In addition to providing access to justice for those who genuinely need the funding, it also has potential benefits for those defending in that it can also provide reassurance that in the event of an adverse cost order being made in favour of a Defendant, that a claimant has funds to cover it.
However, the landscape is changing as group action claims (often referred to as class actions) have increased considerably since the opt-out collective actions regime was introduced in the Consumer Rights Act 2015 (introducing the Competition Appeal Tribunal (CAT)) and in 2021 following the Supreme Court decision in Merricks vs MasterCard that lowered the threshold for certification for eligibility. This coupled with a growing trend in legislation for companies to publish their performance in certain areas, like sustainability creates a perfect storm for the acceleration of claims and a rush of funders into this area.
Still, funding in class actions has become a hotter issue and faced recent challenges following PACCAR Inc & Ors, R (on the application of) v Competition Appeal Tribunal & Ors [2023]. Prior to this case legal funders could obtain a share of any damages, however the case effectively rendered many litigation funding agreements unenforceable.
Of course, we have seen other means of funders extracting financial value from litigation, whether that is through insurance products offered to litigants or by separately funding certain Claimant law firms with a view to helping them grow market share and reputation, in what is seen as a rapidly growing market segment.
In March 2024, the previous government looked set to reverse the PACCAR decision via the Litigation Funding Agreements (Enforceability) Bill, however it is not presently being actively pursued by the current government, who are waiting for the outcome of the Civil Justice Council's review of the litigation funding market in England and Wales. The final report is expected in summer 2025.
Despite the changes, class actions are not going anywhere. They remain a lucrative and attractive business model for many claimant law firms and funders, as is evidenced by the noticeable trend of increasing claims connected to data breach incidents, consumer protection and environmental issues.
Several firms have set up specifically to pursue groups of such claims investing in targeted advertising, including via social media, and highlighting areas where they already have large numbers of client claims relating to an issue. Subsequently, attempting to collectivise those claims, whether through formal or informal collectivisation appears to be the modus operandi. Through this, these claimant law firms appear to alert consumers/affected individuals to the possibilities that they too might be able to pursue a claim. Often a firms' advertising can be a little vague about how the cases are to be funded, or perhaps any associated risks.
In recent years we have seen collectivised claims becoming more commonly identified and put into the public spotlight. We also had several large scale data breach incidents (often where the exposed Defendant is in fact the victim of criminal conduct from third parties) or misuse incidents, vehicle emission claims in the automotive sector, numerous consumer group actions making mis-selling allegations and product safety claims. Furthermore, outside of the consumer space, we have been – and remain – involved in various other types of collectivised actions, ranging from those relating to concussion injuries/CTE in sports to environmental incidents/nuisance claims. With obligations on business transparency rapidly expanding in a range of areas like sustainability, it is reasonable to assume that class actions will make use of these rich data pools.
Of course, these claims can involve significant loss and damage. However, there is also a growing trend of claims involving very little, if any, damage and where the usual route of resolution/disposal would be through the small claims court, where legal cost recovery is very limited (i.e. what we would described as "non-cost bearing").
The challenge for law firms in these types of claim is often how to monetise the claims, so as to support the business model and continued investment. Third party funding provides claimant firms with a mechanism to pursue a viable claim that might not otherwise be pursued due to risks and costs. Yet, does the funding actually benefit the claimants in these class/group actions or provide access to justice?
Putting third party funders at the heart of a claim could lead funders to exert more control and protection, rather than claimants. This was demonstrated in The Post Office Group Litigation, where it was widely reported that in the order of 80% of damages recorded went to third party funders.
Of course, access to justice is incredibly important and those with meritorious claims should have the means to bring them. However, many would argue that consumers and other groups who have meritorious claims have for many years had the means to do so. The increase in, at times, predatory marketing and targeting of potential claims can lead to a commoditisation of consumers and create detrimental impacts on commercial confidence, business growth and jobs. Innovation can risk potential litigation and could cause businesses and organisations to focus on litigation protection, stifling economic growth and investment.
Consumer group actions should not be used as a tool for investors to profit from the UK's legal system via attempts to collectivise (and hence to an extent, weaponise) low value claims of low merit as a means of seeking to force Defendants to settle claims, rather than engage in expensive litigation. With third party funding, claims can be pursued without incurring actual physical financial cost, with little risk to claimants or claimant firms, creating a cycle of unfounded claims.
An example of the monetisation of such claims can be seen from two recent articles in the Law Society Gazette:
1. The first from 13 January 2025, discusses the stark contrast between the two sides of the coin. It was reported that Barings Law recently published accounts identifying 2022/23 turnover of just £381,000, posting a loss of £13.5m, and with loans of £34m (and incurring 37% interest) having a repayment date of March 2025. However, the article stated;
"In his accompanying report, written last month, director Craig Cooper said the board considers the growth of consumer claims will continue and that there will be resulting opportunities to grow the business. He stated that if the WIP shown on the year-end balance sheet was adjusted to reflect fees contingent upon the success of cases, potential income would total £272m by March 2024 and £344m by the end of this March."
Achieving those figures will, of course, be contingent on the success of both claims in Barings' portfolio and of the firm's attempts to monetise those claims, such that they become "cost bearing" on an inter partes basis.
2. The second, on 21 January 2025, discusses Heirloom Fair Legal (described "as a ‘one-stop shop’ for legal representation, disbursement funding and after-the-event insurance") starting its own legal practice in the UK, which the article reads has "designs on the growing claims areas of data breach, motor finance mis-selling, irresponsible lending and institutional abuse" and its purchase of another very well-known claimant firm focused on representing claimants in data breach cases (Hayes Connor) which despite stating that it had settled 1,900 claims since its launch in 2018, only had net assets of £210,509.
Those figures highlight the difficulty in the model, but also the perceived opportunities by those looking to get into this market, or grow market share. We have seen before the impact of poor claim validation and selection – not least in the Noise Induced Hearing Loss arena – and the warning signs are again clear.
The growing trend for collectivisation of consumer claims in the UK legal market is without doubt attracting increasing interest from external funders and new market entrants. Whether that is truly in the interest of access to justice or simply in the belief that there is a significant potential to realise financial upside from a growing litigation trend is debatable and subject to the lens through which one views these developments.
If large groups of valid claims can be made "cost bearing" the financial upside for the firms, and those funding them (as well as the claims), is very significant. However, we are seeing increasing volumes of small claims track value claims with very limited, if any genuine, common issues being informally collectivised in a bid to make otherwise non-cost bearing cases cost bearing. It is increasingly difficult to see that as providing consumers with access to justice that was previously missing.
After all, these are often claims that can be pursued by consumers directly through the small claims court much quicker, with very little cost risk indeed and on terms which would see those consumers keep 100% of any damages awarded.
For more insights also see our Global Consumer Trends 2025 article 'Update on mass arbitration claims'.
If you have any questions or would like to discuss any of these topics and what they mean for you and your business, please get in touch with our Consumer sector and Insurance experts.
