Businesses facing collective actions can incur significant cost, uncertainty and reputational exposure before the merits of a claim have been properly tested.
Conversely, a low bar for class certification leaves claimants vulnerable to picking up the tab for pursuing expensive claims that ultimately fail.
In its latest consultation on the collective action regime, the UK government’s Department for Business and Trade is seeking to strike a balance that satisfies both potential claimants and defendant companies.
Over a decade after the Competition Appeal Tribunal (CAT) was set up to handle opt-out claims, legislation to restrain some aspects of the opt-out collective action regime is being considered.
However, following the rush of new initiatives brought in by Andy Burnham in his first few weeks as prime minister, it is far from certain that this review will be a priority for the new administration.
Regardless of how much immediate attention the consultation receives from the new government, in the long-term it is essential that reforms achieve a common set of rules which are fair for all participants in cases before the CAT.
One key aspect under consultation is whether the certification threshold should be raised. Under the current rules, the CAT must be satisfied that the claims are eligible for inclusion in collective proceedings and that the proposed class representative is appropriate – a threshold that the Supreme Court confirmed in Merricks v Mastercard was deliberately low.
Raising the certification threshold may benefit both defendants and claimants. For defendants, collective proceedings can impose substantial costs, management distraction and reputation damage before the merits have been tested by the tribunal. A higher bar would filter weak or speculative claims at the outset.
However, this safeguard might also benefit claimants by reducing the scope for lawyer-led claims with little to no prospect of providing meaningful compensation.
For example, the recent consultation document singled out the claims against Stagecoach South Western Trains, noting that less than £216,000 went to the class members compared to “more than £10m” that was paid out to lawyers, funders and other advisors. To help prevent this, the consultation suggests introducing a merits test for certification to assess the “absolute suitability” of a potential claim.
If adopted, this suggests a move towards the US class action model, where it is harder to get certification. Under the proposals, there would be a more explicit statutory test of the merits and closer scrutiny in weighing up the potential costs versus the overall benefits of a case. One potential reform is that the CAT would indicate the “reasonableness” of the litigation funder’s return at the point of certification.
These reforms must be balanced against the desire to not add significant costs and delay on class representatives, which risks having a chilling effect on those with genuine claims.
It is notable that the consultation appears to give the green light for damages-based agreements (DBAs). As things stand, many claims never begin because market practice suggests that a quantum of at least £500m is required to attract the interest of certain litigation funders.
The consultation therefore represents a further proposed set of changes to deal with the fallout from the Supreme Court’s PACCAR judgment, which had classed certain third-party litigation funding arrangements as DBAs.
Despite great fanfare, the Litigation Funding Agreements (Enforceability) Act 2024 did not complete its passage through parliament before the 2024 general election, and its future is unclear.
If implemented, these latest reforms would go further by permitting DBAs directly in opt-out proceedings. Wider funding options should increase competition, drive down the cost of litigation finance and increase claim volumes.
The consultation includes proposals to bolster the settlement process and Alternative Dispute Resolution (ADR) for CAT claims. This includes extending Rule 45 offers (settlement offers which carry automatic cost-shifting consequences) to collective proceedings.
For defendants, this would be a significant tactical development: a well-judged settlement offer could shift meaningful cost risk onto claimants who refuse reasonable terms and press on to trial. Proposals to enable courts to compel ADR may also support earlier, more cost-effective resolutions.
Reform is coming: both potential defendants and claimants should pay attention. Businesses should use this period to review their collective action exposure, assess the funding economics of potential claims against them and consider how a higher certification bar and new settlement tools might reshape their litigation risk.
The government consultation is open until 25 September 2026 for parties to provide feedback and suggest improvements to the current regime. Stakeholders should act now if they want their voice to be heard.
Email your news and story ideas to: [email protected]
