Proposed UK collective claim dismissed with indemnity costs for failure to secure funding

The UK Competition Appeal Tribunal (CAT), in its judgment in Sciallis v Fender & Ors. [2026] CAT 56, has emphasised the scrutiny applied to proposed class representatives (PCRs) and the duties they owe, not just to their class but also to the CAT and the proposed defendants. The CAT also expects proportionate and reasonable behaviour by a defendant when preparing to respond to a proposed collective claim.

Osborne Clarke represented the two proposed defendants, Korg (UK) Limited and Korg Inc., in one of the proposed collective claims. Korg were successful and awarded almost all of their legal costs.

Case background

The proposed claims arose out of settlement decisions of the UK Competition and Markets Authority with musical instrument manufacturers.

When the PCR brought her proposed claims against the first four defendant groups, she indicated that she was soon to enter into an agreement with a named litigation funder. Her evidence in respect of her fifth and final claim continued to refer to "arrangements that her legal representatives had put in place".

Between 2023 and 2026, the solicitors for the five defendant groups wrote on multiple occasions to request information about the funding arrangements from the PCR's solicitors. The responses received were described by the CAT as "unhelpful, uncooperative, deliberately obfuscatory and misleading." After repeated failures to disclose the funding materials, the CAT listed a hearing, directing the PCR to file evidence of her funding and insurance arrangements.

The potential funding agreement had in fact fallen through in early 2023, and the PCR was ultimately unable to secure funding ahead of the hearing. The CAT accepted her application to withdraw the proposed claims.

All of the proposed defendants were awarded their costs of the whole proceedings, and on the indemnity basis from April 2023, the point at which the potential funding arrangement had fallen through, but not been disclosed. Three of the defendant groups, including Korg, and Fender and Roland, had their costs summarily assessed at the full number of hours spent, but capped at guideline rates. The other two defendant groups, Yamaha and Casio, had incurred a significantly higher amount of time, and were awarded payments on account of their costs, pending detailed assessment.

PCR duties

For a PCR to be authorised to act as a class representative, the CAT must consider whether, among other things, that person "would fairly and adequately act in the interests of the class members" and "will be able to pay the defendant's reasonable costs if ordered to do so." It is generally accepted that in order to satisfy these elements, a PCR must have in place arrangements to fund the litigation and to cover the costs that will be incurred by the defendants, usually by way of insurance. Previous judgments at the collective proceedings order (CPO) stage have demonstrated a high level of scrutiny by the CAT of such funding arrangements, noting their impact on the proposed class but also on the defendants to any claim.

Sciallis had not reached the point of a CPO hearing, but the CAT's judgment set out the standard expected of a PCR when filing a claim and on an ongoing basis.

The CAT fell short of mandating that funding must be in place before a PCR can bring a claim, finding that it may sometimes be appropriate to issue a claim with "full and candid" evidence explaining the current status of their efforts to secure funding instead. This would most likely arise where there was a need to file a claim before the expiry of a limitation deadline.

However, the CAT emphasised that it fell within the PCR's general duty of transparency to ensure that the CAT and defendants were made aware of any highly material change of circumstances after the filing of a CPO application. This included the fact that the funding arrangements that the PCR had mentioned in her witness statement had fallen through. In such circumstances, although a "running commentary" on the progress of funding was not required, the PCR was required to inform the CAT and other parties in clear terms, and not expect the defendants to infer this information by reading between the lines. The burden is on PCRs to determine whether any change is sufficiently material that they must disclose it, which may be a future source of contention.

In the case of Sciallis, the PCR had also fallen short of her duty of full and frank disclosure, as she had applied to serve some of the claims outside of the jurisdiction, and when applying to extend time for service had not disclosed that the funding had fallen through. Serving claims outside of the jurisdiction carries a particularly stringent duty of disclosure information, as the judgment illustrates.

PCRs and, in turn, defendants should also be aware of the element of risk introduced by commencing proceedings without funding in place. In Sciallis, the PCR had at least secured after-the-event insurance.

Defendants' costs

The CAT's costs findings have implications for the way that defendants should conduct their cases to protect their costs recovery position. The CAT noted a tension between the position in Riefa v Apple, that "it is appropriate for a proposed defendant to start work on its substantive defence as soon as a collective proceedings claim form has been received," and the need to avoid frontloading substantive work that is not deemed to be reasonable and proportionate, particularly if the proposed claim does not proceed beyond its early stages.

In Sciallis, Yamaha could recover only a very limited sum for expert work, awarded as a payment on account. Three other defendant groups, including Korg, had not instructed experts or had taken only preliminary steps towards doing so.

No defendant was permitted to recover solicitors' costs above London 1 guideline rates. The CAT considered that the early stage at which the proceedings were dismissed and the lack of any features of "unusual complexity" meant that there was no clear and compelling justification for any uplift to be allowed, even though the CAT has allowed an uplift of 30% above the London 1 rates in other collective claims.

Osborne Clarke comment

Considerable demands are made of PCRs in CAT collective actions. Although jurisprudence has focused on the authorisation condition for obtaining a CPO, PCRs will be scrutinised over decisions made from the earliest stages of developing and financing a claim, throughout its progress and at distribution stage. Their duty of transparency extends to the class, to defendants and to the Tribunal. Advice from their legal team, costs advisers and advisory board will be crucial.

Defendants have some safeguards through the tribunal's scrutiny of funding arrangements at CPO stage, but ahead of that will need to take their own decisions on how and to what extent to prepare to respond to a substantive claim.

The CAT does not require defendants to take steps that lead them to incur material costs before funding is in place and has been scrutinised by them and the tribunal. During periods of delay or uncertainty, defendants should consider whether they should avoid frontloading substantive work such as expert instruction, because of recovery risks that are increased if the claim falls away prior to certification. Significant delays, for example in respect of service, are not uncommon, even if delays owing to funding arrangements changing or faltering are rarer.

In Sciallis, it was apparent, given the estimated size of the claim and costs of pursuing it, that it was unlikely that funding would be available in the current market. An understanding of the funding and insurance markets, and the dynamics between claimant solicitors and litigation funders and insurers, is of considerable value to any defendant facing collective proceedings, or funded litigation of any kind.

Laura Henderson, a trainee solicitor with Osborne Clarke, contributed to this Insight.