UK Government to Reverse PACCAR Ruling on Litigation Finance

Dec 20, 2025, 2:25 AM

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The UK government has announced its intention to introduce legislation that will reverse the Supreme Court's 2023 PACCAR ruling, which has created significant uncertainty in the litigation funding market. The proposed legislation will clarify that litigation funding agreements (LFAs) should not be classified as damages-based agreements (DBAs), thus restoring enforceability to many existing funding arrangements.

In July 2023, the Supreme Court ruled that LFAs, where a funder receives a percentage of the damages awarded, fell under the definition of DBAs. This ruling rendered many LFAs unenforceable unless they complied with the stringent requirements set out in the DBA Regulations 2013, which a significant number did not. The ruling has since led to confusion and disruption, with many funders and litigants forced to renegotiate contracts mid-process, deterring new agreements and hindering access to justice.

The Ministry of Justice (MoJ) has framed the upcoming legislation as a necessary step to enhance access to justice, particularly for claimants facing well-resourced defendants. Sarah Sackman KC, the Minister of State for Courts and Legal Services, emphasized that the PACCAR ruling left claimants in "unacceptable limbo," denying them a clear path to justice. She noted that without litigation funding, many claimants, including those affected by the Horizon IT scandal, would not have had their day in court.

The proposed legislation aims to restore the previous status quo where LFAs were distinct from DBAs and not subject to additional compliance burdens. If enacted, the bill will apply retroactively to LFAs entered into before its introduction, addressing the uncertainty that has plagued the funding landscape since the PACCAR ruling.

While the government has not provided a specific timeline for the introduction of this legislation, it has indicated that it will be brought forward "when parliamentary time allows." The bill has already passed its first reading, with a second reading scheduled for April 15, 2024.

The announcement has been positively received by various stakeholders, including claimant lawyers, litigation funders, and consumer advocacy groups. Neil Purslow, executive chair of the International Legal Finance Association, described the move as "an important first step" towards restoring certainty for claimants and investors alike. However, there are calls for more clarity regarding the timeline and potential impacts of the proposed legislation, particularly from the business community, which has expressed concerns about how these reforms may affect defendants' exposure to collective claims.

In addition to reversing the PACCAR ruling, the MoJ is considering broader regulatory frameworks for litigation funding. This includes recommendations from the Civil Justice Council (CJC) for light-touch regulation to ensure that funding agreements are fair and transparent. While the government is still evaluating these recommendations, the intention is to create a more structured environment for litigation funding in England and Wales, which could bolster the UK's position as a leading jurisdiction for complex commercial litigation.

Despite the positive reception of the government's announcement, some experts warn that introducing regulation could lead to delays in the enactment of the legislation. David Greene, co-president of the Collective Redress Lawyers Association, highlighted the need for urgent action to reverse the PACCAR ruling while addressing regulatory concerns separately.

Overall, the government's commitment to reversing the PACCAR ruling marks a significant step towards enhancing access to justice for claimants in the UK and restoring confidence in the litigation funding market. As the legislative process unfolds, stakeholders will be closely monitoring developments to ensure that the reforms meet the needs of all parties involved in litigation funding.

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