The UK’s civil justice systems are admired around the world. People and businesses know that in Britain our laws will ensure that disputes are settled fairly and effectively. Civil cases are the way most of us engage with the legal system, be it disputes related to divorce, personal injury, clinical negligence, and so on.
Yet despite their importance and prestige, the civil justice systems of England and Wales, Scotland, and Northern Ireland are suffering from ill health. Alongside lengthy delays and a substantial backlog of claims, a worrying trend has appeared – a growth in collective action lawsuits.
These claims involve multiple claimants seeking a remedy against the same defendant or several defendants. The practice brings to mind the highly litigious culture in the US where there are class actions about, for example, microwaveable mac and cheese taking longer than advertised to cook.
There are differences between class actions (as they are known in the US) and collective action lawsuits. Yet these differences are lessening as the UK moves towards the use of US-style “opt-out” class actions, where individuals are automatically dragged into a lawsuit unless they chose to opt out.
There has been a dramatic growth in such actions, with 45 million Britons involved in opt-out claims in 2016, rising to 285 million in 2022. The total class size (number of claimants) is bigger than the British population as individuals often do not know they are involved in a claim and may be party to several claims at any one time.
At first glance, this appears as no bad thing: if more people are involved in these claims doesn’t it mean that access to justice has been increased? But if you do not know you are involved in a claim there are clear practical difficulties in claiming your share of any compensation.
Who benefits from this form of litigation? After the Consumer Rights Act 2015 loosened controls on collective action lawsuits, the answer is plaintiff law firms and litigation funders. Both groups have a vested interest in increasing the class size for each claim as much as possible to maximise the share of the award that they get.
It is estimated that over the last eight years law firms have earned around £1 billion from 30 of the 130 ongoing lawsuits in the UK. It it is not known how much these firms have earned from the other 100 collective actions.
Litigation funders – who pay for a case’s legal costs in exchange for a share of any damages or settlements awarded – are increasingly attracted to UK collective action claims because of the considerable profits they can earn. Claims can lead to awards that run into the tens of millions of pounds, so they present an attractive investment opportunity for them.
The number of funders in the UK has more than quadrupled over the last eight years, and the assets of the 15 largest funders have risen from £198 million in 2010 to at least £2.2 billion in 2021. As Chris Ross, a partner at the law firm RPC, said “[p]retty much every class action that takes place in the UK has a litigation funder sitting behind it”.
A good example of how things are working is the Horizon IT scandal in 2019. Here, 555 postmasters took legal action against the Post Office over the faulty booking software which for many led to wrongful prosecutions between 1999 and 2015 for false accounting or theft. The postmasters who had suffered injustice were awarded £43 million plus legal costs in a settlement.
But the vast majority of this award did not go to the victims. Instead, it was swallowed up by plaintiff lawyers and litigation funders. The Government later had to step in to ensure the claimants received a fairer share of the compensation, using taxpayers’ money to do so.
The Horizon case reflects a process whose effect is to place profit for lawyers and investors before access to justice for groups who have suffered harm. This reduces public trust and confidence in the justice system – central tenants of the rule of law. For businesses of all sizes, the heightened threat of legal action also dampens their appetite for investment and innovation, which has repercussions across the economy.
In the US, the cost for small businesses for tort liability totalled $105.4 billion in 2008, with this figure rising to an estimated $181.5 billion ten years later. Many small businesses paid these costs out of their own pocket rather than through insurance, which means they are often passed on to consumers through higher prices for goods and services. If we allow the continued unchecked growth of an aggressive profit-driven litigation culture here in the UK, it is very likely our own small businesses will soon face similar burdens.
Collective actions can be an effective means of accessing justice, but only if further safeguards are put in place to protect claimants, and funders’ activity is regulated. There are lessons to be learnt from the US and Europe, where measures to protect people who have suffered wrongs are being debated, such as ensuring compensation is paid to claimants before litigation funders.
Unlike solicitors, for example, who are regulated by the Solicitors Regulation Authority (SRA) and the Law Society, litigation funders are self-regulating through the voluntary code of conduct of the Association of Litigation Funders (ALF).
However, only a tiny fraction of UK litigation funders are members of ALF. For those that breach the code of conduct, the maximum penalties they will face are either a £500 fine or expulsion from the ALF, although expelled members may continue their activities with no further repercussions.
With a lack of effective regulation, litigation funders can continue to invest in collective action claims where there is no material harm to consumers, pressure claimants to settle claims when it may not be in their best interest to do so, and pull out of claims at short notice leaving consumers footing hefty bills.
Access to justice should mean that consumers receive the bulk of any settlement or damages, but that is not what is happening in practice. Our legal system must focus on putting things right for those who have been wronged, in line with the principle of damages for torts under English law and delict in Scots law. Activities that risk undermining these principles warrant the full attention of government, media, and the public.
In the meantime, Fair Civil Justice, the campaign group of which I am chief executive, will continue to shine a light on the opaque funding structures which see law firms and litigation funders profit from consumers who have suffered harm.
Seema Kennedy OBE, chief executive, Fair Civil Justice
This article originally appeared in ConservativeHome, here.
