Landmark BT class action shows continued momentum for litigation funding sector

Following the recent launch of a class action in Justin Le Patourel v. BT Group PLC by a former executive of communications watchdog Ofcom, more than 3 million British Telecom (BT) customers could receive a total of £1.3bn in compensation over allegations that they have been overcharged for landline services.

Arriving in the Competition Appeal Tribunal on 29 January 2024, just weeks after the success of the ITV drama “Mr Bates vs The Post Office” and the unprecedent legal action that followed, we are once again seeing ordinary people having to rely on the Courts, rather than regulators, to bring about the correction of injustices.

With the current legal landscape uncertain, this article will explore how the BT class action reflects continued momentum for the sector and is part of a global trend towards litigation funding. With the story of Alan Bates shining a spotlight on the vital nature of litigation funding, it is now crucial that the controversial PACCAR judgment is reversed to give consumers parity of arms in David versus Goliath legal battles.

In this landmark case, claimants allege that BT used its dominant position in the telecoms market to charge “excessive” sums for use of its landlines and related products. Following an investigation by Ofcom into BT’s practices which found in 2017 that consumers were getting “poor value for money”, the telecom giant cut landline prices but did not offer customers compensation for past instances of overcharging. Ofcom’s failure to force BT to compensate customers led to the launching of the group action claim, again highlighting weakness across the regulatory landscape in terms of consumer protection.

As the first stand-alone opt-out claim to proceed to trial, litigation funders and the wider legal industry will be keenly watching the BT case.

Opt-out claims such as the BT class action are a cost-efficient way to deliver access to justice for individuals who would otherwise have no hope for their claim to be heard.Much like the Post Office scandal and resulting group actions, the lack of effective regulation has meant that claimants have had to litigate in order to bring about change and hold large corporates to account.

The outcome will be instructive as to the direction of the class action regime going forward, which is of particular importance in the context of other claims brought by consumers where breaches of competition law are alleged. Ellora MacPherson, chief investment officer at Harbour, noted that the BT case was a “reminder of the important role that litigation funders can play in ensuring consumer claims can be pursued to conclusion”.

The involvement of the Competition and Markets Authority (CMA) in this case is not in and of itself unusual; however, it does come at a time when the government has expressed its wish to undo the controversial U.K. Supreme Court decision in R (on the application of PACCAR Inc and others) v Competition Appeal Tribunal, which was handed down in July 2023, in light of public interest in the Post Office scandal.

Last year, despite the benefits of litigation funding becoming apparent to the public, the scope of litigation funding was radically limited by the Supreme Court’s PACCAR ruling. 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 were enormous. The judgment could have meant that future group actions such as that which Mr Bates took against the Post Office would become unviable for litigation funders to even consider.

In the 2020 Supreme Court judgment inMastercard v Merricks,Lord Briggs said that “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 against even the largest corporations. The UK has seen a massive number of consumers benefit from group litigation such as the Mastercard case and, given the evident benefits litigation provides to consumers, it is unsurprising that we are now witnessing a global trend towards the adoption of litigation funding.

As a global industry now recognised as an asset class in its own right, litigation funding is currently estimated to have a market size of c. $17bn, a figure which is predicted to more than double in the next 10 years.

The PACCAR judgment was a clear retrograde step out of tune with the worldwide shift in favour of embracing such forms of funding. The UK Government’s reaction to this judgment, and its willingness to legislate to protect funding, however, demonstrates the sector’s importance as an industry as well as a means for consumers to take action regarding such eye-watering injustices as those exposed in the Post Office scandal.

With Mr Bates vs The Post Office - a David versus Goliath story of how 555 sub-postmasters took on the Post Office and won - the British public were made aware of the value litigation funding regularly plays in the successful delivery of justice to consumers and individuals. Attracting millions of viewers and generating enormous publicity, the series helped create a political environment in which the UK government was willing to act rapidly to protect the litigation funding sector.

Funding is a high-risk class of business, and it is not easy to make returns, so funders need the ability to have the freedom to price the risk accordingly. In the longer term, with the growing importance of funding, it will be interesting to see if the regulators step in or if it remains governed by the courts under an evolving legal framework.

As the landmark class action against BT progresses, it remains to be seen as to whether this momentum can be carried on and the continued value of this industry both demonstrated and championed. In highlighting the value of litigation funding, this could ensure the government rows back on last year’s disastrous PACCAR judgment.

For the benefit of consumers, funders and the legal industry more broadly, the success of this trial could help to further galvanise this decision

Mohsin Patel is a Co-Founder and Director of Factor Risk Management