A significant contributor to the development of group actions in England and Wales has been the growth of the third-party funding market. In circumstances where claimants may struggle to finance proceedings, third-party funding provides an invaluable means of obtaining access to justice, provided the claim passes the applicable merits threshold. Funding can be particularly beneficial at the outset of proceedings, to enable the claim to be properly investigated and to facilitate an effective bookbuild. Funding agreements typically provide for the funder to cover the costs of proceedings in return for either a share of the damages, a multiple of the amount invested, or a combination of the two.
The third-party funding market was, however, dealt a blow by the Supreme Court's decision in R (on the application of PACCAR Inc & Ors) v Competition Appeal Tribunal & Ors (2023), where it was held that agreements which provide for funders to receive a return based on a percentage of the damages awarded constitute damages-based agreements (DBAs). DBAs are entirely prohibited in the context of opt-out collective proceedings in the CAT, and in other cases they must meet the requirements of separate regulations to be valid. As a result, PACCAR cast doubt on the enforceability of many existing funding agreements, leading to renegotiation of terms, and calls for statutory intervention. However, in decisions which were subsequently upheld by the Court of Appeal, the CAT concluded that agreements which provide for a return based on a multiple of the amount invested remain effective, and that it may be possible to sever offending provisions where an agreement provides for a combination of returns.
Initial legislative attempts to reverse the PACCAR decision were stalled by the 2024 general election. However, in December 2025, and following wide ranging recommendations on the reform of litigation funding by the Civil Justice Council (CJC), the Government confirmed its intention to introduce legislation accordingly "as soon as parliamentary time allows". Unfortunately, no mention was made of the proposed legislation in the 2026 King's Speech. The Government's response to the CJC's other recommendations, which included the introduction of "light-touch" statutory regulation of litigation funding, with additional requirements where funding is provided in collective proceedings, representative actions or group litigation, is awaited.
In the context of commercial actions, including multi-party proceedings, under current rules there is normally no obligation to disclose funding arrangements to the opponent unless the court orders otherwise (for example, where a third party costs order is sought). However, when determining whether or not to make a collective proceedings order, the CAT will consider whether a proposed class representative will be able to pay the defendant's costs if ordered to do so, and will therefore examine any funding agreement in place.
As well as securing third-party funding, claimant groups are also likely to seek the protection of insurance policies, such as "After the Event" policies, to protect against the risks of being ordered to pay defence costs. Again, there is no obligation to disclose the existence of an insurance policy to the opponent. However, in many cases claimants may choose to do so, particularly in response to an application for security for costs, in order to demonstrate that the claimant will be able to pay the defendant's costs if required to do so.