New report highlights urgent need for more transparency and safeguards in class action industry
August 5, 2024
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Last week, law firm CMS published its 2024 European Class Action Report on the growing prevalence of class actions across Europe and the UK. The report highlights a significant increase in the number and value of class actions in Europe, with the UK, Portugal and the Netherlands leading the charge.
In the UK, the total claimed quantum in class actions has skyrocketed to approximately £122 billion at the end of 2023, with the value of opt-out claims now at £55 billion – an incredible 48% increase from 2022.
The unchecked growth of class action lawsuits is creating a predatory and litigious environment that hampers economic growth and innovation, and seriously harms our society. At Fair Civil Justice, we believe it is therefore of utmost importance to scrutinise this industry, while protecting businesses of all sizes and consumers and providing better alternatives to access justice.
A drag on growth
More and more businesses, big and small, are being bombarded by class action cases, having to allocate significant resources to defend themselves, irrespective of the merit of the claims. This ultimately decreases capital that would be otherwise deployed in R&D, innovation and new jobs and apprenticeships. To put it simply, this extractive claims culture is a drag on growth for British business. Corporates might also be forced to pass down costs associated with defending against these claims to the consumer in the form of higher prices for goods and services.
CMS found that the largest number of claims in 2023 were against tech companies and consumer products/consumer-facing sectors, which raises another important question about the impact of a rapidly expanding class action industry on the wider push for innovation across the UK.
In an era where competition is fierce with regards to attracting foreign businesses and investors, we cannot emphasise enough the need to protect the UK from fostering a toxic litigious culture, as observed in the US.
Unregulated and unfair
As part of their report, CMS highlights the important role litigation funding plays in fostering and further growing the class action industry. Attracted by potentially high returns, litigation finance companies en masse are expanding their involvement in large-scale class actions. At present, we believe there are around 70 litigation funders operative in the UK, though as an unregulated industry, it is impossible to keep track of exact numbers.
The shift in direction towards litigation funding poses significant questions around the encouragement of speculative claims. Class actions are started and funded based on the size of the claims and the chances of receiving a significant payout, rather than to obtain justice for consumers. To be clear – litigation funders prioritise their own profits and create funding agreements beneficial to themselves, rather than to the claimants.
In addition, these baseless lawsuits place a further burden on our already overworked courts system.
The road ahead
It is clear that the rise of the class action industry in combination with the opaqueness of litigation funding agreements is concerning.
Fair Civil Justice calls for more transparency and safeguards to ensure that class actions are funded based on genuine legal grievances, rather than purely profit, and to make certain that consumer interests remain front and centre in litigation.
In addition, it will be imperative to further improve access to alternative dispute resolution mechanisms, which provide an efficient and effective way to settle disputes and provide redress without high-stakes litigation.
Fair Civil Justice will continue to campaign on these issues to protect both British businesses and consumers, and secure sustainable economic growth.
New report highlights urgent need for more transparency and safeguards in class action industry
Last week, law firm CMS published its 2024 European Class Action Report on the growing prevalence of class actions across Europe and the UK. The report highlights a significant increase in the number and value of class actions in Europe, with the UK, Portugal and the Netherlands leading the charge.
In the UK, the total claimed quantum in class actions has skyrocketed to approximately £122 billion at the end of 2023, with the value of opt-out claims now at £55 billion – an incredible 48% increase from 2022.
The unchecked growth of class action lawsuits is creating a predatory and litigious environment that hampers economic growth and innovation, and seriously harms our society. At Fair Civil Justice, we believe it is therefore of utmost importance to scrutinise this industry, while protecting businesses of all sizes and consumers and providing better alternatives to access justice.
A drag on growth
More and more businesses, big and small, are being bombarded by class action cases, having to allocate significant resources to defend themselves, irrespective of the merit of the claims. This ultimately decreases capital that would be otherwise deployed in R&D, innovation and new jobs and apprenticeships. To put it simply, this extractive claims culture is a drag on growth for British business. Corporates might also be forced to pass down costs associated with defending against these claims to the consumer in the form of higher prices for goods and services.
CMS found that the largest number of claims in 2023 were against tech companies and consumer products/consumer-facing sectors, which raises another important question about the impact of a rapidly expanding class action industry on the wider push for innovation across the UK.
In an era where competition is fierce with regards to attracting foreign businesses and investors, we cannot emphasise enough the need to protect the UK from fostering a toxic litigious culture, as observed in the US.
Unregulated and unfair
As part of their report, CMS highlights the important role litigation funding plays in fostering and further growing the class action industry. Attracted by potentially high returns, litigation finance companies en masse are expanding their involvement in large-scale class actions. At present, we believe there are around 70 litigation funders operative in the UK, though as an unregulated industry, it is impossible to keep track of exact numbers.
The shift in direction towards litigation funding poses significant questions around the encouragement of speculative claims. Class actions are started and funded based on the size of the claims and the chances of receiving a significant payout, rather than to obtain justice for consumers. To be clear – litigation funders prioritise their own profits and create funding agreements beneficial to themselves, rather than to the claimants.
In addition, these baseless lawsuits place a further burden on our already overworked courts system.
The road ahead
It is clear that the rise of the class action industry in combination with the opaqueness of litigation funding agreements is concerning.
Fair Civil Justice calls for more transparency and safeguards to ensure that class actions are funded based on genuine legal grievances, rather than purely profit, and to make certain that consumer interests remain front and centre in litigation.
In addition, it will be imperative to further improve access to alternative dispute resolution mechanisms, which provide an efficient and effective way to settle disputes and provide redress without high-stakes litigation.
Fair Civil Justice will continue to campaign on these issues to protect both British businesses and consumers, and secure sustainable economic growth.
Seema Kennedy OBE, Executive Director, Fair Civil Justice
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