{"id":110334,"date":"2025-08-07T10:22:25","date_gmt":"2025-08-07T10:22:25","guid":{"rendered":"https:\/\/my.legal500.com\/guides\/?post_type=hot_topics&#038;p=110334"},"modified":"2026-04-16T14:33:38","modified_gmt":"2026-04-16T14:33:38","slug":"litigation-funding-of-competition-claims","status":"publish","type":"hot_topics","link":"https:\/\/my.legal500.com\/guides\/hot-topic\/litigation-funding-of-competition-claims\/","title":{"rendered":"Litigation Funding of Competition Claims"},"content":{"rendered":"<p><strong>1. Executive summary<\/strong><\/p>\n<p>Litigation funding has been a hot topic in UK competition litigation for the last 24 months since the Supreme Court ruled, in <em>PACCAR<\/em>, that litigation funding agreements (\u201c<strong>LFAs<\/strong>\u201d) providing for damages based funder returns constitute Damages Based Agreements (\u201c<strong>DBAs<\/strong>\u201d).<\/p>\n<p>In this article, after setting the scene for the history of litigation funding in the UK and the recent rise of collective actions in the Competition Appeal Tribunal (\u201c<strong>CAT<\/strong>\u201d) (to which litigation funding is essential), we trace all of the major developments in litigation funding over the last 24 months, including:<\/p>\n<ul>\n<li>The aftermath of the <em>PACCAR<\/em> judgment, the litigation funding industry\u2019s response to it and the aborted legislation that was brought forward to reverse it;<\/li>\n<li>The series of CAT and Court of Appeal decisions since <em>PACCAR<\/em> which have resolved further funding challenges brought by defendants as to the enforceability of litigation funding terms in collective proceedings;<\/li>\n<li>The CAT\u2019s developing approach to considering litigation funding terms at both certification stage and when approving collective settlements; and<\/li>\n<li>The proposals brought forward by the Civil Justice Council (\u201c<strong>CJC<\/strong>\u201d) for reform in the litigation funding industry, as set out in its Final Report published in June 2025.<\/li>\n<\/ul>\n<p>We then pull out the key takeaways from this 24 month period of fast moving developments and look ahead to what remains to be resolved and what the future may hold for litigation funding in competition claims.<\/p>\n<p><strong>2. Overview and brief history of third party litigation funding in the UK<\/strong><\/p>\n<p>Third party litigation funding (\u201c<strong>TPLF<\/strong>\u201d) was historically prohibited in the UK under common law rules on maintenance and champerty. \u00a0Following the abolition of criminal and tortious liability for maintenance and champerty, the permission and acceptance of TPLF in the UK developed through a combination of evolving case law in the 1990s and early 2000s and, most notably, the endorsements of the Jackson Review in 2010 and the subsequent Jackson Reforms implemented in 2013.<\/p>\n<p>The primary justification for permitting TPLF was the principle of access to justice, and in particular that, owing to the often prohibitively expensive nature of litigation, without external funding many individuals and businesses with meritorious claims would be unable to pursue them.\u00a0 The availability of TPLF is particularly pertinent to collective and representative actions, which generate economies of scale for individual claims which would not otherwise be viable to pursue due to low individual damages and high upfront costs.<\/p>\n<p>The Jackson Costs Review concluded in 2009 and Lord Jackson recommended that a self-regulatory voluntary code of conduct be drawn up, to which all litigation funders would subscribe.\u00a0 This was a precursor to the formation of the Association of Litigation Funders (\u201c<strong>ALF<\/strong>\u201d), an independent, self-regulatory body for the TPLF industry in England and Wales, in 2011.\u00a0 However, Lord Jackson\u2019s recommendation has not been achieved in practice, as not all litigation funders operating in the UK subscribe to the ALF\u2019s Code of Conduct (the \u201c<strong>ALF Code<\/strong>\u201d).\u00a0 TPLF has therefore remained unregulated in the UK, save for the statutory regulation of \u2018Damages Based Agreements\u2019 and \u2018Conditional Fee Agreements\u2019, both of which are forms of contingent fee funding.<\/p>\n<p>The landscape of competition litigation in the UK has been transformed by the advent of collective proceedings.\u00a0 The rapid growth in the number of collective actions before the CAT (currently 47 active cases), driven at least in part by a perceived low bar to certification, has sparked debate about whether the regime has struck the right balance when it comes to access to justice and the interests of defendants. \u00a0The role of TPLF for these claims has consistently been in the spotlight as it was anticipated that funders would exercise caution and ensure that only meritorious claims could secure TPLF.