In recent years, the UK has become a global center for international arbitration. It has now taken a dangerous step towards expanding global litigation and related practices such as third party litigation funding (TPLF) with the new Consumer Rights Act (effective October 1, 2015). A 2013 study by NERA Economic Consulting found that the UK already had the highest liability costs (as a percentage of GDP) in Europe and trailed only the United States and Canada globally among developed countries. In addition, liability costs in the UK have been increasing as much as 25% a year over the last five years – a truly alarming increase.
Following more than a year of debate, the Consumer Rights Act, which introduces opt-out class actions for the first time in the UK, became effective on October 1, 2015. This law permits consumers to sue collectively for damages resulting from competition law violations. ILR submitted comments on April 3, 2015 in response to the UK government’s public consultation on the Competition Appeal Tribunal procedural rules. ILR’s comprehensive comments include several recommendations to strengthen the class certification criteria in the UK, as well as important safeguards that would provide meaningful oversight of litigation funders seeking to exploit the U.S.-style class action system created by the new Consumer Rights Act.
Separately, on April 1, 2013, the government implemented a package of changes relating to civil litigation costs and funding in England and Wales. These changes include lifting the prohibition against lawyers’ Damages Based Agreements, or DBA's (the UK version of contingency fees) and allowing qualified one-way costs shifting (QOCS) in personal injury cases, diluting the important protection that the “loser pays” system provides against abusive litigation. Under QOCS, losing defendants pay claimants' costs, but losing claimants pay defendants' costs only in prescribed circumstances, based on a claimant's conduct. England & Wales also now permit law firms to be owned by nonlawyer investors.
In addition, the UK is also becoming a major global hub for third party litigation funding (TPLF). Certain TPLF providers, with the support of the Civil Justice Council, launched a voluntary code of conduct in November 2011. However, the code is fundamentally flawed. In addition to being voluntary, it applies only to the seven funders who are members of the Association of Litigation Funders of England and Wales. The only consequence of breaching the code is potential expulsion from that association; the funder remains free to continue financing litigation. It also leaves funders free to influence settlement decisions and to choose whether to fund litigants' exposure to adverse costs orders. In short, the code fails to provide sufficient safeguards against the risks associated with third party litigation funding.
UK policymakers should take action to regulate TPLF. A market analysis of 16 litigation funders in the UK demonstrates that TPLF assets under management in the UK have ballooned to over £105 billion, which is a 700% increase since 2009. In addition, policymakers should resist expanding U.S.-style legal procedures like opt-out class actions to other areas of the law. UK voters agree: in a recent survey, 56% of those surveyed view the civil litigation system as becoming increasingly Americanized and 55% view this trajectory negatively. A helpful start would be to require transparency regarding funding arrangements, so that both the court and litigants are aware of a funder’s role in the case.
ILR's dynamic communications campaign in the UK, called “Justice not Profit,” is being driven by UK-based academics, barristers, business leaders, and consumers determined to protect the UK’s legal system from some of the worst U.S.-style litigation abuses.
Resource: Justice not Profit
Research: Before the Flood: An Outline of Oversight Options for Third Party Litigation Funding in England & Wales
Trifold: A Look into the Perception of Civil Justice and Litigation Funding in England and Wales
Comments: Response of the U.S. Chamber Institute for Legal Reform Concerning the Consultation of the Competition Appeal Tribunal (CAT) Rules of Procedure
Resource: Why Opt-out Collective Proceedings Should not be Introduced to the UK and other Business Concerns with the Consumer Rights Bill
Resource: The Consumer Rights Bill and the Inherent Dangers of Opt-out Collective Actions
Infographic: Comparing Litigation Costs and U.S. and UK Consumer Views on Lawsuits