How an Evolving CAT and a Post-PACCAR Market Are Reshaping UK Litigation Funding
This blog was originally published on Kain-Knight.co.uk as a guest article by Erso Capital’s Sarah Breckenridge.
Litigation funding in England and Wales is undergoing a period of accelerated change, shaped largely by developments in the Competition Appeal Tribunal (CAT). While class action cases in the CAT—especially opt-out claims—may seem a niche concern, the legal and commercial issues arising from them are setting precedents with much broader implications for funded litigation across the jurisdiction. The continuing fallout from the PACCAR decision, combined with ongoing challenges to post-PACCAR fee structures, has created significant uncertainty for funders and those advising clients on funding options. At the same time, evolving case law is exposing tensions between funders and class representatives, particularly when expectations around recoveries and settlements diverge. This article explores how recent CAT decisions are redefining funding agreements, why the ramifications go far beyond the competition sphere, and what lawyers and clients need to know as the funding market adapts to legal, economic and structural headwinds.
Why the CAT is shaping the funding landscape
In England and Wales, developments in the law and the market for litigation funding are being primarily driven by the progress of funded, opt-out competition cases in the UK’s Competition Appeal Tribunal (CAT). This is likely because these tend to be cases where the quantum claimed is so significant that defendants may be motivated to consider all procedural avenues to undermine a claim (including its funding). However, the CAT may also be fertile ground for funding issues to be developed because these are cases where an atypical alignment of interests between the commercial funder and the funded claimant may develop. The funded claimant is in fact a representative (of an unknown class of individuals) who must ensure that the best interests of that class are preserved—including the division of the spoils—and that may place tension on what has been agreed at the outset of the case in the funding agreement itself.
Nevertheless, the legal and commercial issues which are emerging from the CAT have a much wider impact on all funded litigation in England and Wales. There are two key reasons for that:
Issues around the funding of a CAT case are generally hard fought, given that the case cannot proceed unless the tribunal is satisfied the funding arrangements meet the “authorisation condition” set out in section 47B of the Competition Act 1998. Thus, we frequently see funding issues being appealed to the Court of Appeal or even the Supreme Court, and having precedent value for other forms of litigation in England and Wales.
Where the legal and commercial basis on which funders can operate is narrowed or modified by tribunal or court decisions, that affects the funding market as a whole, including the appetite for, or the basis on which, funders will support any type of case in the relevant jurisdiction.
For lawyers and clients considering funding for a dispute, the recent activity in the CAT is therefore vital to understand, as it is likely to impact funding applications generally.
The PACCAR ripples continue
Almost two years on from the Supreme Court’s judgment, the PACCAR ruling continues to affect funding arrangements and the market as a whole. The decision itself probably needs little introduction, but in very broad summary, has prevented funders from structuring their fees by reference to a percentage of the damages awarded in the case because to do so would render the agreement an (unenforceable) DBA.
Funders have adapted, so most new or renegotiated funding agreements now base a funder’s fee on a multiple of the sums invested in the case. But that structure may have numerous unintended consequences: for example, whereas a percentage of damages payment should always result in proportionate payments to funders and claimants, a multiple-based funder fee may erode the share of damages retained by the claimant if the final award is lower than the parties had anticipated at the outset of a claim.
Further, while there remains no imminent prospect of legislation overturning PACCAR, as had been planned before the change of government last year, the multiple-based funder’s fee itself is also to be scrutinised by the Court of Appeal in June 2024 in the next wave of PACCAR-type arguments being run by defendants in CAT claims [Neill v Sony and others]. These cases have funding arrangements renegotiated after PACCAR to remove the funder’s fee calculated as a percentage of damages, and substitute alternative payment structures, including the fee being calculated as a multiple of the investment. But defendants argue that those multiples themselves also render the arrangements unenforceable DBAs because, although determined by reference to the sums invested in the case, the fee is ultimately capped by reference to the proceeds in the case itself, as it can never exceed the damages recovered.
The outcome will be crucial for the UK funding industry: a decision which jeopardises the ability of a funder to offer a multiple-based fee, having already lost the ability to offer a percentage-based fee, leaves few commercial options for structuring deals to support cases in E&W. That would result in huge uncertainty for lawyers and their clients seeking funding for E&W cases, whether big-ticket CAT-style claims or more moderate commercial disputes, as funders assess the viability of the UK market compared to more permissive jurisdictions in Europe and elsewhere.
Recent Case Law in the CAT
Le Patourel demonstrates success at certification may not lead to success at trial
The dismissal of the class representative’s claim against BT in Le Patourel v BT has been suggested by some commentators as a negative for the funding industry, which, having seen this first opt-out claim lose, may be more reluctant to fund CAT claims. The more balanced view may be that the claim was put in the spotlight precisely because it was the first opt-out class action to go to trial in the CAT. It failed on a substantive legal ground (BT’s pricing, whilst ruled excessive, was not unfair to meet Limb 2 of the established test in United Brands) rather than for any structural or procedural failing of the CAT class action regime. Its dismissal therefore cannot signify an underlying problem for funders supporting CAT claims, who diligence the legal merits of claims and accept the (calculated) risk of losing in every case supported, large or small.
Merricks reveals potential tensions between funders and class reps
Of more direct interest to funders is the outcome of the settlement hearing in Merricks, which was handed down just as this article was being published. In that case, the funder objected to the proposed settlement as being too low. The hearing unearthed the potential tensions in the relationship between a funder and a represented class, each with a stake in the final settlement sum, which may emerge when the offer being made is far smaller than anticipated at the outset of the claim.
In its judgment the CAT has re-emphasised the importance of the funding industry to its jurisdiction and recognised that the business model of a funder relies on adequate commercial returns in those cases in its portfolio which succeed. The structure of the Merricks settlement was determined by the CAT on its own specific facts and outcomes, and -crucially- taking into account that this was one case which while “not fail[ing] altogether” has achieved a “very poor result” [183]. The “exceptional circumstances” of the case, may mean the resulting Collective Settlement Agreement Order comes in future to be seen as an outlier as more cases progress to settlement, but it nevertheless provides helpful insights into how the CAT will endeavour to strike the appropriate balance between the interests of the funder (which ordinarily will be taking risks across multiple cases in a portfolio) and class members (who as litigants in a single case have a very different perspective on risk).
Gutmann keeps funders towards the front of payout priority order
The commercial value that funders have for the CAT jurisdiction has certainly been recognised in the April 2025 judgment on Gutmann. In that case, the tribunal has decided – to funders’ relief- that it is within the discretion of the CAT to order, and permissible to agree in a funding agreement, that a funder’s fee could be paid out of damages which are not “undistributed”, i.e., before the claimant class. The CAT can properly supervise to ensure funders do not make excessive recoveries and the class is protected.
Where does all this leave us?
Since PACCAR, there has been turbulence across the UK funding market. Day-to-day business continues, but lawyers and their clients may have found some funders raising the bar, downsizing operations, or even moving away from the UK market. At the same time, the rapidly changing global economy and rising interest rates have made litigation potentially a less enticing asset class for some investors, leaving some funders struggling to raise new capital. However, that is not a universal picture: litigation funders are adaptable and commercial creatures, and funding for meritorious cases is still available. But, for the short term at least, the particular environment in England and Wales may mean that lawyers and clients have less choice, or need to approach more funders, when seeking funding.
What should we take away?
In short, the UK funding market is navigating a period of flux. While challenges remain, particularly around structuring enforceable and commercially viable agreements, funders continue to adapt, and opportunities for financing strong claims persist. For practitioners, staying abreast of these developments is key to advising clients strategically in an evolving landscape.