The Supreme Court’s decision in R (PACCAR Inc) v Competition Appeal Tribunal [2023] UKSC 28 has been described, with only modest hyperbole, as the most consequential judgment for the English litigation funding market since Arkin v Borchard Lines Ltd [2005] EWCA Civ 655. By holding that litigation funding agreements (LFAs) providing for the funder’s remuneration to be calculated as a percentage of damages recovered are “damages-based agreements” (DBAs) within section 58AA of the Courts and Legal Services Act 1990, the Court rendered the bulk of the funding market’s contracts unenforceable overnight. The Conservative government’s legislative response, the Litigation Funding Agreements (Enforceability) Bill 2024, would have reversed PACCAR with retrospective effect; it fell with the dissolution of Parliament in May 2024. The Labour government has since deferred reform pending the Civil Justice Council’s (CJC) final report on third-party funding, published in June 2025 (CJC, 2025).
This assignment argues that a targeted statutory reversal of PACCAR is justified to safeguard collective redress, but only if coupled with substantive regulatory reform of the funding industry. The unqualified reversal proposed in the 2024 Bill was doctrinally incoherent and politically unsustainable because it treated PACCAR as a technical glitch to be erased rather than as a symptom of deeper regulatory drift. The better view is that PACCAR exposed a long-standing legislative incoherence between the consumer-protective rationale of section 58AA and the institutional reality of commercial litigation funding, particularly in the Competition Appeal Tribunal (CAT) where opt-out collective proceedings depend on percentage-based funding. Reform should therefore reverse PACCAR as it applies to opt-out collective actions and commercial group litigation, leave the consumer-protective core of the DBA regime intact, and introduce statutory or co-regulatory oversight of funders. Anything less risks either suffocating collective redress or entrenching an unaccountable funding market.
The doctrinal hinge: what PACCAR actually decided
The litigation arose from the truck cartel collective proceedings before the CAT. The Road Haulage Association and UK Trucks Claim Ltd sought to bring opt-out collective proceedings under section 47B of the Competition Act 1998. Their funding arrangements provided that the funders would receive a percentage of any damages recovered. The defendants challenged the certification of these proceedings on the ground that the LFAs were DBAs within section 58AA(3) of the 1990 Act, which defines a DBA as an agreement under which a person providing “claims management services” is to be remunerated by reference to “the amount of the financial benefit obtained”. Section 58AA(2) renders DBAs unenforceable unless they comply with the Damages-Based Agreements Regulations 2013. Critically, section 47C(8) of the Competition Act 1998 prohibits DBAs in opt-out collective proceedings altogether.
The majority (Lords Sales, Reed, Leggatt and Stephens) held that the term “claims management services”, imported into section 58AA from section 4(2)(b) of the Compensation Act 2006, bore an extended statutory meaning encompassing “the provision of financial services or assistance” (Compensation Act 2006, s 4(2)(b)). On that reading, third-party funding fell within the definition. Because the funders’ remuneration was calculated by reference to the damages recovered, the LFAs were DBAs. Lord Sales’ textualist reasoning emphasised that Parliament had deliberately adopted a broad definition (PACCAR [2023] UKSC 28, [77]–[83]). Lady Rose, dissenting, accepted that the literal words might support the majority’s reading but argued that the statutory purpose, evidenced by the legislative history of consumer-protective regulation of claims management companies, indicated a narrower scope ([162]–[170]).
The doctrinal significance of the decision is twofold. First, the majority’s approach exemplifies the renewed textualism of R (O) v Secretary of State for the Home Department [2022] UKSC 3 and R (PRCBC) v Secretary of State for the Home Department [2022] UKSC 3, in which the Court has reasserted the primacy of statutory language over background policy. Second, the decision exposes a legislative architecture that was never designed for the commercial funding industry that emerged after Arkin. As Mulheron observes, the DBA regime was conceived as a regulatory cage for claims management companies operating in the personal injury sector, not as a constraint on institutional funders capitalising commercial litigation (Mulheron, 2023, pp. 1010–1012). PACCAR is therefore best understood not as judicial activism but as the predictable consequence of legislative inattention.
