Financiers are helping to fuel an increase in U.S.-style class-action lawsuits within the UK courts, lured by the promise of massive payouts.
The British litigation finance industry — which pays legal fees upfront and shares in any eventual payout — has almost doubled the dimensions of its UK assets over the past three years, with as much as £2.2 billion ($2.7 billion) filling up balance sheets, in response to data from law firm RPC. That war chest is getting used to fund a growing variety of lawsuits which might be going after the likes of Apple Inc., Meta Platforms Inc. and BT Group Plc.
Opt-out class motion style lawsuits, where someone impacted doesn’t have to pay attention to the case to be included, are being tipped as a very good bet for investors as they provide the prospect of big payouts if successful.
“Class actions have the potential for giant rewards,” Charlotte Henschen, a lawyer at RPC, said. “Funders like class motion type disputes because there may be a chance for funders to get in in the beginning. It’s also a gorgeous group to represent for sheer reach and volume.”
The UK’s opt-out class motion regime, referred to as collective proceedings, finally began to achieve traction last yr. Not a single claim was allowed to go ahead within the five years because it began in 2015, but 2021 saw 4 claims given the green light. There are actually nine claims certified on the Competition Appeal Tribunal with many more waiting within the wings.
The system currently only allows claims related to competition law and this yr has seen cases filed over an influence cable cartel and Meta’s alleged misuse of non-public data.
|Recent Cases Filed||Funder||Date|
|Gutmann v Apple||Balance Legal Capital||2022|
|Spottiswoode v Nexans France||Burford Capital||2022|
|Sciallis v Fender Musical Instruments||North Wall Capital||2022|
|Gormsen v Meta||Innsworth||2022|
|Gutmann v Govia Thameslink Railway||Woodsford||2021|
|Home Insurance Consumer Motion v BGL||Augusta Ventures||2021|
|Coll v Alphabet||Vannin Capital (Fortress)||2021|
|Boyle & Vermeer v Govia Thameslink Railway||Litigation Capital Management||2021|
|Kent v Apple||Vannin Capital (Fortress)||2021|
|Consumers’ Association v Qualcomm||Augusta Ventures||2021|
|Le Patourel v BT Group||Harbour Litigation Funding||2021|
Two of the biggest cases, a foreign exchange spot trading cartel and a truck cartel, are actually pulling in as much as £50 million ($59.1 million) in funding when measured with potential funding for hostile costs, in response to a report by consultancy Brattle.
“If funding didn’t exist tomorrow the CAT can be empty and there can be no cases being pursued there,” said Susan Dunn, founding father of Harbour Litigation Funding and the chair of industry body The Association of Litigation Funders.
But the connection between the funders and the individuals who run the cases hasn’t been without tension.
Walter Merricks, the representative of the UK’s largest opt-out class motion against Mastercard, bumped into difficulty when Burford Capital Ltd dropped out of funding his case after it was denied certification by the CAT in 2017. It later found a recent investor, Innsworth, and appealed to each the Court of Appeal and the Supreme Court — which it won.
A spokesman for Burford said it didn’t comment on the decision-making over its investments.
How much the funders can win for these kinds of claims will vary, with agreements depending on the dimensions and budget with rates normally increasing over time.
“An inexpensive assumption is that a funder will charge 30% to 40% of the proceeds in return for its non-recourse funding, which can be completely lost if the case just isn’t successful,” Harbour’s Dunn said.