\u00a0 However, in practice many creative and ambitious \u201cstand alone\u201d actions have secured TPLF and there has been a noticeable trend of \u201cshoehorning\u201d other forms of claims (with varying degrees of success), which might more naturally fall under other areas of law, into the competition law framework, to take advantage of the opt-out collective proceedings regime.<\/p>\n<p>Whilst a perceived low bar for certification fuelled funder optimism for the collective actions regime, the failure of <em>Le Patourel, <\/em>the first collective action to go to trial, and the low level of the settlement in <em>Merricks<\/em> (discussed further below), the first collective action to be certified (the case settled for about 1% of the original headline claim value), are stark reminders that it\u2019s not all plain sailing for class representatives, funders, and their legal teams.<\/p>\n<p><strong>3. PACCAR and subsequent developments<\/strong><\/p>\n<p><u>The Supreme Court\u2019s decision in PACCAR \u2013 2023 <\/u><\/p>\n<p>TPLF has been enduring a period of uncertainty in the UK since the Supreme Court handed down its decision in <em>PACCAR<\/em> [2023] UKSC 28 in July 2023.\u00a0 That judgment held that an LFA that provides for a third party funder to receive a proportion of any damages awarded in return for funding litigation falls within the definition of \u2018damages-based agreements\u2019 in the Damages-Based Agreements Regulations 2013 (the \u201c<strong>DBA Regulations<\/strong>\u201d) and therefore must comply with those regulations.\u00a0 The DBA Regulations provide that any non-compliant LFAs would be unlawful and unenforceable.\u00a0 However, at the time, most LFAs had not been drafted with a view to complying with the regulations because the industry view was that LFAs could not constitute DBAs (which are typically entered into between law firms and their clients).\u00a0 The judgment was particularly significant for competition class actions in the CAT because the Consumer Rights Act 2015 provides that DBAs are unenforceable if they relate to opt-out collective proceedings.<\/p>\n<p><u>Draft legislation to reverse PACCAR \u2013 2024 <\/u><\/p>\n<p>In response to the judgment, the UK government committed to reverse its effects, and in March 2024, introduced a bill that would do precisely that.\u00a0 However, the legislative passage of the bill was derailed in June 2024 by the snap general election in the UK.\u00a0 The government also sought advice concerning the potential reform of litigation funding (including whether, how and by whom litigation funding should be regulated) from the CJC, a statutory advisory public body tasked with reviewing the civil justice system and making recommendations on its development.\u00a0 The new government indicated that it would wait for the outcome of the CJC\u2019s review, rather than introduce ad hoc legislation to reverse <em>PACCAR<\/em> (the CJC issued its final report in June 2025, and we discuss it in further detail below).<\/p>\n<p>In anticipation of an adverse outcome in the <em>PACCAR<\/em> appeal, many funders amended their existing LFAs to adopt alternative return mechanisms, such as a return calculated as a multiple of the sum invested, intended to avoid a relationship between the level of damages and the funder\u2019s return and thus prevent the LFA constituting a DBA.\u00a0 One approach has been for the LFA to incorporate terms that are contingent on the future reversal of the effects of <em>PACCAR <\/em>by legislation.\u00a0 This has been done by including an alternative funder return mechanism, in addition to the principal mechanism, that would constitute a DBA (or is close to the line) save for it being expressly caveated with language effectively saying that the mechanism is contingent upon it being enforceable and legal, and coupling that with a severance clause.<\/p>\n<p>However, since <em>PACCAR<\/em>, challenges to funding terms have become a regular feature of certification hearings for collective proceedings in the CAT, which has included defendants arguing that other forms of funder return also constitute unenforceable DBAs.<\/p>\n<p><u>Court of Appeal decision in Neill and conjoined appeals \u2013 2025 <\/u><\/p>\n<p>The LFA in <em>Neill<\/em> provided for a funder return based on the higher of a success fee calculated as a multiple of the sum invested or a proportion of the proceeds (subject to the second approach being legal).\u00a0 The defendant challenged these funding terms, arguing that both mechanisms constituted DBAs.\u00a0 The CAT dismissed the challenge but granted the defendant permission to appeal.\u00a0 The same issues arose in several cases before the CAT and the appeal in <em>Neill<\/em> was heard by the Court of Appeal in June 2024 along with six other conjoined appeals.<\/p>\n<p>In a judgment handed down on 4 July 2025 ([2025] EWCA Civ 841), the Court dismissed those appeals, upholding the CAT\u2019s decision.