Justice for hire? Opportunities and challenges in third-party litigation funding in competition collective actions

In many jurisdictions, collective actions in competition law have become an important route for consumers and businesses to seek redress. Yet these cases are costly and complex. Third-party litigation funding (TPLF) has emerged as a central mechanism for making them viable.

Recent UK experience provides important lessons on the opportunities and challenges in TPLF. While funding has supported the rapid growth of collective proceedings before the UK’s Competition Appeal Tribunal (CAT), it has also raised important questions that are relevant to any jurisdiction with collective actions: who ultimately benefits and how are incentives aligned?

This Agenda article is based on Bell, A. (2025), ‘Economic perspectives on the influence of third-party litigation funding on competition collective actions in the United Kingdon’, Competition Law Journal, https://doi.org/10.4337/clj.2025.01.03.

Note: This article should not be interpreted as commenting on any live case. It contains general perceptions of the funding market based on public information.

Why funding matters

Lodging a robust competition claim involves substantial costs: legal teams, expert economic evidence, disclosure, and often insurance against adverse costs. For class actions, expenses also arise in distributing any eventual damages. Further, if claims fail, the claimant side may face liability for defendants’ costs—as in Le Patourel v BT, where the representative’s side was ordered to pay £14m towards BT’s defence costs after the CAT rejected the claim in 2024.¹

These risks and costs make external finance nearly essential. TPLF allows a funder to provide capital in exchange for a share of damages or a multiple of the costs advanced. This arrangement helps to overcome the ‘free-rider’ problem in opt-out claims: because consumers benefit from damages regardless of whether they contribute financially, voluntary funding from class members is unlikely. Funders fill this gap by accepting risk in return for potentially high returns.

Rapid growth

Since 2021, the number of collective actions in the UK has increased sharply. Between 2016 and 2024, 54 Collective Proceedings Order applications were made and 46 have been made since 2021. By the end of 2023, more than 500m class members were represented across UK proceedings—equivalent to multiple claims per consumer.²

Many of these actions rely on litigation funders. Britain’s funding market is regarded as one of the most developed in the world, with more than a dozen active players and an estimated £2bn in available capital.³ Some funders, such as Innsworth, specialise in litigation finance and were central to high-profile cases such as Merricks v Mastercard.⁴ Others are newer entrants, such as Asertis, which was founded in 2020 and was funding the Riefa v Apple claim, which was ultimately refused certification.⁵ It is likely that this breadth of funding sources has supported the accelerated growth in claims.

For consumers, the expansion of funded claims has improved access to justice. Funders are incentivised to conduct due diligence and select cases with merit and scale, which leads to more robust litigation. Reviews by the Legal Services Board in 2024 and the Civil Justice Council in 2025 were broadly supportive of the necessity and effects of TPLF. In evaluating the need for a potential regulatory framework for litigation funding, both reviews emphasised the importance of preserving the benefits of TPLF through proportionate regulation.⁶

Key concerns

Despite these advantages, three issues recur in policy and judicial debates:

• concern 1: funders may capture disproportionate benefits;
• concern 2: TPLF could encourage excessive litigation;
• concern 3: potential conflicts of interest.
• Indeed, these concerns are under the spotlight, with the UK government opening a consultation on the future of the collective actions regime in August 2025,⁷ with consultation questions touching directly and indirectly on each of these issues.

Concern 1: funders may capture disproportionate benefits

The first concern is that litigation funders may extract rewards which appear disproportionate compared with those flowing to consumers.

In Trucks, the Road Haulage Association’s funder was reported to receive between 6% and 30% of damages on a £2bn claim.⁸ In Which? v Qualcomm, the funder’s cut was set at 15–25% of damages in a £480m case.⁹ In Gormsen v Meta, Meta alleged that the funder’s success fee could reach £750m.¹⁰

Translated into investment terms, these success fees imply a naïve estimate of annualised returns as high as 60–70%,¹¹ compared with the Bank of England’s estimate of a 6% economy-wide cost of capital.¹² In other words, funding costs could be seen to be much higher than those in other financial markets (although as is discussed below, the chance that a claim succeeds in its entirety is small, and litigation funders are likely to measure investment returns over a portfolio of claims).

This raises the question: does competition keep funder rewards in check? In other words, why not trust the market to deliver good value to consumers?

The case for protecting consumers rests on the nature of the relationship between funders and class representatives. In practice, the dynamics of this market can favour funders. Litigation funding is a bespoke arrangement between class representatives, funders and lawyers, with multiple rounds of upfront due diligence. Even with multiple funders available on the market, it may be difficult for a class representative to secure multiple ‘like-for-like’ offers for any specific case. This means, in practice, class representatives may not have the range of alternatives available to a typical consumer in a competitive market.

Yet there is also a case for caution. Funders argue that, once the risk of funding is taken into account, costs are as low as they can be. Litigation is risky and headline success fees are contingent on claims succeeding in their entirety, an outcome subject to significant uncertainty.¹³ Capital can also be tied up for many years, meaning that funders forgo other investment opportunities until the litigation ends. Further, only a small fraction of proposals are funded (perhaps 3–5%) suggesting that only a small number of proposals are expected by funders to be good bets.¹⁴ Moreover, distributions to class members often take priority over any returns to funders. The overall result is that the ‘risk-adjusted’ rate of return may be much lower than any headline success fees, and if claims fail or succeed on a smaller scale than expected, returns can even be negative.

As such, attempting to reconcile these two perspectives, (i) that regulation should protect consumers from high costs and (ii) that the market works well as it is, highlights a central tension. While market dynamics may not always deliver strong price pressure, high returns are not always guaranteed either. Both factors shape how the market is likely to evolve and the extent of policy intervention required.