The collateral damage: collective actions as the principal casualty
The immediate practical consequence of PACCAR was a contractual scramble. Funders sought to renegotiate LFAs to provide for a multiple of capital deployed rather than a percentage of damages, on the assumption that such structures would fall outside section 58AA(3). The CAT has since accepted that multiple-based funding may escape the DBA characterisation (see Alex Neill Class Representative Ltd v Sony Interactive Entertainment Europe Ltd [2023] CAT 73; Gormsen v Meta Platforms Inc [2024] CAT 11). However, the position remains contested. In Commission Recovery Ltd v Marks & Clerk LLP [2024] EWHC 549 (Comm), the High Court accepted in principle that a multiple-based LFA might still be a DBA if it could be construed as providing for remuneration “by reference to” damages where damages also functioned as a cap. The doctrinal ambiguity has not been settled.
The structural problem is that, in opt-out collective proceedings, multiple-based structures are imperfect substitutes for percentage-based funding. The economics of such litigation depend on the funder being able to capture a share of the damages pool sufficient to compensate for the risk of total loss in cases that may take five to seven years to resolve. As Wagner and Mulheron have separately argued, opt-out collective proceedings are inherently capital-intensive and structurally unsuited to conventional fee arrangements (Mulheron, 2020, ch. 4; Wagner, 2014). The CAT’s certification jurisprudence assumes the availability of funding capable of bearing the risk of adverse costs orders running into tens of millions of pounds.
Section 47C(8) of the Competition Act 1998 compounds the difficulty. Even if a percentage-based LFA were enforceable in ordinary commercial litigation post-PACCAR, it would remain unlawful in opt-out collective proceedings because Parliament expressly prohibited DBAs in that context, reflecting concerns about the alignment of incentives in proceedings brought on behalf of absent class members. The combined effect of PACCAR and section 47C(8) is that the very mechanism on which the CAT regime depends — third-party funding remunerated by reference to damages — became prima facie unlawful in the proceedings for which the regime was designed.
The data bear this out. As of January 2025, the CAT register lists 49 collective proceedings, of which the overwhelming majority are funded by commercial funders (CAT, 2025). Several certified proceedings have been delayed by post-PACCAR funding renegotiations, and at least one — the BT consumers’ action — has been the subject of repeated funding-related satellite litigation (Le Patourel v BT Group plc [2024] CAT 25). The Civil Justice Council’s interim report concluded that the uncertainty generated by PACCAR had “significantly disrupted” the market and that “the position of the collective proceedings regime is particularly precarious” (CJC, 2024, paras 4.12–4.18).
The case for reform therefore rests not on a generalised sympathy for funders but on the specific institutional logic of collective redress. If the CAT regime, introduced by the Consumer Rights Act 2015 to make competition law meaningfully enforceable for consumers and small businesses, is to function, the legal infrastructure for funding it must be coherent. PACCAR has rendered it incoherent.
The legislative response and its limitations
The Litigation Funding Agreements (Enforceability) Bill, introduced in March 2024, was a brief instrument of two clauses. Clause 1 amended section 58AA(3) of the 1990 Act to provide that an LFA is not a DBA. Clause 2 provided that the amendment applied to agreements made before, on or after the commencement date, save where a court had already given judgment determining the issue. The Bill’s retrospective effect was its most controversial feature.
Three objections to the Bill, taken together, indicate that an unqualified reversal is inadequate as a reform strategy.
The retrospectivity problem
The Bill would have validated LFAs that, at the moment of contracting, the parties knew or ought to have known were unenforceable under the existing statutory scheme as judicially clarified. Defendants who had relied on PACCAR in settlement negotiations or in defending certification applications would have had that reliance retrospectively defeated. The House of Lords Constitution Committee expressed “serious concerns” about the precedent set by legislatively reversing a Supreme Court decision with retrospective effect on private contractual relations (Constitution Committee, 2024, paras 18–24). The constitutional objection is not that retrospective legislation is impermissible — Parliament has the sovereign power to enact it — but that doing so to reverse a decision of statutory interpretation by the Supreme Court raises rule-of-law concerns that demand exceptional justification (Bingham, 2010, ch. 6).
