The UK government is set to bring in new legislation to clarify that litigation funding is not damage-based and restore the status quo following a 2023 Supreme Court ruling.
Ruling reversal
The PACCAR ruling cast doubt on whether third-party LFAs, or litigation funding agreements, were legal but the new legislation aims to clarify in law that these are not DBAs, or damages-based agreements, and restore the pre-ruling situation where funders can get damage percentages without having to meet regulatory requirements associated with DBAs.
The new law also aims to restore enforceability and remove ‘unacceptable limbo’ situations experienced by claimants in David and Goliath cases, like that of the Post Office scandal. Claimants in this case have relied widely on litigation funding, which is offered through companies such as https://www.novo-modo.co.uk/litigation-funding .
Regulatory framework
There are also plans to bring in ‘light-touch’ or ‘proportionate’ sector regulation. The primary aim of this is to achieve consumer protection, fairness, and transparency.
The MoJ announced the new plans at the end of 2025 and they will be introduced according to parliamentary ‘workload’. It will not apply to previously settled cases, although there is continuing debate on this issue.
The changes follow a report from the Civil Justice Council in June 2025, which delivered 57 different recommendations aimed at reforming the sector.
Potential impact
The impact of the reforms may include market stability with funders being encouraged to re-enter the market in the UK, leading to an increase in the numbers of group and collective actions.
