Investor – Beware Outliers!

By John Freund |

The following article is part of an ongoing column titled ‘Investor Insights.’ 

Brought to you by Ed Truant, founder and content manager of Slingshot Capital, ‘Investor Insights’ will provide thoughtful and engaging perspectives on all aspects of investing in litigation finance. 

Executive Summary

  • Commercial litigation finance does not have the same investor model as venture capital
  • Win rates in the commercial litigation finance industry are approximately 70%, globally
  • Investors need to assess outliers very carefully, as there is much to be learned from their contribution to portfolio returns
  • Outlier outcomes may enhance returns, but should not be counted on as the main contributor to returns

Slingshot Insights:

  • Investors should assess unrealized and realized cases in making their determination about fund manager performance
  • A good manager will understand how to avoid/minimize outlier risk and focus on creating diversified, well-balanced portfolios to deal with the various unknowns inherent in the asset class

Having reviewed over 100 different fund offerings in the commercial litigation finance space over the last five years, I have gained a certain level of insight into the spectrum of results that fund managers have been able to generate through their portfolios (some fully realized, but many more partially realized portfolios).  In the past, I have written about the importance of diversification, the applicability of portfolio theory (articles one, two & three), and the perils of fund concentration; but I also believe that investors in the asset class should understand the perils of relying on outliers to drive fund performance.

In the context of a portfolio of litigation finance cases, an outlier can be defined as a case outcome that sits outside a probabilistic range of acceptable (and preferably defined) outcomes within, say, (approximately) 2 standard deviations of (mean – average) expectations.  That is to say, if you target a portfolio of cases with basic value distribution characteristics (such as minimum and maximum values), such a portfolio will produce an average (a mean) and a standard deviation (a dispersion around the mean)1.  Therefore, for a normal bell-shaped distribution (with no skewness / heavy tail), you can assume  that those results that sit beyond two standard deviations should be considered outliers in that they don’t represent what you would typically anticipate to see in such a portfolio, because the result would be outside of a 5% – 95% confidence interval (i.e., the range within which you would expect most case values to fall, on both sides of the average).

However, one also needs to be cognizant that for litigation finance portfolios, it is not unusual to see a concentration of lower end cases (those with values well below the average), while outliers on the high end are quite uncommon. Expressed differently, a probability of low end outliers (both for individual cases, and in aggregate) is greater than a probability of high value outcomes.  In this context, assuming a normal bell-shaped distribution of values is an overly-simplistic assumption. In reality, it is rare that an accumulation of below-average cases is more than offset by a big win; although still a possibility.  Practically speaking, portfolio construction should not be based on the assumption of (exaggerated) high values materializing.

The other way to think about litigation finance, is that the dataset can be bifurcated into two subsets – there are the losers, which are typically (but not always) complete write-offs, and there are the winners, which can have a wide spectrum of outcomes,. As described above.  In the aggregate, this bifurcated data set makes it difficult to utilize traditional statistic methodologies to apply to the asset class, because the losers skew the averages and the standard deviations, but not as much as the winners do, because the winners have a larger dispersion of results.  Accordingly, one must be careful in applying statistics to commercial litigation finance asset class.

The one asset class where similar dynamics exist is the insurance industry, specifically, in the analysis of catastrophic events, and re-insurance and insurance-linked securities.  Investors with an insurance background would be used to dealing with investments that have similar outcome profiles, and to the extent they are working for a large insurer, they have the added advantage of being privy to settlement outcomes where their insurance company was involved in settling the claim.  A competitive advantage indeed!

Is Commercial Litigation Finance akin to Venture Capital? 

Some have described the commercial litigation finance asset class as having a “venture capital” type risk/reward profile, a contention with which I strongly disagree.  The typical venture capital portfolio model is highly skewed, the outcomes of which can be illustrated in this graph shared by Benedict Evans on Twitter.

As one can see from the chart in the above hyperlink, 6% of the deals within a VC portfolio produce 60% of the returns.  In essence, this is a model that is dependent on outliers to drive returns.  So, what’s wrong with that?  Well, the problem is that if you don’t get an outlier in your VC portfolio, the manager will not likely survive to live another day, which is a difficult way for a manager to run a business on a long-term basis.  It also means that for investors, it is difficult to select managers that can replicate outliers on a regular basis, as they are essentially statistical anomalies. This also explains the relatively high failure rate of fund managers in the venture capital industry. Coincidently, those VC managers that produce high end outliers frequently claim to produce high alpha returns (sometimes calling it a “secret sauce”) – while, in reality, their success may have more to do with “luck” than a systemic outcome – but that’s perhaps a topic for another article.

