How class actions became a hot trend in the UK
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Class actions are a very popular tool in the US legal market, you can’t turn on a TV or pass a billboard without seeing a call to join some sort of class action, a bug that the UK has now caught.
Traditionally, the UK were very wary of a class action market that the US seems to love, however, in recent years the landscape in the UK has been evolving, rapidly.
This came as a result of legislation introduced in 2015 to allow an opt-out regime for infringements of competition law in the UK. As a result, the Competition Appeal Tribunal (CAT) is one of the busiest Tribunals in the country.
Avalanche of activity
The numbers don’t lie. A recent report by CMS revealed that as of 31 December 2023, the total claimed value of opt-out totalled €66.29bn (£56.32bn), which was up 48 per cent on 2022 figures of €44.83bn (£38.09bn).
The same report stated that new claims filed by the end of 2023 encompassing over 540 million members, which is eight times greater than the population of the UK. That means each person in the UK is involved in around eight class actions, each.
Even opt-in, which is done by group action (known as group litigation order) was ahead of opt-out, with €78.69bn (£66.85bn), showing that there is appetite for people to get involved in legal action groups.
It does exactly what it says on the tin. Opt-in means someone has to join the legal action, rather than automatically being eligible (with criteria) like an opt-out system.
The rapid rise in competition class actions over the last few years has seen competition lawyers and barristers being treated like gold dust. While on the defence side, some law firms have been trying to keep up with the trend by building out its practice groups.
But it’s the claimant law firms that struck gold with this legislation and the uptick of people to join group actions, as “there is clearly an appetite” for these cases says Chris Benson, managing partner of Leigh Day.
Scott Campbell, partner and head of competition disputes at Hausfeld explained that “collective actions shift power back to individuals and businesses, improving access to justice and serving as an effective tool to demand change.”
As “people are increasingly frustrated with perceived corporate misconduct and lack of accountability”, he adds that as “more high-profile cases emerge, driven by high profile scandals…. understanding and support for these actions is growing.”
While Tom Goodhead, CEO of Pogust Goodhead pointed out that matters like the “Post Office scandal” really showed people “that group litigation has a crucial role to play in the UK.”
Who’s bankrolling the cases?
But nothing in this world is free, so who are funding these types of cases?
Third-party funding, also known as litigation funders, often agree to finance all or part of the legal costs of the litigation, in return for a fee payable from the proceeds recovered by the funded case/cases.
Patrick Moloney, CEO of Litigation Capital Management, explained that litigation funding “is a source of capital to fund a dispute, [which] has the effect of levelling the playing field and allowing individuals, small business owners or consumers to take on a large multinational corporation.”
He added that this “simply could not be possible without access to funding.”
The UK litigation funding market is now the world’s second largest after the US. So why has the UK become so popular for funded cases? Neil Purslow, chairman of the International Legal Finance Association noted that “the UK’s robust legal system and reputation for fairness make it an attractive venue for these cases.”
Businesses brace for action
This rise of class actions, seeing big names such as Meta, Google, Vodafone, and DAF Trucks, it is no wonder that this legal tool is becoming one of the main concerns for businesses.
Maxine Mossman, partner at Clifford Chance stated that “increasingly companies and financial institutions from all sectors and industries are being targeted, with a wide range of different group claims.
She added that “group litigation is now an inherent risk of doing business in the UK, as it has been for many years in other jurisdictions, such as the US”.
Sarina Williams, partner at Linklaters pointed out that many of the claims brought in the UK “tend to be subject to ‘copycat’ claims elsewhere in Europe”, adding that “companies now regularly find themselves fighting both public and private enforcement across multiple jurisdictions and sometimes at multiple levels of the supply chain.”
Rachel Lidgate, partner at Herbert Smith Freehills noted that the “number of funded cases continues to multiply, not least because they are big business for funders and claimant law firms.”
She added that “irrespective of the legal merits these claims are often very burdensome for clients.”
On the implications of these type of cases on a business, Mossman stated that “both reputational and financial, [it] can be very significant, with many of these claims being valued in the hundreds of millions of pounds (or more) and requiring substantial expense and management time to defend.”
The grey area
Seema Kennedy, executive director of Fair Civil Justice (affiliated to US Chamber of Commerce) noted that “the pace at which the group action regime has grown over the past years has meant that we are currently facing an unregulated, multi-billion pound industry that is at high risk of damaging our economy and society.”
“We are calling for much greater transparency in the litigation funding sector and for more effective safeguards to protect consumers,” she stated.
Williams also noted “the litigation funding industry in the UK is unregulated which carries all sorts of risks for the parties as well as the class members.”
Coming back on this, Purslow stated that “unlike other financial services providers, funders uphold voluntary professional codes of conduct setting best practice across the sector,” adding “critics, like the US Chamber of Commerce, calling for greater regulation are largely seeking to constrain access to justice and reduce scrutiny of large corporate wrongdoers.”
Benson pointed out that he finds “it hard that individuals seeking legal redress or challenging injustice is somehow perceived as wrong in a democratic society.”
“The regime has built in safeguards to ensure that the interests of the class are always prioritised above those of funders and lawyers, who are not paid any success fees until the end of the litigation, when the case is won or damages are paid,” explained Campbell.
While Benson added that “if third party funding…can assist individuals becoming aware of their rights to secure compensation… and hopefully prevent defendants acting unlawfully, that can only be a good thing.”
Despite whatever the view may be on class actions, the main view is that this surge won’t be slowing down anytime soon.