The justification offered in the Explanatory Notes — that retrospective effect was necessary to prevent a wave of satellite litigation by defendants seeking to escape adverse funding-supported claims — is pragmatically intelligible but normatively thin. It privileges market stability over legal certainty, and it does so in favour of a sector that itself was operating on a contestable interpretation of statute. A more defensible course would have been prospective reversal coupled with transitional provisions permitting variation of existing LFAs by court order on terms that protect defendants’ accrued rights.
The regulatory vacuum
The Bill said nothing about the substantive regulation of the funding industry. Litigation funding in England and Wales remains governed only by the voluntary Code of Conduct of the Association of Litigation Funders (ALF, 2018) and by the courts’ supervisory jurisdiction in costs and procedural matters (see Davey v Money [2019] EWHC 997 (Ch); Chapelgate Credit Opportunity Master Fund Ltd v Money [2020] EWCA Civ 246 on non-party costs orders against funders). The Jackson Review concluded in 2009 that statutory regulation was not then necessary because the market was small and the ALF Code provided sufficient discipline (Jackson, 2009, ch. 11). That conclusion is no longer tenable. The UK funding market has grown from approximately £100 million in assets under management in 2009 to over £2.2 billion in 2023 (Hodges, 2022, pp. 215–217; CJC, 2024, para 2.6).
Reversing PACCAR without addressing the regulatory question would entrench the status quo: a multi-billion-pound industry funding a substantial proportion of high-value commercial and collective litigation, subject to no mandatory licensing, no mandatory capital adequacy requirements, no mandatory disclosure of beneficial ownership, and no mandatory conflict-of-interest rules. The CJC’s final report expressly recommended introducing a “light-touch but mandatory” regulatory regime, with capital adequacy and conduct requirements supervised either by the Financial Conduct Authority or by a dedicated body (CJC, 2025, paras 8.45–8.78). The 2024 Bill addressed none of this.
The asymmetry problem
The Bill made no distinction between commercial litigation funding (typically deployed for sophisticated commercial claimants in bilateral disputes) and collective action funding (deployed on behalf of dispersed consumers who have no realistic alternative means of vindicating their rights). The policy case for legislative intervention is far stronger in the latter context than the former. Sophisticated commercial parties can adapt to multiple-based structures; collective proceedings cannot, at least not without significant cost to the viability of the regime. An undifferentiated reversal therefore over-reaches: it solves a real problem in the collective sphere by granting a windfall to the commercial sphere where the case for intervention is weaker.
The competing reform proposals
Three reform options merit serious consideration.
Option A: full statutory reversal with retrospective effect
This was the approach of the 2024 Bill. Its principal merit is simplicity: it restores the pre-PACCAR position in a single legislative stroke and removes uncertainty for the entire market. Its principal demerits are the retrospectivity objections discussed above, the absence of regulatory accompaniment, and the failure to distinguish between contexts in which the case for reversal is strong and those in which it is weaker.
Proponents of Option A, including the City of London Law Society and the International Legal Finance Association, argue that the simplicity is itself a virtue: any more nuanced approach generates new uncertainty and invites further satellite litigation about which LFAs qualify for the carve-out (ILFA, 2024). There is force in this objection, but it is overstated. The CAT and the High Court already make complex categorisations in funding-related disputes; the marginal cost of a further categorisation is modest.
Option B: targeted reversal for collective and group proceedings
This option would amend section 58AA to provide that LFAs in opt-out and opt-in collective proceedings under section 47B of the Competition Act 1998, and in group litigation orders under CPR 19.21–19.26, are not DBAs. It would also amend section 47C(8) of the Competition Act 1998 to permit DBAs in opt-out collective proceedings, possibly with a court-supervised cap on the funder’s share. This is broadly the approach favoured by Mulheron and by the consumer groups represented before the CJC (Mulheron, 2024; Which?, 2024).
