25 July 2012Print This Post

Warning over third-party funders fuelling new "litigation industry"

Fell: victims of competition law breaches must receive proper compensation

Businesses have warned the government that allowing ‘opt-out’ class actions in competition law will spark “a new litigation industry based on funding and pursuing” such cases.

Responding to a Department for Business consultation on private actions in competition law, the CBI also claimed that though the government believes opt-out actions can be limited to competition cases, “analysis shows that the essential building blocks for these class actions would be put in place and logically there is no barrier to extending them to other sectors in the future”.

The proposals include the suggestion that contingency fees should not be available to law firms in opt-out collective actions, which the CBI strongly endorsed.

It added: “The ‘loser pays’ rule is fundamental to UK litigation and if this is rightly maintained, then the successful defendant must have recourse to funds under the claimants’ control to satisfy its costs claim. Since the nameless opt-out claimants have no financial stake in the litigation, their representatives must have access to third-party funding.

“If contingency fees have been rejected, then the class action law firms will need to involve other investors, such as insurance companies, hedge funds and specialist litigation funders looking to profit from investment in UK litigation. This creates a new business in class actions and will fuel litigation, which goes against the whole thrust of recent government policy.”

The CBI argued that the proposals would, contrary to the government’s intention, introduce US-style class actions into the UK. While acknowledging that “it is absolutely right that businesses that have caused significant loss to consumers should be required to provide compensation”, it said this should instead be done through alternative dispute resolution.

It said ADR should be integrated with Office of Fair Trading/Competition and Markets Authority enforcement policies so that a company that settles via ADR would receive a reduced fine. The CBI also recommended changing the joint and several liability rules so that a member of a cartel that settled would be protected from such liability. Further, a collective settlement would have to be approved by the Competition Appeal Tribunal.

Matthew Fell, CBI director for competitive markets, said: “At a time when the unrelenting focus must be growth, the government should set out a strong message that the UK is open for business, not open for litigation.

“The government is in danger of importing a number of features of the US class-action system into the UK, including opt-out arrangements, awarding of aggregate damages and a distribution of surplus funds.

“Victims of competition law breaches must receive proper compensation, but this should be delivered in a cost effective way, with litigation a last resort. The best way to achieve this is through alternative dispute resolution methods, which are increasingly being used by business, and often result in a better outcome for both parties.”

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