The UK’s third party litigation funding (TPLF) industry has almost doubled the size of its assets over the past three years, according to data from law firm RPC and reported by Bloomberg. Financiers are aiding the increase of UK class actions in the hopes of a massive payday.
Third party litigation funding (TPLF) allows hedge funds and other financiers to invest in lawsuits in exchange for a percentage of any settlement or judgment. The practice started in Australia, expanded to Europe and the U.S., and is now spreading elsewhere. Without disclosure requirements and other commonsense safeguards, these funders may take over litigation and fuel unmeritorious lawsuits.
In the UK, financiers are investing in “opt-out” class action style lawsuits—called collective actions—-, which target large companies like tech and others. Opt-out class actions are a type of lawsuit in which an individual can be included as a plaintiff without their knowledge and must proactively “opt out” of the larger class action lawsuit. One UK class action, which was the biggest “opt out” style lawsuit, was brought on behalf of 46 million British consumers in a case against a credit card company.
The article further explains, “the UK’s opt-out class action regime, known as collective proceedings, finally started to gain traction last year. Not a single claim was allowed to go ahead in the five years since it began in 2015, but 2021 saw four claims given the green light. There are now nine claims certified at the Competition Appeal Tribunal with many more waiting in the wings.”
Charlotte Henschen, a lawyer at RPC, told Bloomberg “Funders like class action type disputes because there is an opportunity for funders to get in at the beginning. It’s also an attractive group to represent for sheer reach and volume.”
In March, a market analysis firm estimated that U.S. funders have $12.4 billion under management for commercial case investments. The dramatic increases in investments point to one unmistakable conclusion: litigation funders are reaping enormous financial benefits from investing in litigation. Funders now have their sights set on UK class actions and plan to corner the TPLF market across the pond. According to Litigation Finance Journal UK litigation funders have GBP 2 billion under management.
Unfortunately, funders have been known to pull funding from cases if they are unhappy with the case status. For example, according to Bloomberg, one investor dropped out of funding a case after it was denied certification by the CAT in 2017, leaving the plaintiff to seek funding elsewhere for his appeal since the funder determined there would be no big payoff.
A 2019 ILR research paper explored the state of litigation funding in jurisdictions across the globe, including England and Wales. In those jurisdictions, ILR’s paper showed that the TPLF industry is largely unregulated, fostering an environment where financiers prioritize financial gain over consumers’ best interests. The research also breaks down how policymakers are grappling with the challenge that the industry poses for the transparency and integrity of their civil justice systems.
The Civil Justice System is supposed to help individuals hold others accountable when a wrongdoing has occurred. By rooting out unnecessary expenses and abuse, civil justice reform can increase confidence in the economy, help businesses expand, and create jobs. A recent episode of our ILR podcast, Cause for Action, provides an update on the UK class actions landscape and how the UK is seeing a rapid increase in collective action lawsuits against businesses.
