‘New litigation industry’ will deter investors, CBI warns
Government proposals for ‘opt-out’ class actions for consumers could spark a new ‘litigation industry’ around competition law and deter inward investment and growth, business lobby group the Confederation of British Industry warned today.
Businesses need incentives such as reduced fines to participate in alternative dispute resolution (ADR), which the CBI said is a ‘quicker and cheaper’ means of providing collective redress.
Responding to a Department for Business, Innovation and Skills consultation on private actions in competition law, the CBI warned that by grouping potential claimants together without naming individuals, opt-out class actions will ‘magnify the total amount of potential claims and fuel a culture of litigation’.
The CBI agrees that businesses which have caused significant loss to consumers should be required to provide compensation. Government recognises that collective redress can be delivered through ADR, it added, yet believes this will only work if companies are faced with the ‘big-stick’ sanction of opt-out class actions.
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 ADR methods, which are increasingly being used by business, and often result in a better outcome for both parties.’
The CBI advocates a new mechanism by which a court could approve a collective settlement entered into by a company. See the CBI’s response.
Comments
Litigation Industry
The use of the expression 'litigation industry' is insulting to lawyers but much more importantly insulting to ordinary people who have been injured by the negligence of others. While this kind of piffle is suitable for tabloid gossip I would have thought that the Gazette would make the point that this is a foolish argument rather than simply wrap it in inverted comma's.
Speaking as someone who has been involved in some perfectly legitimate class actions in the allegedly litigation crazy United States I can say that this fanatasy about litigation floodgates has never stood up to scrutiny. Class actions are a nightmare to run and often fail. That does not mean the claimants case had no merit only that tort law is very defendant friendly.
I invented a perfect solution to those companies that feared litigation but never made a penny out of it. I am happy therefore to share it with the world. If you want to avoid negligence actions...don't be negligent. If you want to avoid class actions...don't injure classes of people. Don't break trust and confidence, don't breach contracts, don't break the law and act in your customers interests.
Class Actions
Barry
Fair comment but the problem is that some class action specialist lawyers have given class actions a bad name. I recall one law firm which relied on the goodwill of one financial discussion site for several years and picked up a fair bit of business.
However, many of the claims which were generated turned out to be rather spurious and were based on confrontation rather than acting in the best interest of their clients. They then lost their way completely when they decided to act in a defamation claim and sue the financial website and many of the dispossessed shareholders they had previously claimed to represent, for throw away comments made on the internet.
They certainly burned their bridges there and shareholder class actions seem less frequent nowadays. Also as you indicate above they are difficult anyway due to the number of people involved and the potential for further disagreements and disputes.
Last thing I heard the law firm had moved on to suing the manager of an old 80's pop group for alleged fraud. I hear that was laughed out of court also.
Class Actions
Kelly
I agree some lawyers have given the class action a bad name. The same is true about immigration lawyers and employment lawyers but the presence of bad apples does not mean we should throw out the whole barrel.
Some businesses target classes of people for their sales pitch. Investors and patients form the best examples as they are the easiest to sell to and the most easy to damage. If a drug company or a financial institution put a bad product on the market that hurts many people the victims deserve compensation and they deserve to be sued. In both cases the companies 'insure' against this and I have been staggered by the ability of drug companies in particular to take massive hits in both PI claims and qui tam relator actions without it causing any real loss to business profits or stock price.
I wonder if the CBI's illustrious directors would magnanimously waive their rights to sue, in the name of promoting business, if their children were blinded, paralysed or left brain injured by a defective product.
[to Kelly Matthews] Yawn -
[to Kelly Matthews] Yawn - the firm involved did it on a conditional fee agreement. They lost - which means they didn't get paid. It was not a "class action" either.
Moving on.
I think the real danger in this law is costs. I think (for once) that the CBI has a point. The idea is a laudable one, but the reality is different.
The reality is that "Which?" or a large claimant outfit will issue a class action against O2 for their service being out of action for 24 hours. They will say it is a breach of contract, misrepresentation, etc. O2 will say their contract provides for this and there is no remedy, and the solicitors firm will say it is a breach of UTCCRegs.
