A free market U.K. think tank has argued the country’s class action expansion is “beginning to damage business confidence”.
The Adam Smith Institute argued that a “class action explosion” has undermined “trust in the UK’s legal system for businesses and individuals alike”, in its latest report, and urged tighter regulation of third-party litigation funding.
The report’s authors called for a “blanket requirement of transparency about third-party funding”, and the introduction of arbitration clauses in regulatory decisions which require businesses to pay compensation.
The report arrives at a time where the future direction of litigation funding in the U.K. hangs in the balance.
It remains unclear whether the current Labour government plans to resurrect legislation to overturn the Supreme Court’s ‘Paccar’ judgment, which rendered litigation funding agreements “unenforceable” in competition cases.
A bill introduced under the previous Conservative government which would have done so, did not complete its passage through Parliament before the general election in July.
The Adam Smith Institute states on its website that it aims “to promote free market, neoliberal ideas through research, publishing, media outreach, and education”. It does not disclose its funding information, and has been graded ‘E’ on transparency by the media platform openDemocracy.
The report claims that many British firms are being “forced to divert funding from R&D and investment into mitigation and litigation”, and that this shift has led to a “decrease in willingness to invest”.
The report’s authors added: “At a time when the U.K.’s future prospects are already uncertain, U.K. plc simply cannot afford to stand by and allow the rise of lawfare.”
Citing the Post Office Horizon scandal, the report claims that the funders behind the legal action headed by Sir Alan Bates “received approximately 80% of the damages awarded”, providing a report by the law firm Kennedys as its source.
Responding to the report, David Greene co-president of the Collective Redress Lawyers Association, said: “Any claims that corporations face from consumers originate from the wrongdoing of the corporation. The authors of this report spectacularly fail to take into account the culpability of the Post Office. The Post Office paid out more than £100m in legal fees, defending the indefensible, in a vain attempt to cover up their wrongdoing.”
He added: “While corporations act unlawfully, litigation funding will be necessary to give ordinary people the access to justice to which they are entitled. Had it not been for litigation funding the Post Office would have sought to get away with their utterly shocking conduct.”
Neil Purslow, chairman of the executive committee of the International Legal Finance Association (ILFA), also criticised the Adam Smith Institute report: “As this report recognises, funders take on just a fraction of cases after careful consideration of the risk and significant due diligence. So it’s contradictory and disingenuous in the extreme to simultaneously argue funders take on too few cases while also causing a proliferation in litigation.”
In recent months, the most prominent calls for regulation of litigation funding have come from the organisation Fair Civil Justice, a group affiliated with the U.S. Chamber of Commerce.
Like the Adam Smith Institute, the group has also criticised what it sees as the U.K.’s “increasingly litigious culture”.
On the other side of the argument are groups such as CORLA, and ALF (the Association of Litigation Funders).
Earlier this year, Susan Dunn, who chairs the ALF, wrote an article for Law.com International defending the role of litigation funding in the Post Office litigation, and asserting its importance in Alan Bates’ victory.