PACCAR and litigation funding: where the law stands in 2026

The question in PACCAR was whether third-party funding agreements fell within the statutory definition of a damages-based agreement in section 58AA of the Courts and Legal Services Act 1990. By a majority, the Supreme Court said they did: an agreement where a funder’s return is calculated by reference to the amount recovered is an arrangement for “claims management services” within that definition.

The consequence was significant. A DBA must meet the requirements of the Damages-Based Agreements Regulations 2013 to be enforceable, and DBAs are prohibited altogether in opt-out collective proceedings in the Competition Appeal Tribunal. Many existing funding agreements did not comply.

Most funders restructured their agreements so that the return is calculated as a multiple of the money invested rather than a percentage of damages. Challenges to whether those revised structures avoid the DBA definition have followed, particularly in collective actions, and practitioners should check recent decisions on the specific drafting in issue.

In June 2025 the Civil Justice Council recommended that Parliament reverse PACCAR. Ministers have since said they will legislate to mitigate its effects and introduce proportionate regulation of funding, but only when parliamentary time allows. No bill appeared in the May 2026 King’s Speech, and as recently as September 2026 the government was still referring to finding a legislative vehicle.

A funder’s return is not usually recoverable from the losing party as costs, so PACCAR is not mainly a question for the bill of costs. It does matter for overall recovery: if the funding agreement is unenforceable, how money is distributed at the end of the case can change, and disputes can arise between client, funder and lawyers.

It also overlaps with the lawyers’ own funding. Where solicitors act under conditional fee agreements or damages-based agreements alongside third-party funding, the documents need checking together. An unenforceable agreement can affect what the client owes, and the indemnity principle means that can in turn affect what is recoverable from the other side.

Identify how the funder’s return is calculated and whether the agreement was revised after July 2023. Confirm whether the proceedings are ones where DBAs are prohibited. Keep the retainer, any CFA or DBA, and the funding agreement together so a Costs Lawyer can review the whole picture before costs are claimed or a settlement is distributed.

This article summarises reported judgments for general information in England and Wales. Read the full judgment and any later guidance or appeals before relying on it in a particular matter.