Class actions. Credit: Rawpixel.com/ Adobe Stock

With the recent surge in consumer class action applications, those who broker the deals between law firms and litigation funders find themselves in a unique position.

Without the input of such intermediaries, it would be impossible for opt-out group lawsuits to reach the Competition Appeals Tribunal (CAT) in London.

Individual consumers are powerless to take on the might of multinational corporations, with the average legal fee budget for such cases stretching to £23.4million.

As expensive and lengthy collective consumer rights claims edge closer to being heard at the CAT, the spotlight falls more intensely on funding brokerage companies.

Brokers are also involved in arranging for after-the-event (ATE) legal expenses insurance, ensuring that if the representative consumer group does not win its case against a powerful multinational it will not be left with an impossible bill.

In contrast to the U.S., changes to U.K. law governing opt-out class actions mean that the loser has to pay the other side's legal costs, a measure brought in to discourage frivolous claims.

This puts specialist brokerage firms at the heart of a complex dynamic, one which directly influences which class actions can actually proceed.

Another element of the process which is expected to prove crucial as the untried class action process plays out is the distribution of funds to members of the group following judgment.

The changes to the Consumer Rights Act 2015 have created a role for companies that specialise in allocating damages to potentially millions of claimants.

Here we lift up the bonnet, and break down the constituent parts and players of the opt-out class action process, and discover more about who's really benefitting from the class action boom.

'We're here to help'

In November last year, it was announced that Factor Risk Management had brokered funding and ATE insurance for Leigh Day's case against U.K. water and sewerage companies, which secured a "significant" funding package from legal finance experts Bench Walk Advisors.

This is expected to be the first environmental class action before the CAT.

Factor Risk's co-founder and director Tom Davey says the company exists "to help people manage dispute risk", alleviating the biggest financial concern in cases for which law firms will bill over £1 billion in legal fees in the coming years.

Though Davey happily concedes that there is a profit motive for funders, he is insistent that some are equally geared towards acting in the public interest.

"What they are saying to consumers and their representatives is if you are going to take a group action against a well-financed, large corporation you could be bled dry," he says. "They are saying, 'Here we are – happy to help'.

"That motivation is twofold: one the profit motive and two providing a service that levels up the litigation playing field, which enables ordinary people to have redress through the courts against larger enterprises."

But who's really benefitting?

The loudest critics of the class action legislation changes claim that lawyers and third party litigation funders are the main beneficiaries, rather than the consumers they represent.

Davey, however, disagrees, insisting that his role in setting up funding for class actions is enabling justice for the masses in a form that was hitherto not viable.

He explains that his brokerage company maintains close ties with around 30 funders, and 20 insurers.

"Large corporations benefit from the fact that litigation in the U.K. is not only prohibitively expensive but also exposes unsuccessful claimants to adverse costs under the loser-pays principle," he said.

"This acts as a major barrier to access for justice for those individuals, and allows large corporations to act with impunity because they know that the likelihood of exposure to individual redress is remote. In other words, if you're an ordinary person and you've got an issue with a company that has provided you with a service you're not going to be able to go after them on your own because it's just too expensive. You don't have the resources to be able to do that.

"By corralling everybody together, by building a cohort of people who suffered similar issues you are able to bring forward a viable litigation, which on an individual basis is just not going to work.

"Most of these cases are against large corporations—vehicle manufacturers and big tech companies, for example. They are providing services for lots and lots of people, so if something goes wrong it will affect many people. We see no sign of collective actions slowing down."

Some law firms specialising in mass action litigation originated as funders in the U.S. This has enabled them to accumulate sufficient capital to mount consumer claims without needing to seek support with costs from external companies.

Keller Postman, one of the pioneering firms involved in class actions in the U.S., is now at the forefront of the class action revolution in the British courts.

Partner Mark Kenkre, who leads on multi-claimant disputes, said having funding in-house can be beneficial in taking a group action forward.

"It means you don't have to go find a funder," he said. "We can identify the wrongdoing and then we don't have to get the funding for it. We can act quicker. We don't have to go to a funder and tell them it's a good case and that money is needed to run it."

Though the issue of funding is not without controversy, Kenkre is adamant that it gives litigants access to justice without financial risk, enabling consumers to "operate with equality of arms".

"If you didn't have this, in terms of funders and law firms set up to do class actions, then big business wouldn't get called to account," he added. "You would just have a greater proliferation of wrongdoing across different sectors.

"The courts are not receptive to lots of small claims. It's more efficient for them if it's wrapped in one. It's also more cost-effective for a funder and for making sure that you're getting the maximum return for people.

"Often these people are in a difficult situation—they've lost their pension or whatever else—so funding and managing a litigation is the last thing they want to be doing. Having law firms set up to do this is fundamental to getting redress for people who get involved in things they wish they hadn't done."