Britain’s class action market is booming.

Consumers are increasingly familiar with advertisements promising compensation for everything from car finance and data breaches to defective products and competition claims. Behind many of these cases sits another rapidly expanding industry: third-party litigation funding.

A new Civitas report, Litigation Nation: The growth of a class action claims culture, raises important questions about where this is heading. The concern is not simply about individual lawsuits, but the emergence of a more commercialised litigation market in which legal claims themselves can become investment opportunities.

The scale of the change is striking. According to figures reported by The Telegraph, third-party litigation funding grew by more than 1,000 per cent, from around £198 million in 2011 to £2.2 billion in 2022.

The question is whether transparency, regulation and consumer protection have kept pace.

From access to justice to an investment market

Litigation funding can serve a legitimate purpose. An outside investor pays the costs of pursuing a case and receives an agreed return if it succeeds. Without that support, some claimants might be unable to afford to take on a large company.

But funders are commercial investors, not charities. Their involvement creates financial interests alongside those of the people seeking compensation.

This matters particularly in mass claims, where potentially huge sums are at stake and large numbers of consumers may be represented.

Access to justice is important. But so is ensuring that the system remains focused on providing redress rather than primarily generating returns for those financing and running litigation.

Who is behind the money?

One of Civitas’s central concerns is transparency.

Courts have limited insight into the beneficial owners of litigation funders, while requirements to disclose the ultimate source of funding are limited.

Identifying the fund financing a case may therefore not reveal who ultimately supplied the capital.

As Civitas contributor Seema Kennedy argues: “Justice may be blind to status and power; it should not be blind to who is financing litigation.”

Defendants should know who is financing litigation against them. Courts should be able to identify relevant financial interests. And consumers joining a mass claim should understand who stands behind it.

Who gets the compensation?

Transparency also matters because litigation funding is not free money.

Funders generally expect a return if a case succeeds and may have priority over proceeds. The Telegraph reports that in the Post Office litigation, funders and lawyers reportedly received around 80 per cent of the settlement.

The circumstances of individual cases differ, but the example illustrates why consumers should understand the economics of a claim rather than simply its headline compensation figure.

Before joining a class action, claimants should be able to establish:

• Who is funding the case?
• What return could the funder receive?
• What other fees and costs could be deducted?
• Who has influence over important decisions, including settlement?
• How much of any eventual award is expected to reach claimants?

When claimants become customers

The growth of mass litigation has been accompanied by an increasingly sophisticated market for finding potential claimants.

Online advertising and claims websites can make joining litigation remarkably easy – answer a few questions, provide some details and potentially receive compensation if the case succeeds.

That convenience can help people discover legitimate claims they would otherwise know nothing about. But it also creates a risk that access to justice becomes blurred with customer acquisition.

Where significant commercial interests depend on building large claimant groups, consumers should understand the financial incentives operating behind the advertisements they see.

A justice system should provide effective redress for genuine harm. It should also guard against incentives that encourage litigation primarily because claims can be assembled, financed and monetised at scale.

The risk of speculative claims

These concerns are not confined to think tanks.

The Financial Conduct Authority has warned about opaque funding connected with motor-finance litigation. According to The Telegraph, the regulator raised concerns that “complex offshore financing” could contribute to an avalanche of speculative claims against financial firms.

Once litigation becomes an investment market, the interests of claimants, lawyers and investors are not necessarily identical.

That does not make a funded claim illegitimate. It makes transparency and appropriate safeguards more important.

Regulation needs to catch up

Civitas argues that stronger safeguards are needed around litigation funding, including greater disclosure of who ultimately owns or finances funds.

The principle should be straightforward.

If billions of pounds of investment capital are financing cases through Britain’s courts, policymakers and courts should be able to understand where that capital originates. Claimants should know what funders stand to receive and what effect those arrangements could have on their compensation.

The rapid expansion of the industry makes those safeguards more urgent, not less.

Access to justice needs accountability

The debate should not be reduced to a choice between litigation funding and access to justice.

Third-party funding can help people pursue legitimate claims against organisations with vastly greater resources.

But Britain does not have to accept opacity or weak consumer protections in order to preserve that benefit.

As litigation funding grows, the basic questions become more important: Who is financing the claim? What do they stand to make? And how much will ultimately reach the people the litigation is supposed to compensate?

Consumers deserve clear answers. Courts deserve transparency. And an industry deploying billions of pounds through the justice system should be subject to scrutiny proportionate to its growing influence.

Access to justice matters.

But justice should not become just another asset class.