\u00a0 The Court of Appeal agreed with the CAT that, properly analysed, the calculation of the funder\u2019s return as a multiple of its investment in the litigation did not make it a DBA notwithstanding the damages awarded (or paid under a settlement) being the source of the fee payable and the presence of a cap on the funder\u2019s fee by reference to the amount of damages recovered.\u00a0 The Court also dismissed the defendants\u2019 argument that the damages-based return being expressed as applying <em>\u201conly to the extent enforceable and permitted by applicable law\u201d<\/em> rendered the LFA an unenforceable DBA.\u00a0 The Court held that the clause had no contractual effect unless and until legislation was enacted to reverse the effect of <em>PACCAR<\/em>, and there was nothing impermissible or inappropriate about this mechanism being agreed in anticipation of that eventuality.<\/p>\n<p>Defendants have also taken issue with provisions in some funding agreements providing for the funder to be paid in priority to the class members.\u00a0 This was not an issue considered by the Supreme Court in <em>PACCAR<\/em>, although the LFA in that case provided that the funder\u2019s fee could be paid only from undistributed damages.\u00a0 In a victory for funders, the Court of Appeal has held that payment of funders and lawyers in priority to the class is permitted under the terms of the relevant legislation and court rules governing the collective actions regime for competition claims.\u00a0 There is therefore nothing wrong in principle with a funder and class representative agreeing such a provision.\u00a0 The Court stressed that the CAT\u2019s certification of collective proceedings with such an arrangement in place is however not an endorsement of it as the CAT retains a complete discretion as to the priorities and sums to be awarded.<\/p>\n<p><strong>4. How the CAT approaches funding at certification stage<\/strong><\/p>\n<p>As part of its assessment of whether it is \u201cjust and reasonable\u201d for the proposed class representative (\u201c<strong>PCR<\/strong>\u201d) to represent the class, at certification stage, the CAT considers the funding arrangements.\u00a0 In most cases the parties are able to resolve funding disputes through correspondence and amended funding terms ahead of the certification hearing, however in cases where funding disputes have been heard by the CAT, it has taken a somewhat inconsistent approach in scrutinising funding arrangements.\u00a0 Whilst in most cases the CAT will simply state that the funding arrangements are sufficient at that stage of the case and leave open the possibility for funding issues to be considered at a later stage, it has taken a more robust approach in a small number of cases.<\/p>\n<p><u>Gormsen<\/u><\/p>\n<p>In <em>Gormsen <\/em>[2024] CAT 11, it was common ground between the parties that whatever deal is struck between the funder and the class representative in terms of reward for risk is subject to the CAT\u2019s ultimate control, and on that basis, the CAT stated that the defendant had rightly eschewed asking the CAT to consider in general terms how the proceedings were to be funded, and the level of the funder\u2019s return.<\/p>\n<p>The CAT acknowledged that there are at least two issues in relation to funding for which it must exercise great care: (1) whether \u2013 in terms of straightforward allocation \u2013 a funder is taking more than they properly should; and (2) the danger of perverse incentives, or a conflict between funders\u2019 interests and class interests, arising.<\/p>\n<p>The CAT indicated that both points arise against a context of a commercial, and largely confidential, negotiation between the PCR and the funder \u201c<em>into which the CAT should be slow to venture\u201d<\/em>.\u00a0 In the context of the collective actions regime, the CAT held that it was not for it, at the class certification stage, to review those commercial arrangements but rather, given that the funder\u2019s return is ultimately controlled by the CAT upon settlement or judgment, it will be \u201c<em>astute to ensure that a system intended to further access to justice does exactly that, and does not become a \u2018cash cow\u2019 either for lawyers or for funders\u201d.<\/em><\/p>\n<p>The CAT did, however, give some indication as to the level of multiple that it might be willing to accept, when it remarked that a return which represented 3.8 times the funder\u2019s exposure was defensible but that \u201c<em>[w]hat is not on the face of it defensible is the return 21 months later of 8.3 times that exposure\u201d.<\/em><\/p>\n<p>Further, the CAT recognised that, at certification stage, there do come points where funding arrangements contain provisions that are sufficiently extreme to warrant \u201ccalling out\u201d or, <em>in extremis,<\/em> a blanket refusal to certify.<\/p>\n<p>The CAT duly considered one point raised by the defendant in relation to the funding arrangements but concluded that, at certification stage, the CAT had two choices \u2013 to certify or not to certify \u2013 and in the circumstances it held that the right course was to certify.