So, why do I think this is not an appropriate analogy for the commercial litigation finance asset class? The numbers just don’t support it.  I have been privy to over 1,000 litigation finance case outcomes in different case types, different sizes, different durations, different legal jurisdictions, and different defendants, and the reality across jurisdictions is that cases win (i.e. the manager makes a profit on its investment) approximately 70% of the time, and hence lose about 30% of the time.  This stands in stark contrast to the Venture Capital model where the VC manager is losing over 50% of the time and making less than 2X its investment 70% of the time.  So, whereas Venture Capitalists need to count on having outliers in their portfolio to create sufficient returns, a well-diversified litigation finance fund should not rely on outliers to produce returns, as there should be sufficient wins in their core portfolios (net of losses) to produce acceptable overall returns for investors, given the underlying risk profile of litigation finance portfolios (that are more akin to insurable exposures).  If a manager believes that outliers are necessary to produce returns, then I believe that manager does not understand the benefits of applying portfolio theory to the asset class, and the investor is taking unnecessary risk, because the stark reality is that no manager can tell you which case is going to be a home run case, and hence does not have the ability to include one in their portfolio.

While outliers in commercial litigation finance can enhance returns (albeit infrequently due to the low probability of such being the case), investors should not count on outliers for contributing to the majority of the fund’s returns, because the particular case that gave rise to the outlier event could have very easily ‘gone the other way’, especially if the outcome resulted from a judicial/arbitral decision, which are inherently binary outcomes.

The ‘Math’

The basic math of commercial litigation finance, although it rarely works out exactly this way, is that managers generally (emphasis added) underwrite to a 3X multiple of invested capital (“MOIC”), and managers win approximately 70% of their cases on average, hence the portfolio should theoretically produce a gross return of 3 X 70% = 2.1 X MOIC, which gets whittled down to say 1.75 x MOIC after management and performance fees and fund operating expenditures. Internal rates of return will then be derived based on the timing of funds deployed and the overall case duration of the portfolio. Some case types having longer duration but a higher probability of outlier returns, and other case types having shorter duration and generally lower potential for outlier returns. In other words, if a high value outlier is obtained, it’s IRR is likely “diluted” by a (much) longer than average case duration, thereby, its impact on the portfolio’s IRR is diminished.

In this context, when investors are assessing investing in a commercial litigation finance managers’ portfolio, especially one that mainly consists of single case investments, they should analyze the portfolio from two different perspectives: (i) determine how the fund would have performed if that outlier was not in the portfolio; and (ii) determine how the fund would have performed if that outlier resulted in a loss.  These are “incremental impact” analyses that are designed to capture a true value of such outliers. The first analysis will provide the investor with a perspective on how the fund performed without the benefit of the outlier event.  If the fund still maintained respectable performance, this may illustrate that the outlier event was not significant to the performance of the fund, which tells the investor that the manager was very thoughtful about the construction of a balanced portfolio, which is exactly what you want in a long-term oriented manager.  The second analysis enhances the first analysis by answering the question “Did the manger get lucky?”  If the second analysis shows that the opposite outcome would have decimated the fund returns, then it buttresses the first analysis and also indicates that perhaps the fund was too concentrated in terms of its deployed capital (which can be very different from its committed capital, as I have addressed in a previous article).

Corporate and Law Firm Portfolios

Fund managers investing in corporate portfolios or law firm portfolios provide yet another layer of complexity.  In the case of corporate portfolios, these portfolios are groups of single cases that have a common plaintiff.   In the case of law firm portfolios, these portfolios are with law firms that have a contingent interest in a group of cases.  By their very construct, portfolio investments are inherently less risky than single cases because the portfolios are generally cross-collateralized, so the risk of having an outlier event within the sub-portfolio is that much more remote.  Nevertheless, investors should assess the component parts of the sub-portfolio’s results, because if the sub-portfolios themselves are generating returns through an outlier event, then the exact same risk exists as a manager that focuses on single cases within their portfolio.  The key difference is that a fund manager that invests in a series of sub-portfolios will have more chances to make errors than one that focuses on a portfolio of single cases.

