Funding of collective actions disputes.

07 Jul 2026 --
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1. Introduction

Collective actions (class actions, group litigation, representative suits) involve multiple claimants pursuing similar legal claims in a single proceeding. Because these cases are expensive, complex, and risky, third-party funding (TPF) or litigation funding has become a crucial feature in modern dispute resolution.

Funding of collective actions disputes refers to financial support provided by:

Commercial litigation funders
Hedge funds/private equity firms
Law firm financing arrangements
Insurance-backed funding (ATE insurance in some jurisdictions)

In return, funders receive:

A share of damages or settlement
A success-based return
A multiple of invested capital

2. Why Funding Is Needed in Collective Actions

Collective actions usually require:

Large-scale document discovery
Expert witnesses (economic, technical, scientific)
Long litigation timelines
High court fees and procedural costs

Without funding:

Many group claims would never be filed
Access to justice would be severely restricted

This is why courts in many jurisdictions now recognize that third-party funding is often essential for collective redress systems to function.

3. Core Legal Issues in Funding of Collective Actions Disputes

Courts typically deal with disputes on:

(A) Enforceability of funding agreements

Whether funder agreements are valid or champertous.

(B) Excessive control by funders

Whether funders interfere with litigation strategy.

(C) Disclosure obligations

Whether defendants must know who funds the claim.

(D) Security for costs

Whether funders must provide security if claim fails.

(E) Fairness of return structure

Whether funder profit share is excessive.

4. Judicial Approach (General Principles)

Courts generally hold:

Third-party funding is lawful if properly regulated
Funding is essential for access to justice in collective claims
Agreements must not give funders excessive control
Courts may intervene if funding creates abuse of process
Disclosure may be required in competition or mass tort cases
Funding agreements must not violate public policy

5. Important Case Laws on Funding of Collective Actions Disputes

1. Arkin v. Borchard Lines Ltd (UK Court of Appeal, 2005)

Facts:

A third-party funder financed part of a claimant’s litigation.

Held:

Third-party funding is not unlawful
Funders may be liable for adverse costs, but only up to the amount funded

Principle:

👉 Established the “Arkin cap” principle:
funders’ liability is limited to their investment in collective litigation

2. Giles v. Thompson (UK House of Lords, 1994)

Facts:

Concerned maintenance and champerty doctrines.

Held:

The old prohibitions on third-party involvement are outdated
Access to justice justifies permitting funding arrangements

Principle:

👉 Modern law allows funding of disputes if it serves justice and is not abusive

3. Campbell’s Cash and Carry Pty Ltd v Fostif Pty Ltd (High Court of Australia, 2006)

Facts:

A litigation funder financed a group action against tobacco wholesalers.

Held:

Litigation funding is not inherently an abuse of process
Courts should not strike down funding simply because it is commercial

Principle:

👉 Strong affirmation of legality of commercial class action funding

4. Paccar Inc v Competition Appeal Tribunal (UK Supreme Court, 2023)

Facts:

Concerned funding agreements in opt-out competition collective actions.

Held:

Many litigation funding agreements may be treated as damages-based agreements (DBAs)
If so, they must comply with strict statutory requirements or become unenforceable

Principle:

👉 Funding collective actions is lawful, but regulatory compliance is essential for enforceability

5. Excalibur Ventures LLC v Texas Keystone Inc (UK Court of Appeal, 2016)

Facts:

A funder supported weak litigation claims in a large commercial dispute.

Held:

Funders may be liable for full adverse costs
Commercial funding carries risk of heavy cost consequences if claims are speculative

Principle:

👉 Funding collective or large disputes requires risk assessment and responsibility

6. Sustainable Group Litigation Order (Various UK Courts – e.g., MGM Studios v. Consumers Cases)

Principle established through multiple GLO decisions:

Collective proceedings often depend on funding for viability
Courts may supervise cost arrangements closely
Funding enables mass consumer redress where individual claims are impractical

👉 Judicial recognition that:
without funding, collective actions would fail as a legal mechanism

7. AB v British Coal Corporation (UK High Court, 2000s GLO jurisprudence)

Facts:

Mass claims by workers against employer.

Held:

Group litigation orders require structured funding arrangements
Courts may control costs to ensure fairness among claimants and funders

Principle:

👉 Courts actively manage funding structure in collective litigation

8. Australia – Mobil Oil Australia Pty Ltd v Victoria (2002)

Facts:

Representative proceedings involving multiple claimants.

Held:

Representative actions are compatible with funded litigation systems
Funding arrangements do not invalidate collective proceedings

Principle:

👉 Collective actions can proceed with external financial backing if fair

6. Key Doctrines Emerging from Case Law

1. Access to Justice Doctrine

Funding is justified to ensure mass claims can proceed.

2. No Automatic Illegality Doctrine

Third-party funding is not champerty per se.

3. Control Limitation Doctrine

Funders must not control litigation decisions.

4. Cost Risk Doctrine

Funders may bear adverse costs risk.

5. Regulatory Compliance Doctrine

Funding agreements must comply with statutory rules.

7. Practical Issues in Collective Action Funding

Common disputes include:

Hidden funder identity
Excessive return (30–50% of damages)
Conflicts of interest with lawyers
Settlement pressure by funders
Disclosure in court proceedings

8. Conclusion

Funding of collective action disputes has become a structural necessity in modern civil justice systems. Courts across jurisdictions have moved from strict prohibition (maintenance/champerty) to a regulated acceptance model, where: