Consumer clicks and class actions

How many times in the last week, while scrolling through social media, have you seen advertising promising thousands of pounds in compensation if you have been a customer of a business like an airline or a bank? If you are anything like most adults in Britain, the chances are high that you have been targeted by this kind of promotion. But do these ads deliver what they promise? And what is the broader effect of this growth in compensation culture?

These are just some of the questions the new campaign group I lead, Fair Civil Justice, is looking to answer, as part of our effort to make sure we have a balanced legal environment in the UK. One that protects the interests of consumers, businesses and the public sector. Despite strikes, snow and scarlet fever, our launch event in December was well attended by the legal world, private sector and consumer groups, as well as policymakers. This issue affects sectors and regions across the UK and it was encouraging to hear how our work resonates across the board.

The problem with many of these adverts is that they paint a rosy picture of litigation which, by its nature, is a lengthy, time-consuming, obscure and expensive process. Access to justice plays a key role in our society and should be promoted, but consumers need to have fair and accurate information before they choose to join a claim.

This is particularly important since a 2015 change in the law in England and Wales which has led to a growth of what is termed ‘opt-out class action litigation’. This phenomenon is common in the US and has been used there for many years. It means that you and I are joined into a case against a company, despite having no part in bringing it, sometimes even without knowing that we had suffered any supposed harm, potentially alongside millions of others.

In the US, the opt-out phenomenon has had a dampening effect on innovation and creativity, clogging up courts and damaging the reputation of lawyers – all without actually improving access to justice, particularly in terms of who receives the bulk of damages. Access to justice should mean that consumers receive the bulk of any settlement or damages, but that is not what happens in practice. Currently, in England opt-out cases are mainly brought for competition cases, but there has been an explosion of them in other areas over the last decade. These are largely led by US plaintiff law firms, but other English law firms are also involved.

These cases are often funded by third-party litigation funders, such as hedge funds, from all over the world. It is not routine for courts to ask where the money for these cases is coming from or what these funders’ motivations are. Are they purely looking for financial gain? Do they want the consumers’ best interests? What we do know is that US research shows that plaintiff lawyers and funders make significant profits while the mean share to the consumers is only 9% of the damages or settlement.

There is another facet of these cases which most people do not know about when they are tempted to choose to join an opt-in claim. Branded as ‘no-win, no-fee’, these claims can bring risk for consumers. For most claims, England operates a ‘loser pays’ rule and if the claim fails the defendant can recover most of their legal fees from consumers. Insurance might be in place, but it will be subject to limits and exclusions, and there are no rules on precisely advising consumers of these risks. The claimant law firm might also drop out, or individual litigants might have to give evidence in court. But while advertising for financial products which are also risky is regulated, there is currently no regulation to protect claimants and ensure high standards in claims advertising.

There is no requirement for members of a group claim to have a key information document, setting out the risks involved. There is no standardised regulation across the sector. Rules on the use of the term ‘no-win, no-fee’ are loose. There are no cooling-off periods like in other areas of consumer protection law.

The most important aspect of our legal system is that it provides everyone with access to justice. This is something we should all be very proud of. But to maintain fair access to justice, consumers should enter litigation knowing all the risks and receive a fair share of any damages. To maintain the good reputation of the English legal system, new safeguards need to be put in place, so that consumers’ clicks do not lead to outcomes which primarily serve lawyers and funders. This is what Fair Civil Justice is campaigning for.

Fair Civil Justice was launched in London last month by the Institute for Legal Reform, a group affiliated to the US Chamber of Commerce

Former City solicitor Seema Kennedy OBE is executive director of Fair Civil Justice. She was MP for South Ribble from 2015-2019, and served as a minister at both the Department of Health and Social Care and the Home Office in 2019