Pan-NOx Emissions Litigation [2024] EWHC 1728 (KB)

In a costs budgeting hearing in the Pan-NOx Emissions Group Litigation, the High Court delivered a striking critique of cost control incentives in funded group litigation. The massive emissions claims, brought against multiple vehicle manufacturers by thousands of claimants represented by Pogust Goodhead and funded by third-party litigation funders, involved proposed costs budgets of approximately £342 million. The court was asked to approve these budgets as part of the costs management process under CPR Part 3. The Managing Judges subjected the proposed budgets to searching scrutiny and concluded that they were grossly disproportionate. The court cut the budgets by approximately 75%, a reduction of extraordinary magnitude. In its judgment, the court observed that the traditional mechanism by which costs are controlled in litigation – the paying client’s natural interest in minimising expenditure – was absent in the funded group litigation model. Because the individual claimants were not personally liable for costs, and because the funder’s return was contingent on success, neither the claimants nor the funder had a direct incentive to constrain legal costs in the way that a privately paying client would.

The court described the submitted budgets as exhibiting “financial incontinence,” a phrase that attracted considerable attention in the legal press and the litigation funding industry. The decision raised fundamental questions about the governance of costs in funded group litigation and whether additional safeguards or cost control mechanisms were needed. It suggested that courts would be increasingly willing to intervene in costs management where the funding model appeared to create perverse incentives around legal spend. For the litigation funding industry, the decision highlighted the tension between the business model’s dependence on intensive litigation effort and the court’s expectation of proportionate costs. It also demonstrated that courts are prepared to look critically at the relationship between funding structures and legal costs.