This question was considered in 1996 by Lord Woolf in his reforms of the civil justice system.
The civil courts were given the power to award litigation funding costs by way of ‘success fees’ for Conditional Fee Agreements and insurance premiums for After the Event Legal Expenses (ATE) Insurance.
This power was removed after the report of Lord Justice Jackson implemented in Part 2 of the Legal Aid Sentencing and Punishment of Offenders Act 2012 which came into force in 2013.
The Lord Chancellor has invited the Civil Justice Council to carry out a review of Litigation Funding and a questionnaire has been circulated for responses – and these have been published in May 2025 https://www.judiciary.uk/cjc-review-of-litigation-funding-consultation-responses/
This particular question as to whether the costs of litigation funding should be recoverable (Question 8.e) has not been spotlighted but could be of key significance. The abolition of recovery in 2013 was highly controversial and supported heavily then (as now) by those representing defendants – notably insurers. However over 10 years on and it is apparent there is a strong body supporting reform.
Key points that have emerged include the views of Professor Rachael Mulherron KC in her report for the Legal Services Board last year – 28 March 2024 where she states (page 123) https://legalservicesboard.org.uk/research/a-review-of-litigation-funding
“◼ Both of these outcomes would be ameliorated if the defendant could be held liable for payment of the success fee, as this undue settlement pressure brought about by scorched earth tactics would cease. The funder’s success fee would be on top of the damages, so that the funded client’s recovery would be preserved (diminished only by irrecoverable costs). It would mean that the defendant bore the increased funding costs themselves – where the court considered that the increased costs were due to the defendant’s improper or egregious conduct.”
Secondly the divergence between the ability to award litigation funding costs in arbitration proceedings was referred to as opposed to the prohibition in the civil courts. Reference was made to the decision of HHJ Waksman KC in Essar Oilfields Services Ltd v Norscot Rig Management Pvt Ltd [2016] EWHC 2361 (Comm) (15 September 2016):
- Therefore, as a matter of language, context and logic, it seems to me that “other costs” can include the costs of obtaining litigation funding. The expression should not be confined by some legal straightjacket imposed by reason of what a court might or might not be permitted to order. All that this conclusion entails is that such litigation funding costs falls within the arbitrator’s general costs discretion. Whether and, if so, how the arbitrator exercises that discretion in any particular case is an entirely different matter. Indeed, the ICC bulletin at para.93 reminds one that the overall requirement of reasonableness can act as an important check and balance here.
This point was picked up by the Law Society of England & Wales in their response “… we would be keen to understand from the evidence gathered as part of this exercise (and taking account of relevant case law), whether consideration should be given to the recoverability of the costs of funding in civil litigation, as it is in arbitration”
The Association of Costs Lawyers make the point that “The Jackson Reforms removed the right to recover a success fee or ATE premiums in the majority of cases, resulting in an unavoidable reduction in payment of damages. While this has been favourable to paying parties, it has not benefitted claimants.”
Extracts from positive responses to this question are available at this link Recoverable costs CJC
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