I will call Sir Julian Smith to move the motion; I will then call the Minister to respond. I remind Members that they may make a speech only with prior permission from the Member in charge of the debate and the Minister. There will not be an opportunity for the Member in charge to wind up, as is the convention for 30-minute debates.
That this House has considered the Civil Justice Council’s review of litigation funding.
It is a pleasure to serve under your chairmanship, Ms Harris. I refer the House to my entry in the Register of Members’ Financial Interests—until the summer, I was voluntary chair of the Centre for Effective Dispute Resolution. I pay tribute to Mr Justice Simon Picken and Dr John Sorabji, who co-chaired the review, along with each member of the working party and the Civil Justice Council secretariat.
Third-party litigation funding plays an important role, enabling citizens in the UK and businesses to bring claims against larger and often better-resourced firms and organisations. Litigation funding involves an investment company that is not involved in a particular legal case providing all or a portion of the legal costs of a claim, in return for any damages awarded. The typical area in which litigation funding operates is in high-value commercial, arbitration or group litigation claims, particularly in the Competition Appeal Tribunal—a key route for competition-based group claimants to attempt to seek redress and, alongside the Competition and Markets Authority, one of two pillars of the UK’s globally recognised competition regime.
Litigation funding provided financial resource for cases to be taken in the initial stages of the Post Office Horizon scandal, Bates v. Post Office, as well as providing resources in cases taken up against car manufacturers, such as one over false diesel emissions, cases focused on data breaches, those involving car financing and, most recently, a high-profile case last week involving Apple and charges for app use on the App Store.
I thank the right hon. Gentleman for giving way at such an early stage in his speech. I want to highlight another positive example of the use of litigation funding. It was essential in helping 52 former franchisees of Vodafone—essentially, small business owners, including one in Chester-le-Street in my constituency—to bring a claim against the company, which they would have struggled to bring without funding. Does the right hon. Gentleman agree that this example demonstrates that litigation funding can play a crucial role in enabling access to justice for those who would otherwise be denied it?
I agree with the hon. Member; the Vodafone case, which involved franchisees across the UK, is another example of how litigation funding can help.
The Supreme Court’s judgment in the PACCAR case in July 2023, which involved a claim against truck manufacturers for anti-competitive behaviour, rendered many third-party funding agreements unenforceable by bringing them in scope of another type of legal funding agreement, damage-based agreements. The impact of the judgment on the litigation funding market has been two years of instability and a lack of clarity about its contractual operating terms. The last Government sought to remedy the issue by introducing the Litigation Funding Agreements (Enforceability) Bill, which had reached Second Reading in the House of Lords immediately prior to the election.
I commend the right hon. Gentleman for securing the debate; he was right to do so. Although no win, no fee seems like the only reasonable option for those seeking compensation in the civil courts to fund their cases, they can be easily taken advantage of, so does he agree that we need a framework that allows for a reasonable exchange of risk and benefit to consumers, rather than putting the ability to fight for justice just beyond their reach?
I agree with the hon. Member; I will come to some protections that I think he might be attracted by.
The last election stopped the Litigation Funding Agreements (Enforceability) Bill, which was going to overturn the PACCAR judgment, but on 1 August 2024, Lord Ponsonby said in a written answer to a parliamentary question that the new Labour Government
“recognises the critical role third-party litigation funding plays in ensuring access to justice.
Following the PACCAR judgment, concerns have been raised about the need for greater regulation of Litigation Funding Agreements…The Government is keen to ensure access to justice in large-scale and expensive cases, whilst also setting up adequate safeguards to protect claimants from unfair terms.
The Civil Justice Council is considering these questions and others in its review of third-party litigation funding, and hopes to report in summer 2025. The Government will take a more comprehensive view of any legislation to address issues in the round once that review is concluded.”
The Civil Justice Council review concluded in June this year. The litigation funding industry, businesses and the legal sector await the Government’s response. The current lack of response to the report is causing significant uncertainty to the sector and additional costs for those fighting for businesses and consumers. Although the Government are inevitably busy on many fronts, action on this is needed now and will be positive for the UK economy.
I will return to the recommendations of the CJC report shortly, but I just want to emphasise two broader points. First, the legal sector in the UK was worth about £52 billion in 2024, up by about 10% on the previous year. Litigation funding is estimated to have quadrupled since 2013, with more than £1 billion capital estimated as currently available to litigation. In 2023, PwC UK predicted growth at a compound annual growth rate of more than 8% over five years.