Other Considerations

The other thing to consider, is that not all cases and case types are alike.  Each case has its own idiosyncrasies and each case type has its own unique risk/reward profile.  Accordingly, an investor cannot look at a portfolio of single cases and assume that each of the cases within the portfolio has similar risk / reward characteristics.  So, when an investor assesses the outcomes of cases, it is not only important to look at the outliers, but also to look at, among other attributes, (a) the types of cases, (b) the life cycle of the cases (important for determining duration), and (c) how the outcomes of the case were derived (judicial/arbitral outcomes vs. settlements) and the derivation’s effect on returns (a portfolio that derives most of its results from settlements (non-binary) is far superior to a portfolio that derives its results from 3rd party decision makers (binary), but this risk also varies by case type and venue).

Portfolio Theory plays a significant role in investing in the commercial litigation finance market, and so investors need to be aware of its application and the various permutations that can arise in the construction of a portfolio, which generally starts with an investment in a ‘blind pool’ type fund.  More active investors can eliminate the risk inherent in a blind pool by selecting individual case or portfolio exposures, but they generally need to have internal resources to appropriately assess risk, or be prepared to incur the cost to outsource those underwriting activities.

Equally important is the selection of a business model under which a portfolio is sourced, evaluated, and constructed. A manager philosophy that equates litigation finance investing with venture capital investments can be misguided and possibly result in unrealistic assumptions and faulty portfolio construction that can produce real results quite distinct from the manager’s intentions.

1Standard deviation is the measure of dispersion of a set of data from its mean. It measures the absolute variability of a distribution; the higher the dispersion or variability, the greater the standard deviation and the greater will be the magnitude of the deviation of the values from their mean.

Slingshot Insights

 For investors, I strongly advise diving deep into both realized and unrealized cases within the portfolio to get a better understanding of the manager’s appreciation for portfolio construction and their appetite for risk.  While it may be cost prohibitive to do deep diligence on every case in the portfolio, analyzing high level data about the nature of the various case exposures can bring an investor a long way to understanding the risks inherent in the portfolio and the manager’s approach to investing.  For the realized subset of the portfolio, understanding the dynamics at play within the case and its contribution to overall fund performance is critical to assessing a fund manager’s ability to replicate results (termed persistency in private equity), which is critical to long-term investing in the space.

I don’t believe this is a venture capital asset class, and a manager that tries to convince an investor otherwise is either taking unnecessary risk, or does not understand how the asset class benefits from portfolio theory.

As always, I welcome your comments and counter-points to those raised in this article.

 Edward Truant is the founder of Slingshot Capital Inc. and an investor in the consumer and commercial litigation finance industry.  Slingshot Capital inc. is involved in the origination and design of unique opportunities in legal finance markets, globally, investing with and alongside institutional investors.

PACCAR’s tidal wave effects: Understanding the Legal, Financial and Policy impacts of a highly controversial ruling

By Ana Carolina Salomao |

The following is a contributed piece by Ana Carolina Salomão, Leila Zoe-Mezoughi, Micaela Ossio Maguiña and Sarah Voulaz, of Pogust Goodhead.

This article follows our previous publication dated 10 October 2023 regarding the Supreme Court ruling in PACCAR[1] on third-party litigation funding agreements which, very simply put, decided that litigation funding agreements (“LFAs”), permitting funders to recover a percentage of damages, amounted to (“DBAs”) damages-based agreements by virtue of s.58AA of the Courts and Legal Services Act 1990 (the “1990 Act”). As such, all LFAs (including those retrospectively drafted) were consequently required to comply with the Damages-Based Agreements Regulations 2013 (the “2013 Regulations”) or be deemed, unenforceable.

In this article, we explore the three main industry-wide changes that have arisen as a direct result of the PACCAR ruling:

  1. The diverse portfolio of LFA reformulation strategies deployed by litigation finance stakeholders.
  2.  The government response, both in terms of official statements and policy changes, which have ultimately led to the draft bill of 19 March 2024.
  3.  The wave of litigations subsequent to the PACCAR ruling, giving insight into the practical market consequences of the ruling.

Ultimately, the PACCAR impact and its proposed reversal has not undermined the UK litigation finance market, in fact the contrary; it has promoted visibility and adaptation of a litigation finance market that continues to gain significant traction in the UK. As a result, despite the concern shown by most UK industry stakeholders about the negative impacts of the PACCAR ruling, this article argues that proper regulation could indeed be highly advantageous, should it incentivise responsible investment, whilst protecting proper access to justice. However, the question does remain, will we ever get there?

