Collective action funding concerns

The adage about the courts being open to all just as the grill room at the Ritz hotel is open to all may ring true if care is not taken in parliament with the passage of the Consumer Rights Bill 2013-14, which is due to be debated in the House of Lords next week.

The proposal for a collective-action regime for competition law cases is contained in Schedule 8 of the bill, entitled Private Actions in Competition Law (with the relevant provisions being inserted in the Competition Act 1998 and the Enterprise Act 2002). This regime will adopt an opt-in or opt-out approach for the formation of the class, depending on the judicial choice under the new proposed Section 47B (7) (c) of the Competition Act 1998.

Regardless of the format that a collective action may adopt – either opt-in or opt-out – the success of either system will depend on the funding available to bring these claims. However, there are real concerns that the available funding options could be so limited that such claims may well struggle to be brought.

In his Review of Civil Litigation: Final Report, Lord Justice Jackson expressly acknowledged that there is a place for damages-based agreements (DBAs) as a way of funding collective actions. Not only was it the clear intention of the author of the costs reforms that DBAs should be available, but there were no carve-outs or exceptions in either the Legal Aid, Sentencing and Punishment of Offenders Act 2012, or in the Damages-Based Agreements Regulations 2013.

Despite these clear intentions, it is proposed in the new bill to prohibit the use of DBAs for opt-out competition law collective actions. This is the result of perceived concerns about such a funding arrangement. But the government did state that the use of conditional fee agreements and after-the-event insurance should continue to be available.

Given the prohibition on DBAs in the bill, it was clear that third-party funding would therefore become an important way of funding these claims. However, an amendment to the bill was tabled on 9 July 2014 by Lord Hodgson to prevent the use of third-party funding for opt-out competition law collective actions, as well as prohibiting the use of DBAs.

Once again, this ignores that Lord Justice Jackson approved of third-party funding in his report. This approval extended specifically to collective actions where he stated in paragraph 4.3 of chapter 33 in the report that if claimants ‘are advised that the proposed funding agreement is appropriate and if the funders subscribe to the voluntary Code … this would be a proper means of funding many collective actions’.

Since the publication of the report, the Civil Justice Council has been instrumental in approving a code of conduct for funders that was ‘fit for purpose’ and dealt with the areas identified by Lord Justice Jackson. The Association of Litigation Funders was established in November 2011 to regulate its funder members and their observance of this code of conduct. The association’s funder members are now funding competition claims in England and Wales as well as in other jurisdictions. 

Interestingly, in Jackson’s report it was noted that the Confederation of British Industry wanted costs-shifting to be maintained for collective actions and stated ‘access to justice should not in our view be paid for by defendants’ (paragraph 2.6 in chapter 33). Both of these aims have been met. Costs-shifting has been retained for collective actions and neither DBAs nor third-party funding are paid for by defendants, but by the claimants.

The fact that funders are funding collective actions in other jurisdictions should indicate that care should be taken not to restrict the range of funding options available to claimants in England and Wales. To do so would mean that our jurisdiction would be out of step with other common law jurisdictions.

As Lord Neuberger noted in Harbour’s inaugural annual lecture in May 2013, ‘…funding is the life-blood of the justice system’. If DBAs and third-party funding are prohibited, the burning question is: will conditional fee agreements and after-the event insurance be able to fill the funding gap created?

The evidence over the years would point to it not being able to do so, despite the fact that success fees and ATE insurance premiums were recoverable from a losing opponent.

Rocco Pirozzolo is a solicitor and the director of litigation funding at Harbour Litigation Funding Ltd. He is general editor of Litigation Funding Handbook recently published by Law Society Publishing