It is always a pleasure to see you in the Chair, Mrs Harris. I thank the right hon. Member for Skipton and Ripon (Sir Julian Smith) for securing the debate and allowing me briefly to contribute.
When people go to court, they deserve justice, not a financial system that puts investors before victims, yet that is what litigation has too often become. We all remember the Post Office case, which the right hon. Gentleman eloquently discussed. It was one of the darkest chapters in recent legal memory. The postmasters fought for years to clear their names, yet when the settlement came in, around 80% of the damages—£46 million—went not to them, but to funders and lawyers. That is not right.
This is not some distant issue that affects courts in London. In my constituency of Burnley, Padiham and Brierfield, many households were drawn into cavity wall insulation claims by legal vultures only to be left thousands of pounds in debt when the funder and law firm behind them, SSB, collapsed. Ordinary families were left exposed, with no resource and no protection. That failure should shame us all. We can do better by having effective regulation of the market. The Solicitors Regulation Authority and others still have questions to answer about SSB.
More than 70 litigation funders are active in the UK, managing billions of pounds but operating with very little formal oversight. That gap leaves consumers exposed and confidence in our legal system weakened. The right hon. Gentleman has ably explained some of the practical recommendations in the Civil Justice Council report—in which Seema Kennedy, previously of this parish, although on the Conservative Benches, was also involved—so I will not go into them now. However, I hope that this Government take on board recommendations for greater transparency and oversight, clearer limits on funding controls, the strengthening of the ombudsman and alternative dispute resolutions, as has been mentioned, and court scrutiny of the profits and sources of funding of those taking these legal cases through. Those steps would restore fairness and integrity to collective actions and make sure that outcomes serve the people involved in these cases and not the profit motive.
It is a pleasure to serve under your chairship, Mrs Harris. I thank the right hon. Member for Skipton and Ripon (Sir Julian Smith) for securing a debate on this very important subject. It gives me an opportunity to cover three of my favourite themes: consumer protection, access to justice and growth, especially as it is delivered by the very successful legal services sector in this country.
We are here to discuss the Civil Justice Council’s review of litigation funding, which was published in June. As others have said, litigation funding refers to the mechanism by which litigation is privately funded in England and Wales. Third-party funding is where a party unconnected to a dispute, most often a financial institution, funds the cost of the legal action in return for a share of any damages awarded. As others have observed, this performs two functions: a social function and an economic function. Third-party funding is an essential tool in ensuring access to justice for many. It enables those who would not otherwise be able to afford to litigate—ordinary people, the small businesses referred to— to assert their rights before a court of law, against often far better resourced opponents, often large corporations and institutions.
Without third-party funding, as others have noted, the sub-postmasters would not have been able to bring their landmark civil claim against the Post Office. Those individuals without the financial means or legal clout to bring a claim themselves, were able to secure compensation for their losses as a result of third-party litigation funding. Such funding has also been used to support equal pay cases, environmental challenges, consumer claims against multinational companies regarding data breaches, and the other sorts of cases mentioned today.
As the right hon. Member for Skipton and Ripon (Sir Julian Smith) notes, this also makes a huge economic contribution. Along with the quality and calibre of our judiciary and legal services, third-party funding is an important factor in attracting international business to England and Wales as a jurisdiction of choice. That is because third-party funding is also used in high-value commercial cases, where there is a significant financial imbalance or where parties do not wish to use limited capital resources on legal proceedings.
I know that my hon. and learned Friend the Minister has ambitions to address concerns in this area, perhaps in legislation. I look forward to hearing her response and I thank the right hon. Gentleman for allowing me to contribute.
It is important for the House to recognise that third-party funding plays a critical role in supporting the attractiveness of our jurisdiction as a global hub for commercial litigation and arbitration. Legal services contributed £42 billion to the economy last year. I am happy to be their greatest champion, but it is fair to say that the UK Supreme Court’s judgment in the PACCAR case has created a degree of uncertainty for funders and litigants alike.
As we have heard, the case concerned litigation funding agreements—LFAs. The Supreme Court held that third-party litigation funding agreements were damages-based agreements. The ruling rendered many such LFAs unenforceable, by bringing them into the scope of the regulatory regime for damages-based agreements. As others have noted, that has created a degree of uncertainty. There is a concern and very real risk that funders are beginning to pivot away from London, England and Wales to look at other jurisdictions, such as New York, Paris and Singapore, more favourably. In short, that is not good for UK plc.