Option B has the merit of doctrinal precision: it addresses the specific institutional context in which PACCAR has caused identifiable harm to a public-interest mechanism, without disturbing the broader DBA framework. It also avoids the constitutional objections to wholesale retrospective reversal, because the affected universe is narrower and the public-interest justification is stronger.
The principal objection to Option B is that it leaves commercial funding in a state of continuing uncertainty, dependent on the multiple-based workaround whose legal stability remains contested. Funders may continue to litigate the boundaries of section 58AA in ways that consume judicial resources. This objection is real but answerable: the CAT and High Court jurisprudence on multiple-based structures is settling, and the marginal contribution of further litigation to overall uncertainty is diminishing. The greater problem is that Option B alone does not address the regulatory vacuum.
Option C: targeted reversal coupled with statutory regulation
This is the approach proposed in this assignment and, in substance, recommended by the CJC’s final report. It combines Option B with the introduction of a mandatory regulatory regime for litigation funders, encompassing:
- mandatory licensing of funders operating in England and Wales;
- capital adequacy requirements proportionate to the funder’s exposure;
- mandatory disclosure to the court and to opposing parties (in defined categories of case) of the existence and material terms of the LFA;
- conflict-of-interest rules and conduct standards, including in relation to settlement decisions;
- court-supervised review of the funder’s share in opt-out collective proceedings, with a presumption that the funder’s return should not exceed a reasonable multiple of capital deployed or a defined percentage of damages, whichever is greater.
The case for Option C rests on three propositions. First, the case for reversing PACCAR is strongest where collective redress is at stake, and the targeted reversal in Option B addresses that case directly. Second, the regulatory vacuum is independently objectionable and was already a problem before PACCAR; reform that addresses the symptoms (PACCAR) without addressing the underlying condition (lack of regulation) is incomplete. Third, the political legitimacy of any reversal depends on demonstrating that the reform serves the public interest rather than the funding industry’s interest. Coupling reversal with regulation makes that demonstration possible.
The principal objection to Option C is that it asks too much of a single legislative vehicle. Regulatory design is complex, contested, and best undertaken with extensive consultation. The risk is that the urgent need to address PACCAR is held hostage to the slower process of designing a regulatory regime. This objection is serious but can be met by a phased approach: enact the targeted reversal now, with a sunrise clause providing that the reversal lapses unless the regulatory regime is in force within a defined period.
The deeper question: what are collective actions for?
The reform debate is often conducted as a technical question about contract enforceability and statutory interpretation. The underlying question is more fundamental: what function does collective redress perform in the English legal system, and what funding architecture is required to make that function viable?
Two competing accounts of collective redress shape the funding debate. The compensatory account treats collective proceedings as a procedural device for aggregating individually viable claims that would otherwise be impractical to litigate separately. On this account, funding is justified to the extent that it enables access to justice for claimants whose claims would otherwise be uneconomic. The deterrent account treats collective proceedings as a private enforcement mechanism for substantive rules — particularly competition law — whose public enforcement is inadequate. On this account, funding is justified by reference to the systemic benefits of private enforcement, and the funder’s return is the price of those benefits (Hodges and Voet, 2018, ch. 3; Mulheron, 2020, ch. 1).
English law has, in practice, adopted a hybrid position. The CAT regime, as introduced by the Consumer Rights Act 2015 and elaborated in Merricks v Mastercard Inc [2020] UKSC 51, recognises both functions. Lord Briggs’ majority judgment in Merricks emphasised that the regime should not be construed in a way that frustrates its access-to-justice purpose, and the certification threshold has accordingly been set relatively low ([45]–[58]). At the same time, the substantive jurisdiction is confined to competition law, reflecting a deliberate policy choice that collective redress should serve as a private enforcement mechanism in a defined regulatory domain.
This hybrid character matters for the funding question. If collective redress were purely compensatory, the case for percentage-based funding would be weaker, because funders’ returns would represent a deduction from the compensation otherwise payable to victims. If it were purely deterrent, the case would be stronger, because funders’ returns would represent the price of an enforcement service whose value is measured in terms of compliance with substantive law rather than recovery for individual claimants. The hybrid position requires a hybrid funding solution: percentage-based funding should be permissible because deterrence justifies it, but the funder’s share should be supervised to protect the compensatory interest of class members.
