Funding can be particularly beneficial at the outset of proceedings, to enable the claim to be properly investigated and to facilitate an effective bookbuild. Funding agreements typically provide for the funder to cover the costs of proceedings in return for either a share of the damages, a multiple of the amount invested, or a combination of the two.
The third-party funding market was, however, recently dealt a blow by the Supreme Court's decision in R (on the application of PACCAR Inc & Ors) v Competition Appeal Tribunal & Ors (2023), where it was held that agreements which provide for funders to receive a return based on a percentage of the damages awarded constitute damages-based agreements (DBAs). DBAs are entirely prohibited in the context of opt-out collective proceedings in the CAT, and in other cases they must meet the requirements of separate regulations to be valid. While recent CAT rulings demonstrate that agreements which provide for a return based on a multiple of the amount invested remain effective, and that it may be possible to sever offending provisions where an agreement provides for a combination of returns, PACCAR has cast doubt on the enforceability of many existing agreements, leading to renegotiation of terms, and calls for statutory intervention.
Following initial moves to reverse some of the effects of PACCAR via amendments to the forthcoming Digital Markets, Competition and Consumers Bill, and comments by former sub-postmaster Alan Bates in which he described litigation funding as "essential" to being able to bring group actions, the government published the Litigation Funding Agreements (Enforceability) Bill. The Bill is intended to reverse PACCAR entirely, with retrospective effect. It is anticipated that the Bill will be passed in due course, but its retrospective effect is the subject of at least one judicial review challenge. In any event, so far the PACCAR decision does not appear to have led to a reduction in the availability of third-party funding for future group actions.
In the meantime, the Civil Justice Council is conducting a review of third-party funding. A working group has been set up to consider whether current arrangements deliver effective access to justice, and whether, how, and if required, by whom, the industry should be regulated. The working group is aiming to provide an interim report by summer 2024 and a full report by summer 2025.
In the context of commercial actions, including multi-party proceedings, there is normally no obligation to disclose funding arrangements to the opponent unless the court orders otherwise (for example, where a third party costs order is sought). However, when determining whether or not to make a collective proceedings order, the CAT will consider whether a proposed class representative will be able to pay the defendant's costs if ordered to do so, and will therefore examine any funding agreement in place.
As well as securing third-party funding, claimant groups are also likely to seek the protection of insurance policies, such as "After the Event" policies, to protect against the risks of being ordered to pay defence costs. Again, there is no obligation to disclose the existence of an insurance policy to the opponent. However, in many cases claimants may choose to do so, particularly in response to an application for security for costs, in order to demonstrate that the claimant will be able to pay the defendant's costs if required to do so.