Collective Actions Guide

Powering Justice: The Essential Guide to Collective Actions & Class Actions Litigation Funding

The pursuit of justice against corporate giants or state actors is typically an expensive, multi-year undertaking. Collective Actions Litigation Funding has emerged as the essential mechanism that levels the playing field, ensuring meritorious claims are not abandoned due to a lack of financial resources.

Market Size & Growth

The global litigation funding market is estimated at over $23 billion in 2024, attracting major institutional investors seeking high-yield, uncorrelated returns independent of traditional financial markets.

What is Collective Actions / Class Actions Litigation Funding?

Collective actions litigation funding is non-recourse capital provided by a third party to finance group claims — class actions, GLOs, or collective proceedings. If the case loses, claimants owe nothing. The funder covers legal costs in exchange for a share of any successful recovery.

Collective actions (known as Class Actions in the US, and Group Litigation Orders (GLOs) or Collective Proceedings in the UK and Europe) allow a group of individuals or entities with a common legal claim to pursue that claim together efficiently.

Litigation Funding (TPF) involves a third party—a specialised funder unconnected to the dispute—agreeing to cover some or all of the legal costs in return for a fee, payable only if the case is successful. This is a crucial non-recourse model, meaning if the claim is lost, the funder loses their investment, and the claimants owe nothing to the funder.

The Core Mechanism

The process is built on a high-risk, high-reward investment model:

Due Diligence

The funder conducts rigorous analysis into legal merits, quantum (damages value), and defendant's ability to pay. Only 3–5% of cases pass this high bar.

Funding Agreement

A formal LFA covers solicitor fees, barrister fees, expert witnesses, court costs, and Adverse Costs (often mitigated by ATE insurance).

Return Structure

If successful, the funder receives either a multiple of investment (e.g., 3x or 4x) or a percentage of damages (though percentage structures face regulatory scrutiny in some jurisdictions).

Quick Reference: Key Funding Terms

Term	Full Name	Role in Funding
TPF	Third-Party Funding	The core investment model that covers legal costs in exchange for a conditional return.
Non-Recourse	-	Funders lose their investment if the case fails; claimants pay nothing.
ATE Insurance	After the Event Insurance	Policy purchased by the funder to cover the claimant's Adverse Costs risk.
LFA	Litigation Funding Agreement	The binding contract outlining the funder's return structure and obligations.

The Necessity of Funding for Collective Claims

Collective actions are inherently expensive and often involve years of legal manoeuvring against large, well-resourced defendants. Collective Actions Litigation Funding addresses three core barriers to justice:

Access to Justice

Removes financial barriers for individuals and small businesses, enabling them to pool smaller claims into a single, economically viable asset.

Risk Transfer

Non-recourse TPF combined with ATE Insurance transfers adverse costs risk entirely from claimants to the funder.

Capital Management

Corporate claimants can move litigation costs off-balance-sheet, preserving working capital while treating claims as monetisable assets.

The Global Landscape and Regulatory Evolution

The UK and the PACCAR Impact

The UK's market for "opt-out" collective proceedings in the Competition Appeal Tribunal (CAT) faced major disruption with the 2023 Supreme Court decision in R (PACCAR) v Competition Appeal Tribunal.

The Ruling

The Supreme Court ruled that certain LFAs where the funder's return was calculated as a percentage of damages recovered were unenforceable Damages-Based Agreements (DBAs).

The Response

The UK government proposed the Litigation Funding Agreements (Enforceability) Bill to retrospectively clarify that TPF agreements are not DBAs, safeguarding access to justice.

International Pioneers and Current Trends

Australia: Established a robust framework for class actions and funding decades ago, acting as a global benchmark.
The EU: The Representative Actions Directive (RAD) is forcing member states to introduce collective consumer redress mechanisms.
Key Trends: Rapid growth in ESG claims, data breach collective actions, and portfolio funding arrangements.

Funding Assessment: How Claimants Secure Capital

For law firms and class representatives seeking funding, the funder's decision hinges on a rigorous three-part test:

1. Liability (Merits)

The case must have a high probability of success—typically requiring a minimum 60% chance of prevailing, substantiated by strong legal opinions from reputable counsel.

2. Quantum (Damages)

Potential damages must be substantial enough to cover all costs and the funder's return while leaving significant benefit for claimants. Funders typically require a 10:1 or higher damages-to-cost ratio.

3. Collectibility

The defendant must have sufficient assets or insurance to pay the final judgment. A strong case against a financially unstable defendant is generally not funded.

Ethical Considerations and Judicial Oversight

The involvement of sophisticated third-party investors requires strict judicial and regulatory oversight to protect class members:

Conflict of Interest

Courts mandate intensive judicial oversight of settlements to ensure the funder's return is fair, just, and reasonable—protecting class members from disproportionate reductions in their recovery.

Lawyer Independence

Funding agreements must stipulate that funders cannot dictate legal strategy. The lawyer's professional independence and client's control over litigation must be maintained at all times.

Conclusion: The Future of Legal Enforcement

Collective Actions / Class Actions Litigation Funding has fundamentally transformed legal enforcement by transferring the financial burden of challenging powerful defendants. It is an established, multi-billion-dollar asset class and the engine driving global accountability—particularly in complex areas like competition and environmental law.

As legal mechanisms for collective redress continue to expand globally, the role of litigation funding will only become more central, cementing its position as a key enabler of access to justice worldwide.

Exploring Funding for a Collective Action?

Audley Capital advises law firms and class representatives on structuring and securing funding for collective actions. Contact us to discuss your case.

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