\u00a0 The CAT was clear that in doing so, it was not in any way approving or endorsing the funding terms.<\/p>\n<p><u>Riefa<\/u><\/p>\n<p>In <em>Riefa <\/em>[2025] CAT 5, the CAT undertook exceptionally close scrutiny of the funding arrangements and ultimately refused certification on account of its fundamental concerns about Professor Riefa\u2019s suitability to act as the class representative.\u00a0 The CAT reached its conclusion based on several concerns about Professor Riefa, including her inadequate understanding of the funding arrangements, insufficient assessment of whether better funding terms may have been available, and failure to take (or make provision for) independent advice on funding.<\/p>\n<p>In particular, the CAT and the Defendants had taken issue with certain provisions of the LFA that provided for the funder\u2019s return which, in the CAT\u2019s view,\u00a0<em>\u201cseemed inimical to the interests of the class\u201d<\/em>\u00a0as they involved the funder being paid out ahead of the class and potentially receiving all of the recovered sums, leaving nothing for the class.\u00a0 Further, in a supporting witness statement the PCR had incorrectly stated that the funder would be paid from\u00a0<em>unclaimed<\/em>\u00a0damages if the proceedings were successful, contrary to agreed funding terms, which led to the CAT expressing concerns as to the PCR\u2019s understanding of the funding arrangements.\u00a0 In the face of those criticisms at an earlier hearing, the PCR renegotiated the relevant funding terms and obtained a better deal for the class.\u00a0 However, the CAT had a lingering concern that she had entered into the original terms on the basis of a critical misunderstanding and apparently without making efforts to identify better terms or alternative sources of funding.<\/p>\n<p>It was in that context that the Defendants successfully applied for the PCR to be cross-examined at the certification hearing.\u00a0 The answers she gave under cross-examination were\u00a0<em>\u201chesitant and uncertain\u201d<\/em>, the CAT held in the judgment.\u00a0 The CAT also expressed\u00a0<em>\u201cconsiderable concern\u201d\u00a0<\/em>that the PCR gave the impression of not really understanding how one of the key amendments to the funding terms would operate in practice.<\/p>\n<p>In reaching its conclusion to refuse certification, the CAT emphasised that collective proceedings are\u00a0<em>\u201cvery complex proceedings\u201d<\/em>\u00a0involving high stakes.\u00a0 A class representative must therefore be capable of carrying out the significant responsibilities that go with this.\u00a0 To do so, they must be an\u00a0<em>\u201cindependent advocate for the class\u201d<\/em>, not\u00a0<em>\u201cmerely a figurehead\u201d<\/em>\u00a0for proceedings conducted by their legal representatives.<\/p>\n<p><strong>5. How the CAT approaches funder returns when approving collective settlements<\/strong><\/p>\n<p>The CAT plays a crucial role in scrutinising proposed settlements in opt-out collective proceedings, particularly in relation to the allocation of settlement sums, including the level of return for litigation funders.\u00a0 This oversight is vital to ensure that the terms of any settlement are \u201cjust and reasonable\u201d from the perspective of the class members, who are not actively participating in the proceedings and therefore require the CAT\u2019s oversight and protection.<\/p>\n<p>A fundamental principle articulated by the CAT is that the collective proceedings regime should operate primarily for the benefit of class members, not primarily for the benefit of lawyers and funders, while acknowledging the essential role of TPLF.\u00a0 The CAT recognises that funders take significant financial risks, and that a reasonable return is necessary to incentivise commercial funders.\u00a0 An appropriate balance therefore needs to be struck between the interests of the various stakeholders in collective proceedings.<\/p>\n<p>The CAT has approved 5 collective settlements to date and the approaches taken in each offer valuable insights into its evolving approach to funder remuneration.<\/p>\n<p><u>McLaren<\/u><\/p>\n<p>In a judgment approving settlements with two of the defendant groups (WWL\/EUKOR and K-Line) in <em>McLaren<\/em> [2025] CAT 4, collective proceedings relating to a cartel in roll-on, roll-off car shipping, the CAT stressed that it would not have approved the parties\u2019 proposals, had it not been for a clear ring-fencing of settlement sums to ensure a minimum class members\u2019 entitlement.\u00a0 In particular, both proposed settlements included a form of upfront sum (referred to as \u201cImmediate\u201d or \u201cGuaranteed\u201d damages) and a deferred sum (\u201cDeferred\u201d or \u201cAdditional\u201d damages), the latter of which provided for potential further payments to the class, only under specific circumstances largely related to the number of claimants coming forward to claim from the settlement pot.