The UK Supreme Court’s PACCAR ruling in 2023 added complexity for class representatives (and funders).¹⁵ It declared percentage-of-recovery agreements (see Box 1) unenforceable. This judgment may have compounded concerns around the scale of return. Since that judgment, many funders have shifted to multiplier-of-costs models, where returns are linked to multiples of expenditure rather than damages (see Box 1).

From an economic perspective, multiplier-of-costs models can weaken incentives to control costs and skew funding towards large, complex claims, because high costs themselves become a source of profit. They may also make it harder for the CAT to judge whether the fees are fair and proportionate to the size of the claim.

Concern 2: TPLF could encourage excessive litigation

A second concern is that the availability of TPLF may encourage claims that lack merit or that impose unnecessary costs on defendants and the wider economy.

As was noted in concern 1, critics argue that funders and law firms have incentives to develop claims proactively, approaching potential class representatives rather than responding to demand. This was also noted in O’Higgins v Barclays (FX)¹⁶ and Riefa v Apple,¹⁷ where representatives were approached by legal teams. The combination of this incentive, and the potential for high returns (for example, via settlement if the targeted firm considers the legal and reputational costs of fighting even weak claims too great) lead some to fear that Britain could drift towards US-style ‘nuisance’ suits, where defendants settle to avoid the expense of prolonged litigation.

Yet evidence is mixed on whether competition litigation is truly excessive in the UK. Some observers point to cases such as Lloyd v Google,¹⁸ Le Patourel v BT and Boundary Fares,¹⁹ as examples where lengthy litigation produced little tangible consumer benefit. Others view these same cases as meritorious attempts to test legal boundaries, creating precedents and clarifying the law even when damages were not ultimately awarded, or were awarded to a much lesser extent than anticipated. The judgement in Kent v Apple judgement,²⁰ which found in the claimants’ favour—albeit subject to appeal—is likely to have strengthened the position of those who consider that litigation funding enables meritorious cases.

Economic reasoning suggests that under-litigation may be at least as much of a risk as over-litigation. Because private claimants do not capture the broader social benefits of creating precedents and deterrence, they may underinvest relative to what is socially optimal. In this view, TPLF corrects a gap by financing claims that produce wider benefits.²¹ This may be a reason for caution regarding funder returns (concern 1): limiting returns could risk undermining the incentive to bring socially valuable cases.

In practice, the CAT acts as a gatekeeper to prevent an excess of litigation. While not explicitly applying a merits test (as is applied in the USA at a similar stage, for example), the CAT allows defendants to bring preliminary issues and strike-outs to filter out unmeritorious claims. It has refused certification of several claims—including Riefa v Apple and Gormsen v Meta—where it judged the claims to be insufficiently robust. It also has discretion to impose costs orders that deter speculative actions. As the case law develops, this ability to filter out weak claims could become steadily more effective.

Concern 3: potential conflicts of interest

A third concern is that funders’ commercial incentives may diverge from the best interests of class members, especially when it comes to settlement decisions.

The dispute in Merricks v Mastercard illustrates this issue. Innsworth Capital, the funder, opposed the class representative’s decision to settle for £200m, calling the sum premature and too low. It argued that £179m of the award should be regarded as the ‘best estimate of the market price’ of its funding commitment, leaving negligible compensation for consumers.²² The CAT disagreed, stressing that its role was to assess whether settlements were ‘just and reasonable’ for the class, not for funders.²³

In other cases, the concern is the opposite: that funders may press for early settlement to realise returns more quickly, especially when rising interest rates increase the opportunity cost of tying up capital. Early settlement can reduce the consumer benefit of litigation, including the loss of precedents that would otherwise clarify the law.

Funding contracts themselves can exacerbate conflicts. In Gutmann v Govia,²⁴ the CAT objected to a clause granting the funder broad unilateral rights to withdraw funding. In Riefa v Apple, certification was denied partly because the class representative had not demonstrated sufficient scrutiny of the funding terms.

The CAT’s Guide to Proceedings explicitly warns of the risk of conflicts of interest.²⁵ Interestingly, judges have observed that percentage-of-recovery models—now barred after PACCAR—would better align funder and class incentives, since funder returns rise directly with consumer benefit.²⁶ This highlights the potential value of legislative reform to restore that option.

Implications

From an economic perspective, TPLF provides a solution to the underfunding of collective claims and has enabled access to justice that would otherwise be out of reach. At the same time, the structure of funding agreements matters. Poorly aligned incentives risk undermining consumer outcomes, increasing litigation costs, or distorting case selection.

The key policy question is how to retain the benefits of TPLF while addressing its risks. The UK Civil Justice Council’s final report in 2025 recommended legislation to clarify the distinction between contingency fees and third-party funding, effectively reversing PACCAR. A return to percentage-of-recovery models, coupled with reasonableness tests, could better align incentives than the current reliance on multiplier-of-costs contracts. Alongside these recommendations, the UK government has opened a consultation on the future of the collective actions regime, ²⁷ examining issues such as the fairness proportionality of litigation funder fees, litigation funding models, settlement issues and claim certification. The outcome of this process will be central to determining how the market and the regulatory balance evolves.

In the meantime, the CAT remains the primary safeguard. By scrutinising funding arrangements at certification and monitoring settlements, it can ensure that funder returns remain proportionate and that consumer interests are not sidelined.

Funders to the back of the class?

TPLF has transformed the UK’s collective actions landscape. Its growth has enabled consumers to pursue claims that would otherwise never have been funded, while also sharpening concerns about fairness, efficiency, and alignment of interests.

As the market matures, continued judicial oversight and carefully designed regulation will be essential. The challenge is to ensure that litigation funding continues to serve consumers’ interest—not just the funders’.