To bring a class action lawsuit, you need money.You must show you have adequate funding in place to meet both your own costs and any adverse cost orders should you lose the claim. It’s as simple as that. And in most cases – due to the nature of the claim itself – most claimants need to seek the backing of a litigation funder.Over the last few years, the rapid growth of the litigation funding industry has made the possibility of class actions much more viable. But unfortunately, things are about to change. Following a recent landmark decision by the UK Supreme Court, many litigation funding agreements (LFAs) are now deemed unenforceable – having far-reaching consequences for both existing claims and future cases. Has your civil lawsuit been affected?
Read on to learn more.
The gravy train (or truck) has officially been derailed
It all started due to the 2016 European Commission’s decision in a case known as ‘Trucks’. To give you a little background information, the case held that five truck manufacturing groups had infringed competition law – through an unlawful agreement that inflated prices over 14 years. Two parties – UK Trucks Claim Ltd (UKTC) and Road Haulage Association (RHA) – applied to the Competition Appeal Tribunal (CAT) to bring collective proceedings (i.e. a class action) on behalf of various people who had acquired trucks from these truck manufacturers. Both parties relied on LFAs to show they had adequate finance in place. However, the truck manufacturers argued that LFAs were actually damages-based agreements (DBAs) – as the funders would be renumerated based on the damages ultimately recovered. And therefore they were a) prohibited in competition collective proceedings and b) unenforceable unless they complied with the relevant statutory conditions. The CAT itself disagreed with this argument and granted permission for the class action. But unhappy with this decision, the truck manufacturers appealed directly to the UK Supreme Court.
A final judgement on litigation funding
Perhaps surprisingly, the CAT’s decision was overruled. The UK Supreme Court allowed the truck manufacturer’s appeal by a 4:1 majority decision.To reach this conclusion, they considered the definition of a DBA, “an agreement between a client and a representative providing advocacy services, litigation services and claims management services”. And decided that ‘claims management services’ did, in fact, include the provision of litigation funding. As such, the LFAs entered into by UKTC and RHA were classed as DBAs and deemed unenforceable. This may just be one case – but the decision made will have a widespread impact on the enforceability of all LFAs under English law. Now that LFAs are classed as DBAs, it is likely that funders: · will undertake a comprehensive review of their current funding arrangements, removing or withdrawing any that are no longer valid or enforceable. · will seek to renegotiate or replace existing LFAs to ensure compliance. · will make changes to how they calculate their recovery, perhaps tying their financial rewards to the sums invested in the case, rather than the damages awarded. That way, their LFAs wouldn’t fall within the scope of a DBA and would therefore be valid.
From a general perspective, it is also likely this decision will put a huge dent in the UK landscape for class action claims – particularly in the competition, consumer protection and data protection spheres. Due to their nature (i.e. claims involving a large number of people, who have all suffered a small amount of loss), these claims rely heavily on litigation funding to make them economically viable. But going forward, funders are bound to be much more cautious about which claims they’re willing to fund.
Need advice on your class action lawsuit?
Our specialist solicitors, here at St Helens Law, are always happy to help.
We’re highly skilled and knowledgeable in this complex area of the law, and we’re always on hand to offer straight-talking, effective advice for anyone pursuing a new or existing class action claim.
Whether you’d like to find out more about opt-in and opt-out class actions in the UK, are concerned about this latest judgement on litigation funding, or have a question about how our solicitors could help, please don’t hesitate to get in touch. Simply give us a call on 01744 742360. Alternatively, send an email to info@sthelenslaw.co.uk or book a free no-obligation consultation with our team by filling out our online form. We’ll respond as soon as possible with a potential date and time.