It will ramble on, and because of the "opt out" - which nobody will do - the solicitors will legitimately be able to say "we represent 1.6 million claimants". They will ask for a free £5 credit for each claimant.
O2 will end up agreeing to give vouchers to their customers.
The firm will claim victory. O2 will dispute it, but then have to gamble on whether or not to take the risk of outrageous legal costs, and cave in.
The firm will then present a costs bill of £100 million (this is not an exaggeration - it actually hapenned in a recent case).
Meanwhile, each claimant (most whom don't even know there was a case running on their behalf) gets nothing they wouldn't have got anyway.
Really?
Domcoop
I think you have missed the point again. I do know a little about what a class action is particularly in relation to shareholders. Although I elaborated on what hastened the downfall of this particular law firm (at least in the eyes of some) I was actually referring to several class actions which they took forward on behalf of disposessed shareholders in several companies between 2003 and 2006/7.
The record of success in these actions was patchy to say the least and the shareholders were pulled in all sorts of different directions by influences and factions in the groups. Instead of focusing on recovering funds for the shareholders there appears to have been an agenda resulting in failed actions against the London Stock Exhange, various brokers and even the shareholders themselves through the defamation actions.
Whether the law firm concerned had full control of this or not or were hampered by disruptive individuals in the group is debatable. What is not in debate is that shareholder class actions are rarely successful for these reasons and the reason mentioned by Barry. In my opinion, shareholder actions have had their day.
Shareholder actions,
Shareholder actions, including derivative claims, unfair prejudice petitions and on occasion winding up petitions are very much alive and well, and increasing so far as I can tell.
What sort of statement is "shareholder actions have had their day"? For this to be true, it means that shareholders have no need of legal action to obtain what is theirs, which either means the nation has transformed overnight into some sort of Utopia, or the law has been changed to abolish shareholders (the very characteristic of which is that they hold contingent rights). I am not aware of either hapenning.
Class Actions
Domcoop
I think I would need quite alot of space to answer your question properly and I would venture too far off the subject of the article. However, I am talking about the decline (in my opinion) of large, (plus 30 people) high profile actions where shareholders form a group represented by a law firm to claim loss for fraud or wrongdoing - usually by company directors or sometimes the government. One example is the Langbar fraud and I could tell you stories about the fraud and litigation which might even shock you.
Shareholders are being dispossessed of their investments on a daily basis - take it from me. So, the need is there. However, have there been any large scale class actions of this nature taken in the last few years?
To be honest I can think only of one or two.
In my opinion because of the failed actions of the past (Railtrack being one example) shareholders simply do not have the stomach for the fight and all the hassle and expense fighting these claims. The other factors I mentioned are also valid reasons and failure to control and unify these groups.
One thing I would say also is that shareholders have a very raw deal compared to other consumers. The reason is shocking corporate governance and lack of regulation of the financial markets. In my view this is because shareholders are often considered to be wealthy or gamblers and do not have rights as others. Faced with such attitudes it is easy to see why shareholders simply give up.
If there are any law firms out there which disagree with my sentiments, happy to listen.
What we need in the UK is
What we need in the UK is some US style anti-fraud legislation. When CEO's and CFO's are criminally liable for fraud and even mismanagement they take notice of stockholders.
Shareholders (lack of) rights
Kelly Matthews/Barry Turner, couldn't agree more. There are far too many abuses, especially by AIM company directors.
I decided to do something about it by helping a new organisation, formed last year, ShareSoc, (www.sharesoc.org ). Shareholder apathy (and the enormous difficulty an ordinary investor has taking action) is a big problem. As is the lack of effective penalties for misrepresentation and other misbehaviour by directors of quoted companies in the UK.
ShareSoc has now recruited over 2,000 members and is growing rapdily. We're making representations to government (and participated in the recent Kay review) but getting recognition/understanding of the scale and impact of unacceptable behaviuour is tough. We face an uphill battle but will continue fighting. We're also happy to share our considerable collective experience and knowledge to help shareholders organise to take effective action in individudal cases.