The PACCAR judgment and the report of the Civil Justice Council that followed present an opportunity for the sort of debate we are having. What would it look like to reverse PACCAR? Do we want to go back to exactly what the regime looked like before? Can we evolve an even better regime, which provides the right regulatory balance, ensuring access to justice, and that damages-based agreements work for client and funder alike? How do we develop that? For that reason, the Government have taken time to ask the CJC to conclude its work, and we are considering carefully how to achieve that balance.
Third-party funding is currently subject only to self-regulation via the Association of Litigation Funders’ code of conduct. I welcome and echo the invitation by the right hon. Member for Skipton and Ripon to those who are not currently subject to the code’s ethical and operational standards to seize the opportunity to bring themselves within what is currently a voluntary regime.
Despite litigation funding’s importance to effective access to justice, not all feel that current third-party funding arrangements always work in the client’s best interest, as my hon. Friend the Member for Burnley (Oliver Ryan) pointed out. Some have questioned funders’ role and level of control in legal proceedings. Those weaknesses in the pre-PACCAR regime are ones we recognise and want to take time to consider, so that we can ensure that third-party funding works for all.
In the light of the judgments and those concerns, the Civil Justice Council, an advisory body chaired by the Master of the Rolls, has conducted a thorough and learned review. It looks at this issue and the wider ecosystem for third-party litigation funding and its regulation. The scope of the review was to set out the current position of litigation funding and third-party litigation funding, and to consider access to justice, effectiveness and a host of regulatory options. Specifically, the review considered whether the current arrangements for third-party funding deliver the effective access to justice that we all want to see. We are incredibly grateful for the report.
We are now taking the time, as I said, to consider the report and its recommendations very carefully. I am sure that hon. Members here today will appreciate that it is essential to take this detailed and considered approach to what is a technical area but one that is fundamental to the human aspects of access to justice. We must ensure that the right balance is struck to ensure fair and effective access to justice, while enabling economic growth, which is, as so many others have said, the primary mission of this Government. We are aware that many are eagerly awaiting the Government’s response, and I look forward to announcing our way forward in due course. The stakes are high: access to justice, consumer protection and economic growth. We have to get this right.
I will say one more thing in response to the question asked by the right hon. Member for Skipton and Ripon on retrospectivity. I think it is highly unlikely, given the general rule-of-law principle against retrospectivity, that we would look to have that, but as I said, we must get this right; we have to get the balance right. We want an improved regime that works for the funders and for their clients and consumers.
Question put and agreed to.
On a global basis, the global litigation funding market was approximately $20 billion in 2025 and is expected to be closer to $49 billion in 2035. Legal services with litigation funding are an important component and a vital export opportunity as the UK continues to be the leading centre for global disputes of all kinds and can stand to win significant revenues from deals such as the ones the Government have done with India, the US and, this week, Turkey. Services of all shapes and sizes, but particularly legal services, are a key UK economic sector and we should bear that in mind during this debate.
The second broader point is that litigation finance significantly assists with access to justice, as we have heard, discouraging large companies from anti-competitive or anti-consumer behaviour. Litigation finance funds cases of all shapes and sizes, but particularly class actions where there is a potential case against large and often global firms who unknowingly—or often knowingly —have breached the UK’s competition law.
UK competition law was crafted over many years to ensure an efficient market protecting consumers and fostering fair competition between companies, encouraging better and more effective growth. Both issues matter to UK citizens as they directly impact incomes and financial costs for families across the United Kingdom. We need one of our most successful service sectors to operate with a full focus on expansion and growth. That means more jobs, which mean more tax revenue. We need UK consumers to have routes to take on the huge might of the global companies from which they buy products and services, but that have such large market share and resources that they can more or less do what they want.
The Competition Appeal Tribunal was extended in 2015 by the coalition Government to include opt-out collective actions to enhance competition, ensure prices stay fair and that businesses do not abuse their position and keep innovating. As Ministers said at the time:
“Competition is one of the great drivers of growth”,
For many consumers, who are often on low incomes, cases in the CAT, funded by third-party litigation funding, is the only route to challenge and hold large companies to account.
