Government to Reverse PACCAR Ruling on Third-Party Arbitration Funding
On 17 December 2025, the Government announced its intention to legislate to mitigate the effects of the Supreme Court’s decision in PACCAR, which created significant uncertainty around the enforceability of many third-party litigation funding agreements
Background
In July 2023, the Supreme Court’s ruling in PACCAR held that certain third-party litigation funding agreements – particularly those under which funders receive a percentage of the proceeds – constituted damages-based agreements (DBAs) under the Courts and Legal Services Act 1990.
As most litigation funding agreements had not been drafted to comply with the DBA regulatory regime, the decision effectively rendered many such agreements unenforceable. This created material uncertainty for claimants and funders alike, particularly in collective proceedings, high-value commercial disputes, and international arbitrations where external funding is often critical.
For businesses and individuals seeking to pursue complex or large-scale claims, the ruling made it more difficult to secure funding, as funders faced the risk that their agreements could be challenged or set aside.
What Has Changed
The Government now plans to introduce legislation that will exclude litigation funding agreements from the definition of damages-based agreements. This will restore enforceability for future funding arrangements and remove the uncertainty created by PACCAR. The reversal will apply prospectively, so it will not validate agreements previously affected by the ruling. In addition, the Government intends to introduce a light-touch regulatory framework to ensure transparency and fairness in funding arrangements, following recommendations from the Civil Justice Council. While the precise timing of the legislation is not confirmed, the Government has indicated that it will act within this Parliament.
Why This Matters
This development is highly relevant for parties involved in arbitration or considering funded litigation strategies. The reversal will re-establish certainty in the enforceability of third-party funding agreements, which is critical for structuring and implementing dispute resolution strategies. For parties with ongoing or planned arbitrations, this means that funding options previously considered high-risk or unavailable will soon be viable again.
The announcement also signals a renewed commitment by the UK to maintain its position as a leading global hub for complex dispute resolution, which is particularly important for international businesses selecting a forum for arbitration.
While the reversal is welcome, the forthcoming regulatory framework may introduce new compliance obligations. These could include requirements around disclosure and fairness in funding terms. We recommend that businesses considering third-party funding begin reviewing their current agreements for exposure under PACCAR and prepare to renegotiate or structure new arrangements in line with the anticipated changes. For those planning collective or high-value claims, this development removes a significant barrier to access and should be factored into strategic planning.
Next Steps
We will continue to monitor the legislative process and provide updates as more detail becomes available. In the meantime, if you have any questions about how this development may affect your current or future disputes, please contact your usual Rosenblatt Law contact or a member of our Dispute Resolution team Sara Paradisi, Dr. Leonardo Carpentieri or Anthony Field.
December 2025