Context: The litigation funding industry has seen a recent rise in scrutiny across the globe, with proposed legislation being put forward in both the UK and the U.S. to regulate it. In the UK, the Supreme Court ruled in July 2023 that certain types of litigation funding agreements (LFAs) were a form of damages-based agreement (DBA). Sony, Apple, Visa and Mastercard filed appeals in several pending collective proceedings in the UK Competition Appeal Tribunal (CAT), challenging the enforceability of the new form multiple-based LFAs involved in the cases, and arguing that these should also be classified as DBAs. In each case, however, the CAT held that the revised LFAs were not DBAs, so that the LFAs are enforceable. Meanwhile, legislation (the LFAs (Enforceability) Bill 2024) was brought forward to clarify that such agreements were not DBAs, but that was tabled when the UK held a general election in July 2024. Last month, Susan Dunn, Chair, Association of Litigation Funders, warned during the 2nd Annual LF Dealmakers Europe that if the bill does not get in place soon and the appellants are successful, this could be the end of funding (June 27, 2025 ip fray article).
What’s new: The England & Wales Court of Appeal (EWCA) has unanimously dismissed all of the appeals brought by Sony, Apple, Visa and Mastercard, upholding the lawfulness of multiple-based agreements (July 4, 2025 EWCA judgment). There are three main takeaways from the ruling:
- LFAs that are based on a multiple of costs, even when damages-capped, are not DBAs.
- DBAs are agreements where what is recovered by a representative, such as a funder, is a percentage of the damages recovered. Anything to the contrary would be “absurd”, as the fact that the source of the fee paid is the damages does not turn it into a DBA, nor does the fact that there is an upper limit or cap on the funder’s fee by reference to the damages.
- References to percentage damages “to the extent enforceable by law” do not convert LFAs into unenforceable DBAs.
Direct impact: While this decision can be further appealed in the UK’s Supreme Court, the “end of litigation funding” has not (yet) been reached. This is a huge win for litigation funders and provides some much-needed clarity for the UK’s collective action regime. Attorneys and funders in the litigation finance community have already welcomed the judgment, including Matthew Lo, a Director at Exton Advisors, who wrote on Friday that it is a “victory for common sense” (July 4, 2025 LinkedIn post by Matthew Lo).
Wider ramifications: This comes less than a week after a bill proposed by U.S. Senators Thom Tillis and Kevin Hern that would have imposed taxes on litigation finance returns of 31.8% was removed from the Republican tax and spending bill, making it an even more significant win for the litigation funding community (July 1, 2025 ip fray article). That bill had originally been proposed, according to Mr. Tillis, to bring “much-needed transparency and accountability by taxing these profits and deterring abusive practices that undermine the integrity of our courts”, but many litigation funders were concerned it would wipe out the sector.
In its judgment on Friday, the court referred back to the Supreme Court’s PACCAR decision, in which it had held that the LFAs in question were DBAs under section 58AA of the Courts and Legal Services Act 1990, since the funder was providing “claims management services” within that section and, in consequence, the LFAs were unenforceable.
But, it held, in these specific actions, this is not the case. Specifically, the court found:
“The fact that the multiple recoverable by the funder may be subject to adjustment depending on the amount of damages recovered or at the discretion of the CAT does not alter the character of that primary contractual entitlement which is to a multiple of outlay.”
And, it held that the fact that the funder’s return is subject to an “express” or “implied” cap because it is limited by reference to the proceeds, does not mean it is determined or calculated by reference to the amount of those proceeds.
The court also criticized the appellants’ case, emphasizing that there is a “faint irony” in the companies using concern for the class representative as a basis for their argument that the percentage provision renders the LFA an unenforceable DBA. “In any event, the argument is without merit,” it concluded.
A “welcome reprieve”
The decision has largely been welcomed by funders and litigators alike. Lesley Hannah at Hausfeld, which is counsel to Dr. Rachel Kent in a competition class action against Apple over being overcharged for app purchases, said this is indeed a “resounding win” for the class representative in relation to her funding arrangements (July 4, 2025 LinkedIn post by Lesley Hannah).
Emma Carr at Gowling WLG, meanwhile, wrote it is a “clear and emphatic boost” for funders, class reps and the UK’s collective regress regime (July 4, 2025 LinkedIn post by Emma Carr).
And Ian Li at Gateley Legal noted that the judgment not only resolves four extant CAT proceedings but informs the framework of litigation funding agreements for all current and future funded cases in England and Wales (July 4, 2025 LinkedIn post by Ian Li). “This is a welcome reprieve,” he added.
Counsel
Alex Neill Class Representative Limited, Commercial and Interregional Card Claims I Limited, Commercial and Interregional Card Claims II Limited, Dr. Rachael Kent, and Mr. Justin Gutmann were represented by Nicholas Bacon KC, Daniel Saoul KC, and Richard Hoyle, as well as Milberg London LLP, Harcus Parker Limited, Hausfeld & Co LLP, and Charles Lyndon Limited.
Meanwhile, Sony, Visa, Mastercard, and Apple were represented by Mr. Daniel Piccinin KC and Ms. Gayatri Sarathy, Linklaters LLP, Millbank LLP, Freshfields LLP, Gibson, Dunn & Crutcher UK LLP, and Covington & Burling LLP.