Mr Bates vs The Post Office demonstrated the true value of litigation funding

By Tom Davey, Co-Founder and Director of Factor Risk Management

The David v Goliath story of how 555 sub-postmasters took on the Post Office over its faulty Horizon software - and won - showed the British public the value of litigation funding. This case also helped galvanise the UK government into backing the litigation funding sector, with legislation that looks set to secure the long-term viability of litigation funding in the UK. 

Led by Alan Bates, the Justice for Sub-postmasters Alliance (JFSA) brought a funded High Court action against the Post Office which settled out of court for £58m. Simultaneously, the courts began quashing the convictions of over 900 sub-postmasters who had been wrongly convicted over a 16-year period thanks to defects in the Post Office’s Horizon IT system. In January 2024, the scandal was dramatized in an ITV mini-series, Mr Bates vs The Post Office. Attracting millions of viewers and generating enormous publicity, the series helped create a political environment such that the UK government was willing to rapidly legislate to protect the litigation funding sector from a recent adverse UK Supreme Court judgment. 

Despite the benefits of litigation funding becoming apparent to the public, last year we saw its scope radically limited by a UK Supreme Court ruling in PACCAR and ors. v Competition Appeal Tribunal and ors. The court held that many litigation funding agreements, which allow funders to recover a percentage of damages are, in fact, damages-based agreements, which are only enforceable if they comply with the relevant regulatory regime.

This was no mere technical clarification of the law, but a judgment with potentially devastating consequences for public access to justice. The potential ramifications for the viability of class actions, such as that brought by JFSA, were enormous. The judgment could mean that future group actions such as that which Mr Bates took against the Post Office could become unviable for litigation funders to even consider.

That adverse judgement was all the more remarkable, given the UK Supreme Court’s previous recognition of the importance of litigation funding for UK consumers.

In the 2020 Supreme Court judgment in Mastercard v Merricks, Lord Briggs said that, “Proof of breach, causation and loss is likely to involve very difficult and expensive forensic work, both in terms of the assembly of evidence and the analysis of its economic effect. Viewed from the perspective of an individual consumer, the likely disparity between the cost and effort involved in bringing such a claim and the monetary amount of the consumer’s individual loss, coupled with the much greater litigation resources likely to be available to the alleged wrongdoer, means that it will rarely, if ever, be a wise or proportionate use of limited resources for the consumer to litigate alone.” 

Litigation funding gives consumers parity of arms even against the largest corporations.

The UK has seen large numbers of consumers benefit from group litigation in cases such as the Mastercard case and, given the evident benefits litigation provides provides to consumers, it’s unsurprising that we are now witnessing a global trend towards the adoption of litigation funding.

Litigation funding is now a global industry with its own recognised asset class, and an estimated global market of US$17 billion – which looks set to more than double in the next decade according to analysts.  Ever more US states are now permitting litigation funding. Indian firms are also finding a growing role for litigation funding, as it rapidly develops in a jurisdiction where it faces few statutory or regulatory barriers.

In Australia, the courts have taken a practical approach to regulating litigation funding, through the judicial oversight of funding agreements. Judges can intervene on behalf of claimants where contracts contrive the public interest or if they are onerous and unfair. The Australian example proves that the courts can supervise funding within a legal framework, rather than requiring a statutory regulatory regime, which could have a needlessly stifling effect on the industry.

Litigation funding is a high-risk area of business, however, and it is not always easy to make returns. Funders therefore need adequate freedom to price the risks involved.

Fortunately, the UK government’s desire to reverse the controversial PACCAR judgment shows a clear willingness to legislate pragmatically to protect litigation funding. In doing so, it recognises the importance of the sector and the key role litigation funding plays in helping people access justice, as was dramatically demonstrated by the Post Office scandal.