The LFA reformulation storm.

As expected, the first reaction to PACCAR came from the litigation finance market. As anticipated, LFAs (those with an investor return formula based on a percentage of the damages recovered) are being amended by parties to avoid their potential unenforceability.

The majority of amendments being implemented are aimed to design valuation methodologies for the amount recovered, which are not directly related to the damages recovered, but are rather a function of some other metric or waterfall, therefore involving a process of alteration of pricing. The intention is for the agreements to fall out of the scope of the definition of ‘claims management services’ provided by section 58AA of the Courts and Legal Services Act 1990 (CLSA), which stipulates two main criteria: (i) the funder is paid if the litigation succeeds, and (ii) the amount paid back to the funder is a function of the amounts recovered by the claimant in damages. As such, novel pricing structures such as charging the amount granted in third-party funding with accrued interest; a multiple of the funded amount; or even a fixed pre-agreed amount recovered in the form of a success fee, would not meet both criteria and would hence fall outside of the legal definition of claims management services. These options would avoid the risk of an LFA being bound to the same requirements of a DBA and potentially rendered unenforceable.[2]

Another option to render LFAs enforceable following PACCAR is of course to make these compliant to the definition of DBA provided in s.58AA(2) of the 1990 Act. As such, LFAs would be subjected to stringent statutory conditions as per the Damages-Based Agreements Regulations 2013 (the “2013 Regulations”). This option has however not been the most attractive for funders, firstly due to funders not necessarily conducting claims management services and, secondly, because LFAs would automatically become subject to highly stringent rules to structure the agreements and pursue recovery. For example, such LFAs would need to comply with the cap requirements outlined in the 2013 Regulations such as: 25% of damages (excluding damages for future care and loss) in personal injury cases, 35% on employment tribunal cases and 50% in all other cases.

Ultimately, it can be argued that the choice for restructuring a single LFA or a portfolio of LFAs will vary on a case-by-case basis. Those parties who find themselves at more advanced stages of proceedings will be disadvantaged due to the significant challenges they are likely to face in restructuring such LFAs. From the perspective of the legal sector, on the one hand, we can see an increase in law firms’ portfolio lending, whereby the return to funders is not directly related to damages recovered by the plaintiff. On the other hand, there are certain actors who are remaining only superficially affected by the ruling, such as all funding facilities supporting law firms which raise debt capital collateralised by contingent legal fees.

The introduction of the proposed bill by the government (which is discussed below), is a reflection of the enormous burden the Supreme Court ruling has placed on critical litigation funder stakeholders who are likely to have invested disproportionate sums to amend their LFAs and restructure their litigation portfolios. However, the bill has also given momentum to the sector and is helping to highlight the importance of diversification in litigation funding to protect the interests of low-income claimants. The medium-term net balance of the regulation might be rendered positive if redirected at perfecting and not prohibiting third-party funding agreements to protect access to justice.

The UK Government Intervention.

The UK government has raised concerns regarding the legal and financial impacts of PACCAR relatively swiftlyfollowingthe 26 July 2023 judgement. Their first response to PACCAR came from the Department of Business and Trade (DBT) at the end of August 2023. The DBT stated that, being aware of the Supreme Court decision in PACCAR, it would be “looking at all available options to bring clarity to all interested parties.[3]

In the context of opt-out collective proceedings before CAT, the government proposed in November 2023 amendments to the Digital Markets, Competition and Consumers Bill (DMCC) through the introduction of clause 126, which sought to implement changes to the Competition Act 1998 (CA) to provide that an LFA would not count as a DBA in the context of opt-out collective proceedings in the CAT. This proposal came from the understanding that after PACCAR opt-out collective proceedings would face even greater challenges considering that under c.47C(8) of the CA 1998 DBAs are unenforceable when relating to opt-out proceedings. Proposals for additional amendments to the DMCC soon followed, many of which await final reading and approval by the House of Lords. However, in December 2023 Lord Sandhurst (Guy Mansfield KC) noted that while amendments to the DMCC would mitigate PACCAR’s impact on LFAs for opt-out collective proceedings in the CAT, “the key issue is that the Supreme Court’s PACCAR ruling affects LFAs in all courts, not just in the CAT, and not just, as this clause 126 is designed to address, in so-called opt-out cases.”

