Collective Actions, Costs Exposure and the Price of Inaction in the CAT

‍As collective proceedings continue to gain traction in the UK’s Competition Appeal Tribunal (CAT), the approach to adverse costs—and how actively parties manage that risk—is coming into sharper focus. A recent costs judgment in Gutmann v First MTR South Western Trains Limited and others offers a timely reminder that costs exposure in these claims is not just about headline numbers, but about conduct, strategy, and procedural engagement throughout the life of a case.

‍ As more collective claims move through the CAT, there are instructive lessons for lawyers, class representatives and funders. The Tribunal recently handed down a costs judgment following the Gutmann case, in which the Class Representative failed to obtain an award on behalf of consumers who had travelled using boundary fare tickets.

‍It was common ground that the Class Representative (or a third party behind it) would be responsible for meeting the defendants’ costs. However, the Tribunal’s decision lays down some significant markers on costs and party behaviour.

‍ The Class Representative had the benefit of an adverse costs indemnity of £15 million from its funder. While the defendants had criticised the adequacy of this indemnity at various stages, they failed to take meaningful steps to clarify their own costs budgets or to challenge the sufficiency of the adverse costs cover through the Tribunal—despite being encouraged to do so. Such engagement would have enabled the Class Representative to consider whether to extend or modify its arrangements.

In the event, the defendants’ final costs bill far exceeded the £15 million indemnity, with the Tribunal describing those costs as “eye-watering”. However, the defendants’ failure to proactively address the adverse costs position ultimately proved decisive.

‍Although there is no binding rule that a third-party funder’s liability for adverse costs is capped at the level of its funding (often referred to as the Arkin cap), the Tribunal retains discretion. In this case, the CAT emphasised that, in collective proceedings, it must assess the adequacy of adverse costs arrangements at the certification stage—and that this assessment should be kept under review as the case evolves, including as costs budgets develop.

‍Against that backdrop, it was incumbent on the defendants to raise any concerns about the adequacy of adverse costs protection during the proceedings. They did not. The Tribunal therefore determined that the costs order should not exceed the £15 million indemnity—particularly noting that this figure already exceeded the funder’s actual expenditure on the claim.

‍While each case will turn on its own facts, this decision provides helpful guidance for Class Representatives and funders navigating costs risk in collective proceedings. More broadly, it serves as a clear warning to all parties: adverse costs exposure is not a static issue. It must be actively monitored and, where necessary, challenged as a case progresses. Failing to do so may come at a very significant price.

‍ At Erso, our affiliation with TheJudge Group means we place strong emphasis on ensuring that robust adverse costs cover sits alongside our investments. Ongoing monitoring of adverse cost exposure is critical, which is why we strongly favour having a specialist broker, such as TheJudge, actively managing the structure.

‍The market for adverse cost insurance is dynamic, with capacity and participating insurers continually evolving due to both new entrants and exits. As a result, there is always a possibility that policy limits may need to be increased, and it cannot be assumed that incumbent insurers will have either the appetite or capacity to accommodate this.

‍Having an experienced broker embedded in the process ensures that any potential shortfall can be identified and addressed proactively—well before it becomes a time-critical issue.

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