Litigation funding is often criticised for being too expensive and indeed, on occasion, litigation funders are portrayed as greedy opportunists. The truth is that the price of litigation funding is a function of the risks that funders take in supporting cases, even when they are hand-picking the ones that are expecting to succeed. The obvious risk is that the cases funders back may fail, despite best efforts in diligencing and choosing them. This happens much more than often than people may assume because there are many ways a funder can lose: the merits, the economic viability of the claim, counter-party risks, plus a myriad of unforeseen left-field risks that can arise over the course of several years of litigation.

With that in mind, it does not help when the industry receives a body-blow like the one sustained following the Supreme Court’s decision in Paccar in July. It introduces yet another way for the legitimate litigation finance businesses to lose their entire investment, not forgetting the return on investment they were anticipating in the event of success -return which is necessary to pay for losses and ultimately make a profit.
Thank goodness then for the sensible unanimous decision of the CAT in Alex Neill Class Representative Ltd v Sony Interactive Entertainment Europe Ltd [2023] CAT 73 regarding the enforceability of an LFA in support of a Proposed Class Representative (PCR) where the funder had amended their % based return to one calculated using a multiple if the law did not permit a % return.
Had a different approach been taken by that CAT, they would have been nailing the coffin shut for the funding of class actions in the UK. A third-party funder has to be paid somehow for as long as external funders are required in the UK. Nevertheless, it is a relief.

All the more galling then that with this decision and the legislature (per a proposed amendment to the Digital Markets, Competition and Consumer Bill) both seeking to undo – to some extent- the effect of Paccar, the market of UK funders who back class actions has still been forced to incur thousands of pounds in legal fees and hours of time re-negotiating settled LFAs since July that really should never have been made vulnerable in the first place.

The majority Supreme Court decision was arguably doing its job in interpreting the (messy) regulations. Of course, had the MOJ taken the opportunity to fix the DBA Regs in 2019 when a new and workable draft was provided, all of this would have been avoided. Revised DBA regulations would also simplify other matters for lawyers contemplating DBAs which, 10 years on, still seem hopelessly under-utilised.
Changes to DBA Regulations may have been low on the government agenda in and since 2019, but ultimately it is a particular type of claimant that will pay the price in the long run. When funders face issues like Paccar on top of all the risks they knowingly sign-up for, it becomes increasingly difficult to offer pricing which accommodates claims for impecunious claimants for whom funding is an access to justice point rather than a commercial choice.