As a response to this, the Ministry of Justice announced last March that the government intended to extend the approach taken for opt-out collective proceedings in the CAT to all forms of legal proceedings in England and Wales by removing LFAs from the DBAs category entirely. The statement promised to enact new legislation which would “help people pursuing claims against big businesses secure funding to take their case to court”and“allow third parties to fund legal cases on behalf of the public in order to access justice and hold corporates to account”.[4]

Following this announcement, the Litigation Funding Agreements (Enforceability) Bill was published and introduced to the House of Lords. As promised by the government’s previous statements, the primary purpose of the Bill is to prevent the unenforceability of legitimate LFAs fitting into the amended DBA definition of PACCAR. Indeed, the bill aims to restore the status quo by preventing litigation funding agreements from being caught by s.58AA of the 1990 Act.[5]

The litigation wave.

As parliamentary discussions continue, all eyes are now in the Court system and the pending decisions in litigations arising from PACCAR. Despite the government’s strong stance on this matter, the bill is still in early stages. The second reading took place in April 2024, where issues such as the retrospective nature of the Bill, the Civil Justice Council’s (CJC) forthcoming review of litigation funding, and the need to improve regulations on DBAs, were discussed. Nevertheless, despite the arguable urgency of addressing this issue for funders and the litigation funding market, there is no indication that the bill will be expedited; hence the next step for the bill passage is the Committee stage. The myriad of cases arising from PACCAR may need to stay on standstill for a while, as Courts are likely to await the outcome of the proposed bill before deciding on individual matters.

The UK has a longstanding history of tension between the judiciary power and the two other spheres of the government, the Executive and Parliament. Most of these instances have sparked public debate and have profoundly changed the conditions affecting the market and its players. For example, in the case of R (on the application of Miller and another) (Respondents) v Secretary of State for Exiting the European Union (Appellant) [2017] UKSC 5, Gina Miller launched legal proceedings against the Johnson government to challenge the government’s authority to invoke Article 50 of the Treaty of European Union, which would start the process for the UK to leave the EU, without the Parliament’s authorisation. The High Court decided that, given the loss of individual rights that would result from this process, Parliament and not the Executive should decide whether to trigger Article 50, and the Supreme Court confirmed that Parliament’s consent was needed.

Another example is the more recent case of AAA (Syria) & Ors, R (on the application of) v Secretary of State for the Home Department [2023] UKSC 42 regarding the Rwanda deportation plan. In this case the Supreme Court ruled unanimously that the government’s policy of deporting asylum seekers to Rwanda was unlawful – in agreement with the Court of Appeal’s decision which found that the policy would pose a significant risk of refoulement.

Nevertheless, rushing the finalisation of a bill reversing PACCAR would probably be a counterproductive move. The recent developments suggest that policy makers should focus on deploying a regulatory impact assessment on any regulations aimed at improving access to finance in litigation. Regulators and legislators should ensure that, before designing new regulatory frameworks for litigation finance,  actors from the litigation finance industry are consulted, to ensure that such regulations are adequate and align with the practical realities of the market.

As the detrimental impacts of PACCAR become ever more visible, public authorities should prioritise decisions that favour instilling clarity in the market, and most importantly, ensuring proper access to justice remains upheld in order to “strike the right balance between access to justice and fairness for claimants”.  

A deeper look into the post-PACCAR’s litigations and their domino effects

Even though the English court system is yet to rule on any post-PACCAR case, it is important to understand the immediate effects of the decision by looking at a few landmark cases. We provide in this section of the article an overview of the impacts of the rulingin perhaps the three most important ongoing post-PACCAR proceedings: Therium Litigation Funding A IC v. Bugsby Property LLC (the “Therium litigation”), Alex Neill Class Representative Ltd v Sony Interactive Entertainment Europe Ltd [2023] CAT 73 (the “Sony litigation”) and the case of Alan Bates and Others v Post Office Limited [2019] EWHC 3408 (QB), which led to what has been known as the “Post Office scandal” (also referred to as the “Horizon scandal”).

