As another year rolls around, this is a good time to take stock of the litigation funding industry and what lies in store.
The past few years have been very difficult for funders. That is partly due to economic conditions, with higher interest rates meaning that the litigation funding sector is facing greater competition from more mainstream investments, which now produce a better return than they used to. However, the malaise is also attributable to the huge wound inflicted on the industry in July 2023 by the Supreme Court in PACCAR, with the enforceability of litigation funding agreements still in doubt.
PACCAR will undoubtedly be having a significant detrimental effect on funders. But the extent of this is masked by the reluctance of any individual funder to come out and admit just how badly they have been affected. Such an admission would strengthen the industry’s case for urgent legislative intervention. But it might also make it harder for funders to persuade investors to back them, or encourage defendants in ongoing cases to exploit their financial position. So instead, we have to turn to other data sources to gauge the effect of PACCAR. Recent figures from litigation analytics provider Solomonic, for example, show a marked fall in the number of new group actions being brought, while the Commercial Court overall is seeing the lowest level of new claims activity since 2014 – though these trends are not down to PACCAR alone.
When it comes to group actions, recent developments in the Merricks v Mastercard mega-claim are also concerning for the funding sector. The claim, by former financial ombudsman Walter Merricks CBE as class representative of 46 million people, had sought £17bn in compensation for excessive transactional fees. But last month it settled for a reported £200m. Particularly worrying is the very public war of words that erupted between the funder, which is seeking to challenge the settlement agreement, and Merricks’ lawyer. This is the first time we have seen a public spat between a representative party and their litigation funder.
Among all the doom and gloom, are there any rays of light on the horizon for funders? Thank goodness for car dealers. A significant Court of Appeal ruling on hidden commissions in motor finance claims could provide a lucrative new income stream. The decision in the joined cases of Johnson and Wrench v FirstRand Bank and Hopcroft v Close Brothers [2024] EWCA Civ 1282 potentially opens the door to what the Association of Consumer Support Organisations has described as a ‘tsunami’ of claims, where consumers were not properly made aware of the commissions that car dealers, acting as brokers, received from lenders providing finance. According to market intelligence firm S&P Global, analysts assessing how much these motor commission claims may end up costing lenders have put forward figures ranging from £5.9bn to £44bn.
There is, however, a stumbling block. Defendants in the three joined cases have already been given permission to appeal to the Supreme Court, which holds the power to ruin all the fun for claimant lawyers and their funders if it reverses or waters down the Court of Appeal decision. At the request of the Financial Conduct Authority, the case looks set to be listed fairly promptly. Much hangs on the outcome.
Finally, the big litigation funding development for 2025 will of course be the publication of the Civil Justice Council’s final report on what changes are needed for the sector. We can probably expect some bolstering of regulation, and there could be developments relating to obligations to disclose the presence of funding, or even the ability of claimants to recover the costs of funding in certain circumstances where defendant behaviour warrants it. If not earlier in the summer, all is certain to be revealed at the very latest by the time the clocks go back. By 2am on 26 October 2025, funders will know what the review has in store for them.
Rachel Rothwell is editor of Gazette sister magazine Litigation Funding, the essential guide to finance and costs.
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