Class actions – third-party litigation funding

Robert Johnston, Partner
Johnson Winter Slattery, Sydney
Robert.johnston@jws.com.au

The third-party litigation funding session at the IBA Annual Litigation Forum, Amsterdam, April 2024, was run by Robert Johnston, Chair of the IBA Class Action Committee and Head of Litigation at JWS lawyers in Sydney, Australia. The panellists included Henry Warwick KC, one of the leading silks involved in the historic group litigation on behalf of 555 UK sub-postmasters against the Post Office, the success of which was only possible because of litigation funding. Representing the defence side of the bar was Justyna Niemczyk, a lawyer from De Brauw, one of the Netherlands’ leading corporate law firms and a specialist in the new Act on Collective Damages in Class Actions (Dutch acronym WAMCA) class action laws introduced in 2020. The funders were represented by Patrick Moloney, CEO of litigation ‘financier’ LCM listed in Australia and the UK, and active also in Asia. Patrick bought a broader, more global view to the panel.

Firstly, the panellists led discussions about how litigation funding touched each of the relevant jurisdictions and in what manner. Robert tracked how litigation funding had moved from essentially being an unlawful business in many jurisdictions to becoming a significant, mainstream contributor of capital to the litigation market. We heard about the very user-friendly class action system in Australia and that without damages-based contingency fees being available to most lawyers in Australia, that had resulted in tremendous growth of the litigation funding market there. Henry covered the recent PACCAR decision handed down by the UK Supreme Court, which dealt a shock to the litigation funding market in the UK, but noted that remedial legislation is about to be passed[1], in effect, to reverse the repercussions of that judgment. As such PACCAR was seen as more of a bump in the road rather than anything more significant. General problems and complications with the range of ‘class action’ alternatives available in the UK were also discussed: the only true class action regime being found in competition claims before the UK’s Competition Appeal Tribunal.

Justyna took us through the changes in the Dutch collective redress regime introduced by the WAMCA legislation which, in the main, permitted group claims to recover damages now rather than the previous regime which saw ‘foundation’ entity claimants only able to get judgments on liability and so leaving individual claimants to have to commence their own, individual, follow-on proceedings to recover damages. Justyna confirmed all sides were seeking to make the new system work and noted it was attracting claims from ‘foreign’ claimants.

As to current issues facing the funding market, all panellists spoke about the rising call for some form of ‘regulation’ of litigation funding in each of their markets. Patrick supported appropriate regulation which was specific to the funding industry, rather than trying to impose any existing, broader ‘financial services’ type of regulation on funders – noting they were always a recipe for unintended consequences. There were robust discussions about ‘caps’ on a funder’s recovery from any litigation, the need for the proper management of conflicts, and when it was appropriate to have judicial supervisory mechanisms of the funding arrangements, including any potential limits on funder commission, whether by reference to a multiple of the funder’s investment or a percentage of damages.

Looking forward, it became clear that the industry will continue to evolve and expand in most jurisdictions, both in the class action sphere as well as in the private litigation arena. The recent EU directive on the introduction of collective redress regimes in member states would no doubt provide more opportunities for funders – as and when the regimes are introduced – but also recognising there may be as many different regimes as there are Member States, which will no doubt complicate matters and provide their own challenges for funders. Monitoring the introduction of legislation designed to ‘regulate’ funders would also be an ongoing issue to watch out for, recognising the unintended consequences that can sometimes flow and the risk of limiting an industry which is now widely accepted as necessary to promote access to justice.

Lastly, it was agreed that the industry has been transformed from one where single cases were funded, to one where funders are effectively providing more and more sophisticated capital to the litigation market ecosystem. Instead of just individual claims, we now see funding applied to, for example, firms, portfolios of claims, and defendants’ claim books. Additionally, we see more bespoke insurance options being involved in funding packages, and co-funding models increasingly being developed. The litigation funding market is dynamic, ever-changing and continuously growing, and will continue to attract close attention from all stakeholders – so, ‘watch this space’!