How predatory litigation is damaging UK plc’s reputation
The rise of predatory class action law suits and a lack of transparency around litigation funding are putting off investors, says Seema Kennedy
Last week the courts rejected a £500m class action brought on behalf of 36m British consumers against Apple and Amazon. The case – which hinged on whether the two companies were illegally colluding to keep product prices high – was not dismissed on the merits of the case. Rather, it failed to get off the ground at the first hurdle because the judge had concerns about the person bringing the claim and whether they had the ability to act in the best interests of the class.
Sound familiar? Last year in a similar claim against British Airways and Easyjet, a yoga instructor tried and failed to bring a £300m class action claim against the airlines on behalf of consumers for delayed flights, which stood to net her and her boss (who was bankrolling the claim) £70m if successful. The catch? Consumers would have seen 25 per cent of their money flow to these individuals, rather than keep 100 percent of the compensation if they had opted to fill in a simple form on the airline website.
These judgements, rejecting these class actions, are good news for businesses and consumers but also a victory for common sense. But what about the tens of millions of pounds spent by these companies on lawyers to fend off cases that should never have been allowed in the first place? I am afraid that these are not isolated cases. The reality is that the UK has today become a much more tolerant country for predatory litigation.
Eight class action lawsuits for every person in the country
In the last decade alone, one category of class action lawsuits filed in our courts – those alleging breaches of competition law – have added up to more than 500m people. That is eight class action lawsuits for every person in the country. I doubt whether many of us will be aware of being involved in one claim, let alone eight, which raises the question of who is responsible for this trend and who stands to benefit.
The winner is a handful of specialist claimant law firms and third-party funders, who bankroll their claims. There are now 75 funders operating in the UK today with billions of pounds of assets under management but with practically no regulatory oversight. We have no idea about where the money is coming from because of the total lack of transparency, although a poll from Survation last year showed that two thirds of the British public are in favour of mandatory disclosure of who is funding class action lawsuits.
The result of this trend has meant that the rest of corporate Britain has become a target for mass litigation. Nearly three quarters of corporates last year reported an increase in claims brought against their companies over the past five years, with three in five anticipating a further rise over the next 12 months. This rise in litigation has also had a chilling effect on global businesses who want to invest in Britain but feel that the legal environment is currently balanced in the favour of lawyers and litigation funders.
This rise in litigation has also had a chilling effect on global businesses who want to invest in Britain but feel that the legal environment is currently balanced in the favour of lawyers and litigation funders
There is currently a government review into the third-party litigation funding sector being led by the Civil Justice Council which is due to publish its recommendations in the summer. The Government has an opportunity to seize the initiative, introduce new measures to curb this growing trend and signal to global businesses that Britain is genuinely open for business. If the Chancellor Rachel Reeves is serious about wooing investors this week in Davos, I would suggest that this would be a welcome place to start.
Seema Kennedy OBE is the executive director of Fair Civil Justice and former MP.