This is essentially the approach taken by the Federal Court of Australia in the supervision of common fund orders under section 33ZF of the Federal Court of Australia Act 1976 (Cth), as constrained by the High Court’s decision in BMW Australia Ltd v Brewster [2019] HCA 45. Although Brewster held that common fund orders could not be made at the certification stage under section 33ZF, the underlying Australian model — court supervision of funder remuneration in class actions — provides a useful template (Legg, 2020). The reform proposed in Option C would replicate the substance of court supervision while avoiding the constitutional difficulty identified in Brewster, because the supervisory jurisdiction would be expressly conferred by statute.
The competing voices: academic and stakeholder positions
The reform debate is unusually polarised, and the polarisation tracks identifiable interests in a way that requires careful navigation.
The funding industry, represented by ALF and ILFA, has consistently argued for full reversal with retrospective effect and against any mandatory regulation, contending that the existing ALF Code provides adequate discipline and that statutory regulation would deter capital from entering the UK market (ALF, 2023; ILFA, 2024). The empirical basis for the deterrence claim is weak: the most heavily regulated funding markets, including the United States and Australia, also attract the largest volumes of capital, suggesting that regulatory certainty may be a draw rather than a deterrent (Hodges, 2022, pp. 245–248).
The defendant community, represented by groups including the European Justice Forum and segments of the corporate bar, has opposed reversal on the ground that PACCAR rebalances a system that had become excessively favourable to funded claimants (EJF, 2024). The defendant critique has force when directed at specific procedural features of the CAT regime — particularly the opt-out default and the relatively low certification threshold — but it does not engage seriously with the access-to-justice argument that justifies those features in the first place. The defendant position is essentially a substantive objection to collective redress, repackaged as a procedural objection to funding.
The consumer community, represented by Which? and other groups acting as class representatives, has supported targeted reversal and accepted the case for regulation (Which?, 2024). This position, although strategically interested, has the advantage of aligning the funding question with the public-interest justification for collective redress.
Academic commentary has tracked these positions but with significant nuance. Mulheron, the leading authority on collective redress, has consistently argued that PACCAR was wrongly decided as a matter of statutory purpose and that targeted legislative reversal is necessary, while also supporting regulatory reform (Mulheron, 2023; 2024). Hodges, writing from a comparative perspective, has emphasised that the English regime is an outlier in failing to provide statutory regulation of funders and has argued that PACCAR presents an opportunity to address that deficiency (Hodges, 2022). Zuckerman has been more sceptical, questioning whether the expansion of third-party funding is normatively desirable at all and arguing that the access-to-justice case for funding is often overstated (Zuckerman, 2021, pp. 1132–1140). Zuckerman’s scepticism is salutary, but it does not defeat the case for reform: even if one is sceptical about the long-term desirability of funder-driven collective redress, the current institutional reality is that the CAT regime depends on it, and incoherent funding rules do not constitute a principled mechanism for reducing that dependence.
Reconciling reversal with the rule of law
A reform that reverses a recent Supreme Court decision must engage seriously with the rule-of-law concerns this raises. Three considerations matter.
First, the doctrine of parliamentary sovereignty is uncontested: Parliament may amend statutes whose interpretation it disagrees with, and indeed does so regularly when judicial interpretations are thought to depart from legislative intention. The reversal of Anisminic v Foreign Compensation Commission [1969] 2 AC 147 by section 3 of the Foreign Compensation Act 1969 (in respect of the specific tribunal) and the reversal of R v Secretary of State for the Home Department, ex p Khawaja [1984] AC 74 by subsequent immigration legislation are familiar examples. The constitutional anxiety is not about reversal as such but about the form, scope and justification of reversal.