Therium litigation

The Therium litigation is one of the first cases in which an English court considered questions as to whether an LFA amounted to a DBA following the Supreme Court decision in PACCAR. The case concerned the filing of a freezing injunction application by Therium Litigation Funding I AC (“Therium”) who had entered into an LFA with Bugsby Property LLC (“Bugsby”) in relation to a claim against Legal & General Group (“L&G”). The LFA stipulated between Therium and Bugsby entitled Therium to (i) return of the funding it had provided; (ii) three-times multiple of the amount funded; and (iii) 5% of any damages recovered over £37 million, and compelled Bugsby’s solicitors to hold the claim proceeds on trust until distributions had been made in accordance with a waterfall arrangement set out in a separate priorities’ agreement.

Following a settlement reached between Bugsby and L&G, Bugby’s solicitors transferred a proportion of settlement monies to Bugsby’s subsidiary, and notified Therium of the intention to transfer the remaining amount to Bugsby on the understanding that the LFA signed between Therium and Bugsby was unenforceable as it amounted to a DBA following the PACCAR ruling. Therium applied for an interim freezing injunction against Bugsby under s.44 of the Arbitration Act 1996 and argued that, as the payment scheme stipulated by the LFA contained both a multiple-on-investment and a proportion of damage clauses, and the minimum recovery amount to trigger the damage-based recovery had not been reached, no damage-based payment was foreseen.

This meant that the DBA clause within the LFA could be struck off without changing the nature of the original LFA, so that it constituted an “agreement within an agreement”. As legal precedents such as the Court of Appeal ruling in Zuberi v Lexlaw Ltd [2021] EWCA Civ 16 allowed for parts of an agreement to be severed so as to render the remainder of the agreement enforceable, the High Court granted the freezing injunction, affirming that a serious question was raised by Therium regarding whether certain parts of the agreement could be severed to keep the rest of the LFA enforceable.

By declaring that there was a serious question to be tried as to whether the non-damage clauses, such as the multiple-based payment clauses, are lawful or not, the High Court opened the possibility of enforceability of existing LFAs through severability of damage-based clauses in instances where PACCAR may also apply. The Therium litigation presents an example of another possible structuring strategy to shape LFAs to prevent them from becoming unenforceable under PACCAR. Nonetheless, as the freezing injunction will now most likely lead to an arbitration, a final Court ruling on the validity of these non-damage-based schemes appears to be unlikely.

Sony litigation

The Sony group litigation is another example of one of the first instances where issues of compliance of a revised LFA have been addressed in the aftermath of PACCAR, this time in the context of CAT proceedings. In this competition case, Alex Neill Class Representative Limited, the Proposed Class Representative (PCR), commenced collective proceedings under section 47B of the CA 1998 against Sony Interactive Entertainment Network Europe Limited and Sony Interactive Entertainment UK Limited (“Sony”). The claimant alleged that Sony abused its dominant market position in compelling publishers and developers to sell their gaming software through the PlayStation store and charging a 30% commission on these sales.

The original LFA entered between Alex Neill and the funder as part of the Sony litigation amounted to a DBA and would have therefore been unenforceable pursuant to PACCAR. On this basis, the PCR and funder negotiated an amended LFA designed to prevent PACCAR enforceability issues. The LFA in place was amended to include references for funders to obtain a multiple of their total funding obligation or a percentage of the total damages and costs recovered, only to the extent enforceable and permitted by applicable law. The LFA was also amended to include a severance clause confirming that damages-based fee provisions could be severed to render the LFA enforceable.

The CAT ultimately agreed with the position of the PCR and confirmed that the revised drafting “expressly recognise[d] that the use of a percentage to calculate the Funder’s Fee will not be employed unless it is made legally enforceable by a change in the law.” In relation to the severance clause, the CAT also expressly provided that such clause enabled the agreement to avoid falling within the statutory definition of a DBA and referred to the test for effective severance clauses.

The CAT’s approach in recognising the PACCAR ruling and yet allowing for new means to render revised LFAs enforceable in light of this decision provides a further example of a Court’s interpretation of the decision, allowing another route for funders to prevent the unenforceability of agreements. Allowing these clauses to exempt litigation funders from PACCAR will in fact allow for such clauses to become market standard for LFAs, and in this case particularly for those LFAs backing opt-out collective proceedings in the CAT.

