Although the King’s Speech on 13 May 2026 contained an ambitious 37 bills for the next parliamentary session, there was a notable exception for litigators.
Impact of PACCAR
It was widely expected that the government would introduce legislation to clarify that litigation funding agreements are not damages-based agreements, following the landmark decision in R (on the application of PACCAR Inc & others) v Competition Appeal Tribunal and others in 2023.
In PACCAR, the Supreme Court held that regular third-party litigation funding agreements where a return is calculated based on a percentage of damages recovered can be construed as damages-based agreements for the purposes of the Courts and Legal Services Act 1990. Damages-based agreements are strictly regulated and must meet certain criteria to be enforceable. PACCAR meant that many more litigation funding agreements had to comply with strict conditions to be enforceable, and became vulnerable to challenge. Damages-based agreements are also not permitted in the Competition Appeal Tribunal (CAT).
As a result of PACCAR, cases in the CAT reduced significantly. It has also had a broad impact on the wider funding market. Claimants have faced uncertainty about whether they can secure funding from third parties in order to bring a claim against a well-resourced opponent.
Government Response
In response, the Civil Justice Council issued a report in June 2025, recommending urgent legislation to reverse the effect of PACCAR. The new legislation would clarify that litigation funding agreements are not damages-based agreements, and would introduce a new framework to regulate funding agreements.
The Ministry of Justice confirmed as recently as December 2025 that the government would put forward this legislation “when parliamentary time allows”. The Minister for Courts and Legal Services said at the time that “the Supreme Court ruling has left claimants in unacceptable limbo, denying them of a clear route to justice”. In a letter to the Chair of the Justice Select Committee in January 2026, the Minister again confirmed the government’s intention to legislate on the issue. It was listed as expected legislation in the House of Commons Library Research Briefing, published on 11 May 2026.
It was therefore notable that the King’s Speech contained no reference to litigation funding agreements. This represents a significant set-back, as whilst it does not mean that legislation cannot be introduced, the issue is clearly not a priority for the forthcoming parliamentary session.
Where next?
The position looks to remain unchanged for the foreseeable future. Litigation funding agreements need to be drafted carefully, to avoid a challenge that they are in effect a damages-based agreement. Funders and potential claimants must consider the terms of their funding arrangements carefully. For now, the agreement based solely on a multiple of the capital outlay is the way forward.
Further information
If you would like any further advice on funding litigation, please contact Michael Tyler.
About the authors
Michael is a Partner and the Head of the Costs Team with over 18 years’ experience in the field of costs law. He is the ‘go to individual’ when it comes to Part 36 offers and negotiation strategy of high value costs matters and insurance coverage.
Hannah is a Senior Associate in the Dispute Resolution team. Hannah advises on a broad range of contentious matters for clients that include individuals, corporates, trustees and professionals.