Second, the retrospectivity objection has more bite where reversal affects accrued private rights. Defendants who relied on PACCAR in settlement negotiations or in opposing certification have a legitimate interest in legal certainty. Bingham’s account of the rule of law treats predictability of legal consequences as central, and retrospective alteration of contractual enforceability strains that principle (Bingham, 2010, pp. 37–47). A reform that operated prospectively, or that included transitional provisions protecting accrued rights, would better honour rule-of-law values.
Third, the constitutional propriety of reversal is enhanced where it is accompanied by substantive reform that addresses the underlying policy concerns the Supreme Court’s decision exposed. PACCAR was, in Lord Sales’ analysis, the application of a consumer-protective statute to a context the legislature had not specifically considered. Parliament’s response should not be merely to disapply the statute in that context but to put in place an alternative regulatory framework that responds to the protective rationale of the original legislation. Reform along the lines of Option C would do so; Option A would not.
The international comparison: what does the UK gain or lose by reform?
Comparative analysis is often deployed loosely in litigation funding debates, but it can illuminate the structural choices facing UK reformers.
The United States permits percentage-based contingency fees for lawyers and largely unregulated third-party funding for non-lawyer entities, with disclosure requirements varying by jurisdiction. The American system supports an extensive class action regime but is widely regarded as producing excessive litigation in some sectors and inadequate redress in others (Hensler et al., 2009). The UK has consistently positioned itself against the American model, and reform should not be seen as a movement towards it.
Australia provides the closest comparator. Australian law permits both contingency fees (in Victoria, following the Justice Legislation Miscellaneous Amendments Act 2020) and third-party funding, and the Federal Court actively supervises funders’ remuneration in class actions. The Parliamentary Joint Committee on Corporations and Financial Services has recommended successive reforms to tighten regulation of funders, including capital adequacy and conflict-of-interest requirements (PJC, 2020). The Australian experience demonstrates that an active class action regime is compatible with mandatory regulation, and that regulation can coexist with substantial capital deployment.
The European Union has, since the adoption of the Representative Actions Directive 2020/1828, moved towards harmonised collective redress with controlled third-party funding. Article 10 of the Directive requires Member States to ensure that funding does not divert collective actions from the protection of consumer interests, that funders disclose their identities, and that conflicts of interest are managed. Although the UK is no longer bound by the Directive, the post-Brexit context makes alignment with European standards of funder regulation strategically attractive, particularly for a London market that competes with Amsterdam and other EU venues for international collective litigation (van Boom, 2021).
The comparative picture suggests that the choice facing the UK is not whether to regulate funding but how. The status quo — voluntary self-regulation in a multi-billion-pound market — is increasingly anomalous. PACCAR provides a legislative occasion to address that anomaly.
Objections to reversal addressed
Three substantive objections to any reversal of PACCAR deserve direct engagement.
The “champerty revival” objection
Some commentators have suggested that PACCAR represents a welcome reassertion of the common law’s traditional hostility to maintenance and champerty, and that legislative reversal would undermine that ancient policy (Sime, 2024). The objection is doctrinally misplaced. The torts of maintenance and champerty were abolished as causes of action by section 14(2) of the Criminal Law Act 1967, although they may still render contracts unenforceable as contrary to public policy. The modern law, settled in Giles v Thompson [1994] 1 AC 142 and Excalibur Ventures LLC v Texas Keystone Inc [2016] EWCA Civ 1144, treats funding arrangements as enforceable unless they involve disproportionate funder control or contrary public policy. PACCAR turned on statutory construction, not on the common law of champerty. The “champerty revival” reading inflates the decision’s significance and obscures its actual ratio.
The “moral hazard” objection
A more substantial objection is that funded litigation generates moral hazard: claimants whose downside is capped by the funder’s indemnity may pursue claims that would otherwise be uneconomic, and funders’ commercial interests may diverge from class members’ interests, particularly at the settlement stage. The objection has empirical support: the Australian experience documents repeated instances of funder-driven settlement decisions adverse to class members’ interests (Morabito, 2019). The response, however, is not to suppress funding but to regulate it: court supervision of funder remuneration and settlement decisions, as proposed in Option C, addresses moral hazard directly. Reversing PACCAR without regulation would entrench moral hazard; reversing PACCAR with regulation would mitigate it.