Post Office scandal  

Although the Post Office scandal occurred in 2019, this case was only recently brought back to light following the successful tv series ‘Mr Bates vs The Post Office’ which recounts the story of the miscarriage of justice suffered by hundreds of sub-postmasters and sub-postmistresses (SPM’s) in the past two decades. In short, the Post Office scandal concerned hundreds of SPM’s being unjustly taken to court for criminal offences such as fraud and false accounting, whilst in reality the Horizon computer system used by Post Office Ltd (POL) was found to contain errors that caused  inaccuracies in the system.

Mr. Bates, leading claimant in the case, brought the case on behalf of all the SMP’s which had been unfairly treated by POL. The issuing of the claim was only made possible thanks to a funding arrangement between litigation funders and the SPM’s, used as a basis for investors to pay up front legal costs. As outlined in a publication by Mr Bates in January 2024, such financing, combined with the strength and defiance of Mr. Bates’ colleagues, allowed the case to be brought forward, a battle which in today’s circumstances the postmaster believes would have certainly been lost.[6]

The sheer scale of the Post Office scandal, and the fact that traditional pricing vehicles for legal services would have negated the claimants access to justice, placed the case near the top of the government’s agenda and called again into question the effect of PACCAR on access to justice. Justice Secertary Alex Chalk MP relied on the example of Mr Bates and the Post Office scandal to affirm that that “for many claimants, litigation funding agreements are not just an important pathway to justice – they are the only route to redress.”[7]In light of this recent statement more radical changes to legislation on litigation funding and the enforceability of LFAs appear to be on the horizon.


Assessing the long-term impact of PACCAR will ultimately need to wait until the dust in the litigation finance market settles. Nonetheless, the immediate impacts of the decision have brought four key considerations to light.

First, the relevance of the litigation funding industry in the UK is substantial and any attempt to regulate it impacts not only those who capture value from the market but also the wider society. Regulation of litigation funding could inadvertently affect wider policy questions such as equal access to justice, consumer rights, protection of the environment and human rights.

Second, there is an undeniable intention of the regulators to oversee the litigation finance market, which could reflect in stability and predictability that would be much welcomed by institutional investors and other stakeholders. However, this conclusion assumes that regulatory efforts will be preceded by robust impact assessment and enforced within clear guardrails, always prioritising stability and ensuring proper access to justice.

Third, PACCAR serves to bring awareness that attempts to regulate a market in piecemeal can lead to detrimental outcomes and high adapting costs, far offsetting any positive systemic effects brought by the new framework. Any attempts to regulate a market so complex and relevant for the social welfare should be well-thought-out with the participation of key stakeholders.

Fourth, despite the recent headwinds, the market and government reaction further prove that the litigation finance market continues its consolidation as an effective vehicle to drive value for claimants and investors. The fundamentals behind the market’s growth are still solid and the asset class is consolidating as a strategy to achieve portfolios’ uncorrelation with normal market cycles. As private credit and equity funds as well as venture capitalists, hedge funds and other institutions compete to increase their footprint in this burgeoning market, it is safe to expect a steady increase of market size and investors’ appetite for the thesis.

In conclusion, despite a first brush view of the PACCAR decision, the reactions to this decision and the subsequent developments have evidenced how litigation finance continues to be a promising investment strategy and an effective tool to drive social good and access to justice.

[1] Ana Carolina Salomao, Micaela Ossio and Sarah Voulaz, Is the Supreme Court ruling in PACCAR really clashing with the Litigation Finance industry? An overview of the PACCAR decision and its potential effects, Litigation Finance Journal, 10 October 2023.

[2] Daniel Williams, Class Action Funding: PACCAR and now Therium – what does it mean for class action litigation?, Dwf, October 25, 2023.

[3] Department for Business and Trade statement on recent Supreme Court decision on litigation funding: A statement from the department in response to the Supreme Court's Judgement in the case of Paccar Inc. and others vs. Competition Tribunal and others. Available at: <>.

[4] Press release, ‘New law to make justice more accessible for innocent people wronged by powerful companies’ (GOV.UK, 4 March 2024) Available at <>.

[5] Litigation Funding Agreements (Enforceability) Bill (Government Bill originated in the House of Lords, Session 2023-24) Available at <>.

[6] Alan Bates, ‘Alan Bates: Why I wouldn’t beat the Post Office today’ (Financial Times, 12 January 2024) <>.

[7] Alex Chalk, ‘Cases like Mr Bates vs the Post Office must be funded’ (Financial Times, 3 March 2024) <>.

