Key Takeaways
- • The UK government's 2026 King's Speech (13 May 2026) omitted any legislation to reverse the PACCAR Supreme Court decision, breaking an earlier December 2025 pledge to reform litigation funding agreements.
- • Litigation funding agreements with returns calculated as a percentage of damages recovered remain vulnerable to enforceability challenges under the Damages-Based Agreements Regulations 2013 until legislation is enacted.
- • The omission creates operational uncertainty for litigation funders, claimants, and defendants; PACCAR continues to define the legal landscape for funded disputes, particularly in opt-out collective proceedings before the Competition Appeal Tribunal.
- • Market participants should prioritize alternative structuring mechanisms—such as returns based on multiples of capital deployed rather than percentage of damages—to mitigate enforceability risk under the current post-PACCAR framework.
- • The government indicated legislation may be introduced "when parliamentary time allows" and noted "other measures" will be laid before Parliament, leaving the timing and form of any PACCAR fix uncertain.
Summary
The UK government's failure to include PACCAR litigation funding reform in the 2026 King's Speech delivered on 13 May 2026 represents a significant setback for the litigation funding market and contradicts a December 2025 Ministry of Justice announcement pledging legislative action. The omission leaves the market operating under the post-PACCAR framework—a legal structure that has created substantial enforceability risks for funded litigation agreements since the 2023 UK Supreme Court decision.
The PACCAR decision held that litigation funding agreements under which a funder's return is calculated by reference to a percentage of damages recovered can constitute damages-based agreements under section 58AA of the Courts and Legal Services Act 1990. This determination exposed many existing and proposed litigation funding agreements to enforceability challenges unless they complied with the Damages-Based Agreements Regulations 2013. The decision proved especially consequential for opt-out collective proceedings before the Competition Appeal Tribunal, a high-stakes domain for institutional litigation funding activity.
For market participants, the practical implications are significant. Funders, claimants, and defendants must continue to operate within an uncertain legal environment. The government's December 2025 statement had signaled intent to legislate clarifying that litigation funding agreements are not damages-based agreements, with the Civil Justice Council's June 2025 report recommending immediate reversal of PACCAR. However, the King's Speech legislative agenda—which included a Courts Modernisation Bill, Competition Reform Bill, Regulating for Growth Bill, and Enhancing Financial Services Bill—contained no standalone litigation funding reform measure.
Immediate risk-mitigation strategies have become essential. Market participants should conduct comprehensive reviews of existing and proposed litigation funding agreements, assess enforceability risks, and evaluate severability provisions. Funders are increasingly exploring alternative return structures based on multiples of capital deployed or committed rather than percentages of damages, reflecting judicial commentary suggesting such approaches are less likely to trigger damages-based agreement characterization.
The government's door to reform remains nominally open. Stakeholders should monitor whether legislation emerges as a standalone bill, becomes incorporated into another measure, or requires further consultation on the Civil Justice Council's broader regulatory recommendations. Until clarifying legislation is enacted, careful drafting, early enforceability analysis, and continuous monitoring of judicial developments in live cases remain essential for all parties involved in UK-funded litigation.
The PACCAR decision held that litigation funding agreements under which a funder's return is calculated by reference to a percentage of damages recovered can constitute damages-based agreements under section 58AA of the Courts and Legal Services Act 1990. This determination exposed many existing and proposed litigation funding agreements to enforceability challenges unless they complied with the Damages-Based Agreements Regulations 2013. The decision proved especially consequential for opt-out collective proceedings before the Competition Appeal Tribunal, a high-stakes domain for institutional litigation funding activity.
For market participants, the practical implications are significant. Funders, claimants, and defendants must continue to operate within an uncertain legal environment. The government's December 2025 statement had signaled intent to legislate clarifying that litigation funding agreements are not damages-based agreements, with the Civil Justice Council's June 2025 report recommending immediate reversal of PACCAR. However, the King's Speech legislative agenda—which included a Courts Modernisation Bill, Competition Reform Bill, Regulating for Growth Bill, and Enhancing Financial Services Bill—contained no standalone litigation funding reform measure.
Immediate risk-mitigation strategies have become essential. Market participants should conduct comprehensive reviews of existing and proposed litigation funding agreements, assess enforceability risks, and evaluate severability provisions. Funders are increasingly exploring alternative return structures based on multiples of capital deployed or committed rather than percentages of damages, reflecting judicial commentary suggesting such approaches are less likely to trigger damages-based agreement characterization.
The government's door to reform remains nominally open. Stakeholders should monitor whether legislation emerges as a standalone bill, becomes incorporated into another measure, or requires further consultation on the Civil Justice Council's broader regulatory recommendations. Until clarifying legislation is enacted, careful drafting, early enforceability analysis, and continuous monitoring of judicial developments in live cases remain essential for all parties involved in UK-funded litigation.
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