This article was first published in ThoughtLeader4Disputes Magazine, Disputes Issue 13 – International Insights; Q2’s Perspective for Commerical Disputes.
If you asked someone unfamiliar with litigation funding what type of a case might be most in need of external finance, they might unwittingly describe a UK Competition Appeals Tribunal (CAT) class action. Those claims often need funding and large amounts of it:
• UK CAT class actions are expensive. The higher the legal budgets, the more likely the claimants are going to find external finance more interesting or perhaps even necessary. • For a potential class action representative to obtain court approval to represent a class of claimants then they need to prove they have adequate funding and the ability to meet any adverse costs orders that may arise.
• The claimants in competition cases are often described (unfairly) as windfall claimants because in many cases they only become aware of the claim due to regulatory decisions to which specialist claimants’ lawyers then attach to potentially recoverable losses for a class. Typically, claimants in such situations are happy to sign up but only if the costs are paid from the actual recovery or are somehow fixed. Litigation funding allows claimant lawyers to offer these attractive arrangements.
Then if you asked a funder what characteristics of a case are best suited for investment, they too might describe a UK CAT case. The cases look attractive because the pleaded claim values are often very substantial and they either directly follow or are related to a pre-existing finding of wrong-doing following a regulatory investigation. This is why when UK CAT cases started to turn to litigation funding, it was quickly seen as good business – potentially even ‘safe’ compared to the volatile world of single-case commercial litigation and international arbitration investments.
But has it become a sinkhole for litigation funding capital?
Spoiler alert. It probably is good business for funders but it has not been the walk in the park that funders might have hoped for so far.
• Case budgets have grown to uncomfortable sizes. Big claims attract big legal budgets and the defendants have not shied away from aggressively defending these claims, despite the naïve assumption that liability is not an issue in these matters. Arguments over quantum are just as catastrophic to funders as losing on liability if the claims fail to produce enough proceeds to repay their massive legal budgets.
• The risk of adverse costs – and therefore the cost of ATE insurance – has been far greater than contemplated because these cases often involve multiple defendants who are represented separately. The CAT may expect the ATE insurance to provide something akin to security for costs to demonstrate that the claimant representative can in fact meet adverse cost orders – and that has increased the cost of insurance enhancements designed to augment the cover (i.e. Anti-avoidance Endorsements).
• Carriage disputes may mean that multi-millions turn on the decision of the CAT as to which claimant representative is best suited to represent the class. Decisions that appear to be based on really very fine margins making carriage contests incredibly difficult for funders to predict. Funders wrongly assumed that such disputes would be rare as UK law firms would sooner agree to settle than fight it out like our friends across the pond.
• Funders have also hit a snag with some regulatory decisions being overturned or modified after significant costs have been invested in launching a case, which is rendered no longer viable.
Of course, most existing funders continue to battle on with these matters, in order to protect the investments they’ve already made, but one US investor pulled out of the UK market, presumably never to return.
Even without PACCAR, several funders had already made the decision to press pause on UK CAT cases which were starting to account for too much of their overall portfolio. This is primarily because the cases have been dragging on. At the moment, it feels like every class representative who is awarded certification by the CAT immediately faces a long process of appeals. Millions of pounds, sometimes 10s of millions, are invested and at risk before the main case even begins.
However, after painting such a dismal picture, are there some lighter tones to add?
It feels like cases that have been rumbling for many years are beginning to reach settlements. This will represent the first time that funded CAT cases will start to produce a track record of success for funders. Of course, it remains to be seen what the return on investment will be but fundamentally most of the cases are expected to perform well despite the difficulties getting to that point. Moreover, even with all the challenges faced, funders will have taken great heart from how the CAT itself has understood and appreciated their crucial role in providing a means of access to justice and ultimately compensating consumers and businesses following abuse by certain actors in the world of ‘big business’ who are well-resourced to defend themselves.
The CAT has delivered ‘funder friendly’ decisions in reaction to PACCARrelated challenges (Sony3) and, importantly, the recent CAT decision in Gutmann v Apple [2024] CAT 18.
The latter case helpfully confirmed that a funder can be paid from the gross award prior to distribution to the class and not be relegated to collection from the undistributed residual which would have created a greater risk for funders as well as significant delays in payment.Whilst many funders will continue to sit on the sidelines and wait for a full cycle of cases to conclude before deciding to re-enter the market for financing CAT cases, younger funders, like our own Erso Capital, will actively support CAT. Having witnessed their passage through the CAT in recent years, we have additional knowledge and insights which can only help us navigate our way towards what might turn out to be safe haven after all.
Matthew Amey
ma@ersocap.com
Matthew Amey is the director of specialist litigation insurance broker, TheJudge, and a co-founder of global litigation fund, Erso Capital. Recognized as a top industry expert and innovator in the area of litigation finance, Matthew has been at the cutting edge of developments in litigation insurance and funding for nearly 25 years. He began his career as a litigation insurance underwriter before moving on to lead the team at TheJudge in 2005, going on to co-found Erso Capital in 2020. He is recognized by both clients and other industry professionals for his innovative thinking and creativity in arranging complex insurance and funding deals. Matthew has brokered some of the largest litigation insurance policies ever written for some of the most complex commercial disputes. He has a wealth of experience arranging insurance and funding for multi-claimant and group actions, which frequently involve tailoring the solutions to meet the needs of potentially diverse subgroups of claimants. In addition to regularly appearing at conferences and on panels to discuss litigation finance, Matthew has authored dozens of articles for legal publications and is regularly called upon by the legal and national press for expert commentary in the area of litigation finance.