<\/p>\n<p>The CAT also took the unusual step of requiring \u201cStakeholder Undertakings\u201d from both the class representative and funder\u2019s lawyers, that unrecovered costs at the end of proceedings would not be reimbursed from the \u201cImmediate Damages\u201d and \u201cGuaranteed Damages\u201d pots, which would remain ring-fenced for class members.\u00a0 Recognising concerns raised by Woodsford, McLaren\u2019s funder, about delay being suffered (and associated additional financing costs being incurred) by the funder in awaiting payout from the case, the CAT did however grant stakeholders liberty to apply for payment.<\/p>\n<p>While these earlier settlements involved relatively small sums, the CAT indicated that the reasonable rate of return for the funder would require careful consideration and scrutiny later in the proceedings, in light of the overall success of the claim.\u00a0 Therefore, despite settlement being concluded as against two of the defendants, the funder will need to await the conclusion of the proceedings against the remaining defendants before it learns what the return on its investment will be.<\/p>\n<p><u>Gutmann Trains<\/u><\/p>\n<p>In <em>Gutmann Trains<\/em> [2024] CAT 32, the CAT approved a settlement that included specific provisions for the class representative\u2019s costs and expenses, with further payments for legal expenses and funder\u2019s fees contingent upon the take-up rate.\u00a0 Therefore, whilst acknowledging the necessity of funding for the regime, the CAT structured the funder\u2019s return in a way that makes it contingent on the level of uptake by class, thereby prioritising the entitlement of the class.<\/p>\n<p>A recent ruling from the CAT revealed that the take-up rate has in fact been extremely low, falling significantly short of initial predictions.\u00a0 Specifically, the \u201cNotified Damages Sum\u201d (the total amount claimed by class members) was approximately \u00a3216k, a tiny fraction of the \u00a325m settlement sum.<\/p>\n<p>The CR, Mr Gutmann, subsequently made an application to the CAT for payment of non-ringfenced costs corresponding to the total of his costs, fees and disbursements.\u00a0 The CAT noted that such a payment needed to be considered in the round, as it in part depends on the entitlement of the funder.\u00a0 In light of what the CAT noted was a \u201c<em>very low rate of take up by class members\u201d<\/em>, it indicated that it will consider a substantial payment to charity, alongside any claims and representations by stakeholders, to be paid out of any costs, fees and disbursements.\u00a0 This indicates the CAT\u2019s willingness to intervene and potentially reallocate funds that would otherwise go to the CR\u2019s funder and lawyers, again to avoid a perception that the regime is operating to benefit funders and lawyers rather than access to justice.<\/p>\n<p>A Stakeholder Entitlement Hearing has been listed to be heard in September 2025 and the CR\u2019s lawyers, funder and ATE insurers have all been given permission to intervene. The outcome of that hearing will be enlightening as to how the CAT approaches the question of what is fair and reasonable, when faced with very low take-up by class members.<\/p>\n<p><u>Merricks <\/u><\/p>\n<p>In approving a \u00a3200m settlement in the long running <em>Merricks<\/em> collective action (a small fraction of the c.\u00a316bn originally claimed), the CAT rejected a challenge by the CR\u2019s funder, Innsworth Capital, that the settlement amount was too low and ought not to be approved ([2025] CAT 28).<\/p>\n<p>In its judgment setting out its reasons for that approval, together with its decision as to how the settlement sum should be distributed, the CAT divided the \u00a3200m settlement sum into 3 pots for distribution, which includes (i) c. \u00a3100m ringfenced for class members; (ii) c.\u00a350m for payments to the litigation funder for its own direct costs, and (iii) c.\u00a345.6m for further sums to be paid to the class (if there was a higher take up), the litigation funder\u2019s profit return, and any payments to charity.<\/p>\n<p>The CAT was satisfied that the litigation funder should be paid a profit return, given the importance of litigation funding to collective proceedings.\u00a0 Indeed, the CAT expressly noted that<em> \u201cwithout the funders, many of the cases for collective settlement proceeding cases will not be able to get off the ground. Lawyers will not take on cases like the present without some form of payment, and funders are central to providing the capital for this\u201d.<\/em><\/p>\n<p>However, it fell to the CAT to determine the appropriate level of that return, having regard to all of the circumstances.\u00a0 In doing so, the CAT took into account numerous factors, including: the significant value of the notional funding commitment (c.