Neither point is intended to imply that everything is perfect, but the PACCAR judgment and the need for legislation to remediate the situation, the CJC report that is the topic of this debate and a recent call for evidence on the opt-out regime at the Competition Appeal Tribunal, run by the Department for Business and Trade, all risk slowing down an important growth market for the UK if Government responses are not executed quickly, proportionately and with vision. Improvements can clearly be made to the oversight of the litigation funding sector, and also in the operation of the Competition Appeal Tribunal. Having said that, despite heavy lobbying for change, there is no evidence that the UK’s ranking as a destination for foreign direct investment has been affected by our vibrant competition regime. Moreover, private enforcement of the regime through the CAT seems to be good value for money, with just over £5 million in costs for the Competition Appeal Tribunal and £118 million for the Competition and Markets Authority.
The first recommendation of the CJC report is:
“Legislation should be introduced to make clear that litigation funding is…a distinct form of funding”.
It also recommends that the effect of the PACCAR Supreme Court judgment should be overturned. Although the market has, to an extent, adapted to that judgment in June 2023, the bulk of submissions to the review and elsewhere highlighted the impact on the provision of funding. Less money has been delivered to claimants, and there has been a reduction in the number of CAT cases. The report’s main ask is to get legislation in place and to overturn PACCAR. I would be interested to hear the Minister’s response on when that will happen, and a clear timeline. It would be good to get it done in this Session of Parliament. I would also be interested in the Minister’s comments on the change being retrospective, which seems fraught with complications. On the previous Bill’s Second Reading debate in the House of Lords, Members raised concerns.
Other flagship recommendations in the CJC review relate to the move from self-regulation by the Association of Litigation Funders not to the Financial Conduct Authority, which some proposed, but to light-touch regulation put in place by the Lord Chancellor. The proposals are for differential regulations for the type of claimant: very little for commercial disputes, and lighter touch for consumer, representative or class actions.
The review proposes a minimum baseline set of regulatory requirements, focusing on case-specific capital adequacy, codification that litigation funders should not control the litigation process, conflicts of interest and money laundering. Additional light-touch regulation is proposed for groups and consumer claimants, to include a consumer duty, early court approval of the funding agreement and a court assessment of whether the lender’s return is reasonable. Further measures include the provision of independent legal advice for consumers before entering into funding agreements, and a prohibition on litigation funders controlling proceedings or settlement proceedings.
In reflecting on the proposals, the Government must be alive to the risk of fettering an innovative and successful industry that enables consumers to mount challenges against Goliath-sized firms. I encourage them to take a pragmatic view, driven by the market. There may be merit in applying some elements of the CJC report through regulations, but it is worth considering strengthening the current self-regulation regime, including by getting all players operating in the UK market to join the Association of Litigation Funders—it is a self-regulation body has a code of practice, but not all litigation funders are in it. I call on the industry to get everybody operating in litigation funding in the UK on board in the association.
There are proposals to use redress schemes and other forms of non-court-based resolution more regularly. I believe strongly in alternative routes to settlement, so I agree strongly with those proposals. Much more can be done to offer settlement options, including encouraging settlement rather than litigation, offering mandatory mediation in parts of the CAT process, and making mediation a clause within the process for litigation funding agreements. Avoiding costly disputes is generally a good thing. Focusing on settlement, not litigation, in the Government response would help in that regard. Mandatory mediation would also help to ensure that disputes between litigation funders and law firms are handled more clearly.
Although I acknowledge that improvements need to be made, I hope that the Minister and the Government will reflect on the potential motivations of some of those who look to impose heavy changes on opt-out. Opt-out, and its reliance on litigation finance, offers consumers a powerful opportunity for redress. The Government opt-out review, introduced earlier this year, references perceived burdens of the current regime on business, but there seems to be little evidence of our competition law putting off inward investment. The UK is seen to be a great place to invest and the same arguments that helped to build the UK competition rules stand today. If there is no fear of being brought to book, some companies will continue to rip off and abuse consumers. If they are abiding by UK competition law, they have nothing to fear.
While acknowledging that improvements can be made, we should be sceptical of those who seek to fetter consumer rights and should instead make the case for an expansion of those rights in the interests of our citizens and UK economic growth. A strong defence of consumer rights is the best way for the UK to continue to thrive, for the UK economy to grow, and for inward investors and domestic businesses to stay lean and competitive.
Whatever the Minister’s response today, I hope that the Government will soon introduce a Bill to address PACCAR, the primary recommendation of the CJC report, and will seek to look at practical ways to implement elements of that report while avoiding adding burdens, cost and micromanagement on to an innovative and important sector.