The “wealth transfer” objection
The strongest objection, articulated by Zuckerman and others, is that funded collective litigation operates as a wealth transfer from defendants (and ultimately their customers and shareholders) to funders and their lawyers, with claimants receiving only a residual share of the damages pool (Zuckerman, 2021). Empirical data from CAT proceedings suggest that funder shares of damages can reach 30–40 per cent in complex cases (CJC, 2024, paras 6.34–6.41). If accurate, this raises serious normative questions about the welfare effects of the CAT regime.
The response to this objection is twofold. First, the alternative to funded collective litigation is not unfunded collective litigation but, in most cases, no litigation at all. The wealth transfer must be assessed against the counterfactual of unredressed competition law violations, not against an idealised regime in which compensation flows costlessly from defendants to victims. Second, the optimal funder share is properly determined by court supervision rather than by market negotiation alone, because class members are not at the negotiating table. Option C addresses both points: it preserves the institutional viability of collective redress while introducing supervisory mechanisms to ensure that the wealth transfer is proportionate to the value of the enforcement service provided.
The form of a defensible reform
Drawing the analysis together, the case for reform may be stated as follows. PACCAR has produced doctrinal incoherence in a regulatory domain that was already incoherent before the decision was handed down. The most acute consequence has been disruption of the opt-out collective proceedings regime, whose viability depends on percentage-based funding and which serves a public-interest function in private enforcement of competition law. The 2024 Bill’s response — full retrospective reversal — was procedurally and substantively over-broad. A defensible reform would have the following features.
First, statutory clarification that LFAs in opt-out and opt-in collective proceedings and in group litigation orders are not DBAs within section 58AA. Second, amendment of section 47C(8) of the Competition Act 1998 to permit court-supervised percentage-based funder remuneration in opt-out collective proceedings, with a presumption against funder shares exceeding a defined ceiling save in cases where exceptional risk justifies a higher share. Third, prospective effect in principle, with transitional provisions permitting the court to validate pre-existing LFAs on terms that protect any accrued rights of defendants identified at the date of the reform. Fourth, the introduction of a statutory regulatory regime for funders, encompassing licensing, capital adequacy, conduct standards, and conflict-of-interest rules, with the regulatory body to be either the FCA or a dedicated supervisory authority. Fifth, mandatory disclosure of the existence and material terms of funding to the court and (in collective proceedings) to the opposing party, subject to appropriate protections for commercially sensitive information.
This package would address the immediate disruption caused by PACCAR, preserve the institutional viability of collective redress, respond to the rule-of-law concerns raised by retrospective reversal, and remedy the long-standing regulatory deficiency in the English funding market. It would not, however, resolve all of the underlying normative questions about the desirability of funder-driven private enforcement. Those questions can only be addressed through continued policy debate about the proper scope and operation of the CAT regime itself.
Conclusion
The question whether litigation funding reform should reverse PACCAR to protect collective actions admits of a qualified affirmative answer. PACCAR exposed an incoherence between the consumer-protective rationale of section 58AA and the commercial reality of third-party funding, and the incoherence has fallen most heavily on opt-out collective proceedings whose institutional viability depends on percentage-based funding. To that extent, reform is justified. But the reform must be carefully designed. Unqualified retrospective reversal, as proposed in the 2024 Bill, was over-broad in scope, problematic in form, and incomplete in substance because it ignored the regulatory vacuum that PACCAR made conspicuous. The better reform is targeted: it should reverse PACCAR for collective and group proceedings, operate prospectively with transitional protection of accrued rights, and be coupled with the introduction of mandatory statutory or co-regulatory oversight of funders. So framed, reform would protect collective actions without exempting the funding industry from the regulation that the industry’s scale and significance now demand. PACCAR is not a disaster to be erased; it is an opportunity, awkwardly delivered, to put the architecture of English litigation funding on a more coherent footing. The reform debate should rise to that opportunity rather than retreat into a defensive restoration of the status quo ante.
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