\u00a354.85m), the length of the funding period (c.5 and a half years), Innsworth\u2019s actual expenditure (c.\u00a346m), the nature of portfolio\u00a0 based funding, and the fact that the case was \u201c<em>very far from a success\u201d.\u00a0 <\/em>The CAT was also guided by jurisprudence from Australia and Canada.<\/p>\n<p>The CAT stated that \u201c<em>[t]he simplest way to reflect the outcome of the case in assessment of the funder\u2019s return.. is by a percentage of the damages recovered\u201d <\/em>but that, in the light of <em>PACCAR<\/em>, that course was not open to it.\u00a0 It therefore instead considered the metric of the funder\u2019s return on investment (\u201c<strong>ROI<\/strong>\u201d).<\/p>\n<p>Notwithstanding the funder\u2019s argument that it was entitled to an \u201c<em>agreed minimum floor\u201d<\/em> of a return of c.\u00a3179m, the CAT determined that what it considered a 1.5x ROI (\u00a368m) was appropriate, \u201c<em>recognising the significant risk but reflecting also the poor outcome\u201d. <\/em><\/p>\n<p>Although the CAT noted that, as the law stands, funders in collective actions cannot conclude a LFA providing for a percentage-based return, it considered a percentage basis to be a \u201c<em>useful cross-check\u201d<\/em> and noted that a payment of c.\u00a368m constitutes 34% of the settlement sum and contrasted that with a much lower percentage return (16%) in an Australian case.<\/p>\n<p>Innsworth reportedly views this as a 0.5x return on its costs (given that the c. \u00a368m includes the c.\u00a346m it spent on the claim) and has made an application for judicial review of the CAT\u2019s decision.\u00a0 Innsworth\u2019s judicial review application states that after assessing the due proportion required for the Class, the CAT should have honoured the terms of the litigation funding agreement to the extent possible, but instead it \u201c<em>limited the funder\u2019s return far below the contractual level and conferred a gratuitous benefit on an unrelated charity\u201d. \u00a0<\/em>According to the grounds for judicial review, legal charity Access to Justice would receive more than c.\u00a330m from pot 3 (compared to c.\u00a323m for Innsworth). The development of Innsworth\u2019s judicial review application will be closely watched by stakeholders from across the legal and funding sectors.<\/p>\n<p><strong>6. Proposals for reform \u2013 the Civil Justice Council\u2019s Final Report<\/strong><\/p>\n<p>As mentioned above, the CJC issued its Final Report on litigation funding reform on 2 June 2025.\u00a0 The CJC had addressed in an Interim Report the current position of TPLF and launched a public consultation; the focus of the Final Report was making recommendations for reform. \u00a0There was significant engagement with the consultation \u2013 the CJC received responses from over 80 consultees and those responses demonstrate the strength and range of opinion among stakeholders, ranging from funders and claimant law firms pushing to maintain self-regulation, to business lobbies seeking stringent regulation of litigation funding.<\/p>\n<p>The headline recommendation from the CJC is the reversal of the effect of <em>PACCAR<\/em> as a priority.\u00a0 This was recognised by the Court of Appeal in <em>Neill<\/em> as the \u201celephant in the room\u201d (the appeal was heard the week after the CJC issued its report), however it stressed that its task was to apply the law in force at the time, putting aside the potential for future reform.\u00a0 This recommendation has unsurprisingly been warmly welcomed by funders and claimant law firms.<\/p>\n<p>However, the reversal of the effect of <em>PACCAR<\/em> is but one of 58 recommendations in the CJC\u2019s Final Report. The other recommendations include statutory regulation of litigation funding, with enhanced regulation in certain cases and the reform of DBAs and Conditional Fee Agreements.<\/p>\n<p>The CJC has recommended \u201c<em>light-touch regulation<\/em>\u201d to replace the voluntary ALF Code. This would include a set of standard requirements that would apply in all funded cases, including:<\/p>\n<ul>\n<li>funder capital adequacy requirements (to be determined on a case-specific basis);<\/li>\n<li>a prohibition on litigation funders controlling funded litigation;<\/li>\n<li>conflict of interest provisions;<\/li>\n<li>anti-money laundering requirements; and<\/li>\n<li>early disclosure of the fact of funding, the name of the funder, and the ultimate source of the funding (although the terms of the LFA would not generally be disclosable).<\/li>\n<\/ul>\n<p>Although many of these requirements are present in the ALF Code or apply already to some extent (as a matter of law or by procedures of the courts or the CAT), giving them the force of regulations would be impactful as a breach of the regulations could render the LFA unenforceable automatically.