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Consumer Trends 2024: The future of Class Action funding

23 January 2024
In July 2023, the Supreme Court handed down judgment in PACCAR, which rocked the class action claimant funding market. With time and several decisions since, does PACCAR really make any difference or will the Class Action march continue?

With many consumer sector names on the wrong end of a class action, the risk for the sector is perhaps greater than most.  Growing green claims and sustainability activitism and actions in the UK and across the EU means that this risk is unlikely to change and the threat of facing a Class Action will be within most GC's top 5 concerns. This is not surprising given the recent rise in such actions in the UK over the last 3 - 5 years. A number of factors are contributing to this rise, particularly across Europe:

  • An increasingly challenging economic climate is causing an increase in litigation.
  • Improvements in technology and better access to funding means that group actions have become more attractive to claimants.
  • In the UK, there has been a significant increase in "class action specialist" law firms, some of which have the benefit of overseas investment to promote and advertise claims, about which potential claimants might otherwise have been unaware. These specialist firms also have the resources to pursue claims for large volumes of claimants.
  • Class action activity is increasing in Europe as opt-out mechanisms become more widely available. EU member states are also implementing the EU’s Representative Action Directive, a legal framework for consumer representative actions, from the end of 2022.
  • ESG and its associated compliance requirements is driving a growing number of class action cases as investors, consumers, and employees are increasingly looking beyond bottom-lines and assessing what businesses are doing to address climate change, tackle human rights abuse and improve diversity. 

Between the High Court and the Competitions Appeal Tribunal (CAT), there has been an upward trend in claims being issued which seek redress against consumer / retail. Whereas, historically, the focus was on group claims that concerned personal injury. For instance, in both the High Court and the CAT in the recent past, Class Actions have been issued against household names such as British Airways, Morrisions supermarkets, Volkswagen and mobile telecoms providers such as Vodafone, EE and O2. 

This article addresses a key development from 2023, concerning the evolving landscape of litigation funding for claimant groups to bring Class Actions, which began with the controversial (in legal world terms) judgment in R (on the application of PACCAR Inc and others) (Appellants) v Competition Appeal Tribunal and others (Respondents) [2023] UKSC 28 (PACCAR). In this case, the Supreme Court ruled that litigation funding agreements (LFAs) constitute damages-based agreements (DBAs) and therefore are unenforceable pursuant to s58AA(2) Courts and Legal Services Act 1990 (CLSA).

There has been a lot of commentary in the legal/financial press since the decision, and you would be forgiven for fearing the worst for the continuation of litigation funding in class actions. Not least given Lord Sales in the judgment described the impact of PACCAR to be that "most third party litigation funding agreements currently in place are likely to be unenforceable."

However, the issue in PACCAR was that the LFA was measurable as a percentage of any damages recovered and thus rendered it an unenforceable DBA. Therefore, the obvious practical answer is to restructure the LFAs, which funders are alive to and were planning for pre-PACCAR. A restructure could be anything from aligning the DBA, so that it does not offend s58AA(2) of the CLSA, or amending the basis on which the funders are remunerated on a successful outcome. However, there will of course be difficulties in putting this into practice depending on the stage of the litigation. Clearly, funders with claims nearing its conclusion will face issues re-negotiating or amending LFAs and so their fate may be sealed.

As to the post-PACCAR world, there has been the first judicial treatment of the PACCAR decision in Therium Litigation Funding A IC v Bugsby Property LLC [2023] EWHC 2627 (Comm) (Therium) on 20 October 2023, which can probably be described as "anti-PACCAR". In Therium, the Court granted the applicant funder (Therium) an interim injunction to preserve agreed damages from a settlement in funded litigation, on the basis that there was a serious issue to be tried. The LFA in issue provided for three mechanisms of payment to be made to the funder by the funded party, and whilst the third type of payment comprised a DBA and was unenforceable, the Court held it was arguable that the other payment mechanisms (notably a return calculated as a multiple of that funding) did not render the whole LFA unenforceable. That was because the offending part of the agreement could be severed in accordance with the ordinary principles applicable to severance.

Like Therium, PACCAR has resulted in funders and class representatives, in several collective proceedings, amending their funding arrangements. This in turn, has led to those amended funding arrangements being challenged by defendants. This is creating uncertainty and consuming the resources of the Court and the parties, which is unlikely to cease until there has been a conclusive decision on these points by the Court of Appeal.

To that end, on 5 January 2024, the CAT has granted permission to Sony Interactive Entertainment Europe Limited (Sony) to appeal in respect of Sony's challenge to the CAT's determination that litigation funding arrangements are enforceable, following changes made to those funding arrangements consequent on the PACCAR decision. The CAT considered that, while there is no real prospect of success in Sony's challenge, there is a compelling other reason to grant permission to seek precedent on the issue.

In summary, PACCAR has undoubtedly sent shockwaves through the claimant class action funding market. However, even in these initial post-PACCAR months, both the funding market and the Courts are working to mitigate against its adverse effects. Whilst I am a defendant class action litigator that welcomes the impact on slowing the claimant class action march over recent years and the impact on defendants and insurers alike, it seems that the effects of PACCAR are likely to be temporary and limited to a few unlucky funders who might simply be at the wrong stage of litigation, at the wrong time. Class Actions claims are therefore likely to continue its upward trajectory over the coming years. 

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 Litigation experts. 

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