Should funders bring collective actions?

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As the government closed its consultation on collective actions in competition law cases at the end of last month, there was an outcry from business groups warning against the plans.

Among the critics were the CBI, and our old friends the Institute of Legal Reform (ILR), part of US lobbying giant the US Chamber of Commerce (these were the guys who recently influenced Liberal Democrat peers to put forward a LASPO bill amendment, aimed at forcing government regulation of the third-party funding sector).

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The business groups argue that collective action reforms could ‘harm business’ and, in what is becoming a familiar claim, the ILR warned that the changes would bring the UK closer to ‘a US-style litigation culture’. They want more emphasis on alternative dispute resolution instead.

But the government seems determined to act, and rightly so. You couldn’t have a stronger argument for the need to change the current regime than the simple fact that only one representative action has ever been brought under it; in 2008, Which? settled a landmark case against JJB Sports in a battle over replica football shirts.

While the CBI and ILR claim the changes will threaten business, actually a big part of the motivation for improving the regime is that government wants to help business; that is, the smaller players whose interests are damaged by anti-competitive behaviour.

In the new regime, the government is likely to move to an opt-out (instead of opt-in) system, making it much easier to construct a case. But it is not considering awarding the triple damages that have fuelled a high volume of ‘have-a-go’ claims across the Atlantic, and it will retain the usual ‘loser pays’ principle that we have in UK litigation.

So far, so good, but then we come to the question of who should be allowed to bring claims. This could be limited to consumer groups, or it could be opened out more widely.

In the consultation, the government appears to see the merit of allowing individual companies and consumers to bring collective competition claims, as well as representative and public bodies. But it would not allow law firms to bring these claims under the new damages-based agreements which will be coming into force next April; it says contingency fees would have ‘no place in a UK collective action regime’.

It also hints – though the wording is somewhat difficult to fathom – that it would not allow third-party funders to bring claims. I wonder whether we can see the influence of the ILR – which generally opposes the practice of third-party investment in litigation – in this.

Why shouldn’t collective actions be brought by third-party funders? This is not going to suddenly lead to a flood of unmeritorious claims, because the key safeguard – the adverse costs rule – is still in place. But what it would do is make it easier for consumers to get redress, because, for those with a strong case, a source of finance will be there to fund the cost of bringing the action.

Third-party funding is often criticised for being available only for the biggest cases. But collective actions are an area where it can provide real access to justice. Government should think carefully before it excludes this source of funding for consumers.

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