<\/p>\n<p>Enhanced regulation would apply where litigation funding is provided to consumers and parties engaged in collective proceedings, representative actions and group litigation, including:<\/p>\n<ul>\n<li>a \u2018Consumer Duty\u2019 for litigation funders modelled on consumer protection regulation in the financial services sector;<\/li>\n<li>funded parties being provided with independent legal advice from a King\u2019s Counsel concerning any proposed LFA;<\/li>\n<li>a requirement that the funder and the funded party\u2019s lawyer certify to the court that they did not approach either directly or indirectly the funded party to seek their agreement to pursue proceedings;<\/li>\n<li>a requirement for after-the-event insurance with robust anti-avoidance endorsements;<\/li>\n<li>approval of the LFA by the court or CAT as applicable, with particular consideration to be given to whether the funder\u2019s return is \u201c<em>fair, just and reasonable<\/em>\u201d; and<\/li>\n<li>in the case of opt-out collective proceedings in particular, enhanced notice of the litigation funder\u2019s return to class members.<\/li>\n<\/ul>\n<p>Statutory regulation of litigation funding is not a new idea.\u00a0 Indeed, the Access to Justice Act 1999 introduced a provision which envisaged LFAs having to comply with conditions set down in that Act and in prescribed regulations to be developed in due course by the Lord Chancellor.\u00a0 However, this provision was never brought into force (and the regulations were never enacted), so it has languished on the statute books for over 25 years.<\/p>\n<p>Much of what the CJC recommends represents the codification of the ALF Code requirements and judicial procedures that have become well established features of the certification process as the collective proceedings regime has developed in the CAT.<\/p>\n<p>However, the CJC\u2019s recommendation that the funder and funded party\u2019s lawyer must certify that they did not approach the funded party to seek their agreement to pursue proceedings would be a marked change. It is in practice commonplace for competition damages actions to be originated by litigation funders and law firms and there have been several certified collective proceedings in the CAT where the genesis of the case is that the funder and\/or law firm approached the prospective class representative with a proposal to pursue proceedings (see for example <em>Bulk Mail Claim Limited <\/em>[2025] CAT 19).\u00a0 The implication of the proposed reform is that the origination of claims in this way would become impermissible, shifting the impetus for launching claims onto class representatives. We might therefore see more collective actions being started by individuals who have already acted as the class representative for other claims, since they will be familiar with the process (for example, Mr Gutmann is currently serving as class representatives in several collective actions). However, the most likely overall effect would be a significant reduction in the number of claims being pursued.<\/p>\n<p>Another fundamental change proposed by the CJC is that the CAT should assess whether the funding terms under a proposed LFA, and in particular, the funder\u2019s return, are \u201c<em>fair, just and reasonable<\/em>\u201d as part of its consideration as to whether to grant certification to collective proceedings. \u00a0Whilst the CAT currently does consider the funding terms when determining whether to certify proposed collective proceedings, its practice is not to assess the reasonableness of a funder\u2019s return at that stage (save for assuring itself that the funder\u2019s return is not so extreme as to warrant calling out or refusing certification). \u00a0The CAT has deferred this question to the time of distribution, taking the view that it is more appropriately addressed then, once there is a proposed settlement sum or judgment award to work from.<\/p>\n<p>The Government is now considering the CJC\u2019s recommendations. It remains to be seen whether, and to what extent, the Government agrees with the judgement calls made by the CJC in striking the right balance between facilitating access to justice and providing appropriate and effective protection for funded parties and for defendants in facing high value claims with questionable merits.<\/p>\n<p><strong>7. Key takeaways and where next <\/strong><\/p>\n<p>The TPLF industry is currently at a key staging post in the context of the CAT\u2019s collective actions regime.\u00a0 The fallout from the <em>PACCAR<\/em> decision has led to two years of upheaval and uncertainty in the market, with defendants bringing forward a suite of related challenges to funding arrangements at the certification stage of collective actions.