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Fernando Gragera joins Aon to lead the litigation and contingency insurance practice in Iberia

By Harry Moran |

Aon strengthens its M&A and Transaction Solutions team and pioneers a local team specialising in the management of these risks

Aon plc (NYSE: AON), a leading global professional services firm, has appointed Fernando Gragera as Director of Litigation and Contingent Risks for Spain and Portugal. Fernando will join the Iberia M&A and Transaction Solutions (AMATS) team led by Lucas López Vázquez, and globally in Aon's international Litigation Risk Group. His role will be to develop the litigation insurance practice and assist Aon's clients in transferring risks arising from litigation and contingent situations.

Fernando Gragera, a Spanish lawyer and solicitor of England and Wales with more than 13 years of professional experience, comes from PLA Litigation Funding, a litigation funder specialising in the Iberian market. Previously, he worked as a lawyer in the litigation and arbitration department of Cuatrecasas and as in-house counsel at Meliá Hotels International, where he was responsible for the group's litigation and arbitration.

This appointment responds to the growing interest from investment funds, corporations and law firms in covering contingent and litigation-related risks and makes Aon the first professional services firm with a local team specialising in contingent and litigation solutions in Iberia.

Miguel Blesa, head of Aon Transaction Solutions in Iberia: "Fernando's appointment is a major milestone for the industry and embodies a commitment we have been working on for years. In this way, we reinforce our commitment to continue to support our clients and help them make the best decisions to protect and grow their business”.

About Aon

Aon plc (NYSE: AON) exists to shape decisions for the better — to protect and enrich the lives of people around the world. Through actionable analytic insight, globally integrated Risk Capital and Human Capital expertise, and locally relevant solutions, our colleagues provide clients in over 120 countries and sovereignties with the clarity and confidence to make better risk and people decisions that help protect and grow their businesses.

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Altroconsumo Secures Impressive 50 million Euro Settlement for 60,000 Participants to Dieselgate Class Action in Italy

By Harry Moran |

Altroconsumo and VW Group have reached a ground-breaking agreement, providing over 50 million euro relief to over 60,000 Italian consumers affected by the emissions fraud scandal. Celebrating this major win for Italian consumers, Euroconsumers calls on Volkswagen to now also compensate Dieselgate victims in the other Euroconsumers countries. 

The settlement reached by Altroconsumo, arising from a Euroconsumers coordinated class action which commenced in 2015 ensures that Volkswagen will allocate over 50 million euros in compensation. Eligible participants stand to receive payments of up to 1100 euros per individual owner.

This brings an end to an eight year long legal battle that Altroconsumo together with Euroconsumers has been fiercefully fighting for Italian consumers and marks a significant milestone in seeking justice for those impacted by the ‘Dieselgate’ scandal.

We extend our massive congratulations to Altroconsumo for reaching this major settlement in favor of the Italian Dieselgate victims. Finally, they will receive the justice and compensation they deserve. This milestone underscores the importance of upholding consumer rights and the accountability of big market players when these rights are ignored, something Euroconsumers and all its national organisations will continue to do together with even more intensity under the new Representative Actions Directive” – Marco Scialdone, Head Litigation and Academic Outreach Euroconsumers

Together with Altroconsumo in Italy, Euroconsumers also initiated Dieselgate class actions against the Volkswagen-group in Belgium, Spain and Portugal. While the circumstances are shared, the outcomes have been far from consistent.

Euroconsumers was the first European consumer cluster to launch collective actions against Volkswagen to secure redress and compensation for all affected by the emissions scandal in its member countries. After 8 years of relentless pursuit, we urge the VW group to finally come through for all of them and give all of them the compensation they rightfully deserve. All Dieselgate victims are equal and should be treated with equal respect.” – Els Bruggeman, Head Policy and Enforcement Euroconsumers

Consumer protection is nothing without enforcement and so Euroconsumers and its organisations will continue to lead important class actions which benefit consumers all across the single market. 

Read the full Altroconsumo press release here.

About Euroconsumers 

Gathering five national consumer organisations and giving voice to a total of more than 1,5 million people in Italy, Belgium, Spain, Portugal and Brazil, Euroconsumers is the world’s leading consumer cluster in innovative information, personalised services and the defence of consumer rights. Our European member organisations are part of the umbrella network of BEUC, the European Consumer Organisation. Together we advocate for EU policies that benefit consumers in their daily lives.

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