio funding” should be regulated by the FCA. In our experience, many different financial products and facilities can be used by law firms for a wide range of commercial purposes. Whilst the report (via a footnote) suggests that “portfolio funding should be distinguished from normal business loans to law firms”, if this recommendation is to be pursued it will be of vital importance to the legal industry generally for that distinction to be very carefully drawn. Law firms of all shapes and sizes use funding lines provided by third parties, some of which are linked directly or indirectly to underlying litigation. It is not the case that all such funding arrangements are “portfolio funding” of the sort which featured in one or two high profile law firm collapses, and to seek to regulate commercial arrangements between sophisticated parties would be unfortunate. Prudent law firm management, coupled with suitable oversight by the Solicitors Regulation Authority, would seem to be central to any solution and we encourage more discussion on this topic.

If you have questions, or would like to discuss any of the topics arising from the CJC report, please do contact any of the Macfarlanes' litigation funding team.