\u00a0 However, those challenges have now by and large been resolved and we can draw out the following as the current position:<\/p>\n<ul>\n<li>LFAs under which the funder return is calculated by reference to the amount of damages recovered constitute DBAs and are therefore unenforceable in collective proceedings;<\/li>\n<li>Other forms of funder return which are based upon multiples of sums invested in the litigation do not constitute DBAs, notwithstanding any caps on funder returns which are related to damages recovered in the litigation;<\/li>\n<li>It is permissible to include alternative funder return mechanisms within an LFA which provide for damages based returns which are contingent upon legislation being brought in to reverse the decision in <em>PACCAR <\/em>\u2013 such clauses do not render the LFA an unenforceable DBA;<\/li>\n<li>Save in exceptional cases, for example, where the funding arrangements are sufficiently extreme, or where the PCR\u2019s understanding of the terms, renders the PCR unsuitable to serve as class representative, the CAT will not refuse to certify collective actions on account of funding terms, including the level of funder return, and will instead resolve those issues at the point of distribution; and<\/li>\n<li>It is permissible for LFAs to provide that funder returns be paid out ahead of class members having the opportunity to claim from the settlement or judgment damages pot \u2013 the funder\u2019s return is not limited to being paid out from undistributed funds.<\/li>\n<\/ul>\n<p>The series of CAT, Court of Appeal and Supreme Court judgments which have given rise to these conclusions have resolved considerable uncertainty in the TPLF market as to which terms in current LFAs are enforceable.\u00a0 Whilst this certainty has been welcomed by funders, there remains considerable commercial uncertainty as to the level of return that the CAT will be prepared to grant litigation funders, particularly in \u2018successful\u2019 cases (the low funder return in <em>Merricks<\/em> is likely not representative of what funders will be awarded, given the relative failure of that case).\u00a0 With many funders privately admitting that they have currently committed as much capital to the collective actions regime as they are prepared to commit prior to the regime paying out returns on investment (hence a recent dramatic slowdown in new claims being issued), the level at which the CAT sets funder returns will influence funder appetite for funding collective actions going forwards.<\/p>\n<p>Further, the spectre of legal uncertainty has reared its head again now that the CJC has recommended potentially wide ranging and impactful reforms in the TPLF market.<\/p>\n<p>All eyes are now on future CAT rulings on funder return in live collective actions and on which (if any) of the CJC\u2019s recommended reforms the Government agrees with and brings forward in legislation.<\/p>\n<p>Many of the recommendations will likely be disruptive but ultimately manageable for funders (the TPLF market has proved resilient in the face of many previous challenges, including the <em>PACCAR<\/em> judgment).\u00a0 However, the CJC\u2019s recommendation that funders and claimant law firms certify that they did not approach the PCR (directly or indirectly) to seek their agreement to pursue proceedings is the one potentially game-changing recommendation in the CJC\u2019s Final Report.\u00a0 If enacted in legislation, the number of collective actions filed in the CAT could well plummet, casting doubt on the future viability of the collective actions regime.<\/p>\n<p>In the collective actions space, claims are most frequently initially devised by claimant law firms or funders, or by economist or other expert firms which take case ideas to claimant law firms.\u00a0 The practical reality is that individuals and organisations not operating in the competition litigation space are generally not sufficiently aware of, and engaged with, competition law and the collective actions regime in order to proactively bring forward cases on their own.\u00a0 The CJC suggests that if a funder or law firm wishes to pursue opt-out collective proceedings then they themselves could be approved as the class representative, pointing to the fact that there is no prohibition on them acting in that capacity.\u00a0 However, it remains to be seen whether the CAT would be willing to authorise a law firm or funder to act as the class representative given the potential conflict between the interests of a law firm or funder and the interests of the class (that is, the incentive on the law firm and funder to elongate and increase the legal spend, from which a funder\u2019s return is derived).<\/p>\n","protected":false},"featured_media":0,"template":"","class_list":["post-110334","hot_topics","type-hot_topics","status-publish","hentry"],"acf":[],"_links":{"self":[{"href":"https:\/\/my.legal500.com\/guides\/wp-json\/wp\/v2\/hot_topics\/110334","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/my.legal500.com\/guides\/wp-json\/wp\/v2\/hot_topics"}],"about":[{"href":"https:\/\/my.legal500.com\/guides\/wp-json\/wp\/v2\/types\/hot_topics"}],"wp:attachment":[{"href":"https:\/\/my.legal500.com\/guides\/wp-json\/wp\/v2\/media?parent=110334"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}