Assertions that third-party litigation funding expands access to justice are 'fundamentally dishonest', a free-market thinktank argues today in an attack on what it calls an 'ever expanding class action regime'.
In its report, the Adam Smith Institute argues that the growth of class actions in England and Wales threatens to damage business confidence in the UK and may cause investors to look elsewhere.
Citing the fees charged by no win, no fee lawyers in the Bates v Post Office case, it states that the greatest beneficiaries of class actions have 'not been individual claimants, but claimant-focused law firms and litigation funders'.
The report identifies four types of class actions in England and Wales: opt-in claims under the civil procedure rules; group litigation orders; 'opt-out' collective proceedings, and the possibility of wider opt-out representative actions following the Supreme Court's ruling in Lloyd v Google.
In 2023 the sums claimed in class actions added up to £123.17bn, more than twice the UK’s defence budget for that year. Actions have been filed relating to 540 million class members, eight for every person in the UK.
Attacking claims that third-party funded class actions improve access to justice, the report cites research showing that funders support only 2% to 4% of the cases pitched to them, 'demonstrating that they are interested in cases with high profit potential, rather than those that are just'.
The report calls for litigation funding to be brought under the Financial Conduct Authority's regulation regime. Meanwhile the government should conduct a review into funding for courts and legal aid, which it describes as a 'preferable alternative' to third-party funding.
Author Sam Bidwell said: 'The UK stands to suffer enormous reputational and material damage from an ever-expanding class action regime. Its rapid expansion over the past decade is only damaging our ability to attract investment from big, mobile international companies - without meaningfully expanding access to justice for ordinary people. This is the worst of both worlds.
'At a time when the UK’s appeal as an investment destination is in question for many businesses, we need to be doing everything that we can to remain competitive, whilst making sure that the legal system still leaves appropriate space for meritorious claims.
'The system is in dire need of reform. We must regulate TPLF on the same footing as other investments, and ensure greater transparency across the system. Furthermore, we must reform our corporate law to ensure that it is fit for purpose, giving businesses greater responsibility for providing compensation if they fall foul of regulatory requirements.'
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