PACCAR Judgment: Government Moves to Overturn Landmark Ruling

In a significant development, the Government has now announced plans to introduce new legislation aimed at overturning this landmark ruling.

Background: The PACCAR Judgment

The PACCAR case focused on the validity of certain third-party litigation funding agreements (“LFAs”), specifically whether these arrangements fall under the definition of "damages-based agreements" (“DBAs”) as set out in the Courts and Legal Services Act 1990 (“CLSA”). 

The Supreme Court decided that the LFAs under which the funders are entitled to recover a percentage of damages amounted to DBAs within section 58AA of the CLSA. This is because the litigation funders were considered to provide “claims management services” within the meaning of that section. 

The upshot being that such LFAs must comply with the Damages Based Regulations 2013 (the "DBA Regulations"), failing which, they will be unenforceable.

The judgment created considerable uncertainty for ongoing and future litigation, with concern that numerous existing funding agreements in live litigation may be rendered unenforceable. 

The judgment threatened to curtail access to justice by restricting the availability of funding for claimants in group actions and other complex cases.

Government Response: Announcing New Legislation

Recognising the widespread impact of the PACCAR ruling, the Government at the time announced in a press release on 4 March 2024 that it would introduce legislation effectively reversing the PACAAR decision.

The stated grounds for the introduction of such legislation were said to be based on a need to ensure claimants’ have adequate access to justice, and the recent Post Office Horizon scandal was cited as an example of a case which required litigation funding to bring the legal action.

The Government at the time then introduced the Litigation Funding Agreements (Enforceability) Bill (“the Bill”) to the House of Lords. 

The draft Bill proposed to amend section 58AA of the CLSA, such that it specifies litigation funding agreements are not damaged-based agreements. Litigation funding agreements are defined in the Bill, as (in effect) agreements under which a funder funds the provision of advocacy or litigation by a litigant, or the payment of another’s costs by virtue of a costs order, under which the litigant is to make a payment to the funder as per the agreement.

The Bill was stated to be treated as though it has always been in effect regardless of when the litigation funding agreement was entered into.

A General Election was called on 22 May 2024 and the Bill did not pass into law in the “wash-up” before Parliament was prorogued for election campaigning to commence.

The new Labour Government wanted to consider possible legislation once the Civil Justice Council published its report on litigation funding.

The report was published in June 2025, and amongst a number of different recommendations the need to reverse the PACCAR judgment as soon as possible was key.

Accordingly, the Government has moved swiftly to address this.

Last week, ministers announced plans for new legislation that will effectively overturn the judgment. 

The proposed legislation will clarify that third-party litigation funding agreements are not to be classified as DBAs, thereby restoring certainty to the sector.

The announcement has been welcomed by legal professionals, funders, and consumer groups alike, who argue that the change will safeguard access to justice and support the continued growth of collective actions in England and Wales.

Next Steps

The Government intends to introduce the draft legislation early in 2026, with a view to fast-tracking its passage through Parliament. Stakeholders are encouraged to contribute to the consultation process to ensure the new law effectively addresses the challenges posed by the PACCAR judgment.

In the meantime, parties involved in litigation funding are advised to review their agreements and keep abreast of legislative updates.

Conclusion

The Government's proactive response to the PACCAR ruling marks an important intervention to protect the integrity of litigation funding in England and Wales. 

If enacted as proposed, the new legislation will provide much-needed clarity and reassurance for claimants and funders alike, ensuring continued access to justice.