The US Chamber Institute for Legal Reform, an affiliate of business lobbying group the US Chamber of Commerce, last night released a report calling for EU-wide reform of collective action lawsuits.
Collective actions allow a group of people with a similar legal claim to band together to bring a case efficiently. One example was the £14bn MasterCard case which was thrown out of court in July.
But rather being a tool for wronged people to fight for justice, the Chamber argues, in the US collective actions are being used by lawyers to make profit.
Claims are being initiated by lawyers who deliberately search for a wronged “lead plaintiff” to represent a group and bring the case, and if successful the lawyer is then able to take a large chunk of any winnings.
“It’s very common in the US for the plaintiff’s lawyers to take millions of dollars out of a collective action settlement and the individual members will get literally dollars – sometimes only coupons – for their participation in the case,” said Bryan Quigley of the Chamber Institute for Legal Reform.
The Chamber is concerned this could be spreading across Europe, and City A.M. understands that the EU is in the process of creating a directive to regulate the market.
In a survey the Chamber has conducted across six European countries, including the UK, the lobbying organisation found 85 per cent of consumers are in favour of safeguards in collective actions.
These include establishing minimum criteria a case must meet before qualifying as a collective action to deter “frivolous” claims, requiring that all collective actions should be “opt-in” rather than “opt-out” to prevent cases being brought without a consumer’s control, only allowing claims initiated by consumers or consumer groups, and requiring the parties to try another means of resolving the dispute before going to court.
Although Quigley argued that these measures would keep the focus on the consumer rather than the lawyers, other market players have questioned the Chamber’s motives.
“They’re a big-business lobbying organisation, and you’ve got to question why they’re doing this,” said one source, who added that such “safeguards” could also conceivably reduce the number of claims brought against conglomerates and the eventual settlements they have to cough up.
Disgruntled litigation funders
The Chamber’s study also found that consumers are wary of litigation funders, who invest in a case by paying a claimant's expenses with a hope of winning a share of the takings. A large majority are in favour of a safeguard which would prevent a funder withdrawing further money if the case took a turn for the worse, as this could potentially mean the funder controls the case.
“If you’re a lawyer, and you have the bank behind you in the form of these funders, you’re probably going to keep an ear out for what they want,” said the Chamber's Bryan Quigley.
Leslie Perrin from the Association of Litigation Funders (Alf), a voluntary regulating body, agreed that a power to withdraw funding is a “weapon for control”.
But he points out that litigation funders in the UK are already obliged to see a case to its end under Alf's voluntary code.
Quigley was adamant that a voluntary code is not enough, since there are litigation funders who operate in the UK without subscribing to it. Even so, he added, an EU-wide code is still needed to prevent companies "shopping" around the continent to find the most advantageous country to bring a claim in.
But Steven Friel, of litigation funder Woodsford, disagrees, saying that all “reputable” firms operating in the UK are part of Alf. “The law firms who introduce their clients to litigation funders have a professional obligation to check out the bona fides of the litigation funder they're dealing with,” he said.
He also disagreed with the idea that there should be a cap imposed on how much a litigation funder can earn from a case.
“We already have a very competitive market for litigation funding. Normal market forces will cap the returns we have. And any regulation which has a chilling effect on the litigation funding market will have a chilling effect on access to justice,” he said.