Class action lawsuits targeting businesses could blow an £18 billion hole in the UK economy, researchers have claimed, amid fears that the cases deter investment.
The European Centre for International Political Economy believes the costs of “mass litigation” in the UK could rise to nearly £18 billion, a figure that its researchers said “dwarfs many sector-specific public investment programmes”.
The think tank warns in a report that class action legal claims could trigger a loss of more than £11 billion in market capitalisation across UK companies as investor confidence is undermined.
Class actions were seen as weakening the UK’s capital markets at a time when ministers were aiming “to make them more dynamic and internationally attractive”.
US-style class actions in the UK were almost non-existent until the Consumer Rights Act 2015 gave the statutory green light to claims for alleged breaches of competition law.
In an introduction to the report, Baroness Bowles of Berkhamsted, a former MEP and non-executive director of the London Stock Exchange Group, said: “What is particularly galling is that these economic costs are not matched by proportional gains for claimants”.
Baroness Bowles of Berkhamsted said the costs of class action cases were escalating, with actual claimants receiving far less
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She argued that “in too many cases, legal fees and funder profits consume the majority of settlement sums, with claimants receiving far less than is justifiable”.
As a result, said Bowles, there were “uncomfortable questions about alignment of interest, value for money, and the effectiveness of redress mechanisms”.
The report said that unless reformed, class action litigation backed by third-party funders could damage the UK’s competitiveness in areas including life sciences, clean energy, advanced manufacturing and digital services.
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The report went on to brand the UK as the most litigious jurisdiction in Europe for mass actions, with the researchers stating that 47 competition claims were filed last year alone.
Critics of class action claims have for some time suggested that often the majority of settlement funds are devoured by lawyer fees and returns to specialist funding companies.
Seema Kennedy, the head of the campaign group Fair Civil Justice and a former Conservative minister, said: “This is no longer just a legal issue, it’s a matter of economic resilience”.
Seema Kennedy, the head of the campaign group Fair Civil Justice, said the UK risked becoming a hostile environment for innovation
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Kennedy added that if policymakers failed to act, “the UK risks becoming a hostile environment for innovation, long-term investment, and fair access to justice. We urgently need to recalibrate our system”.
The report coincided with the revelation that the litigation funder in the nine-year Mastercard litigation has challenged a judge’s ruling on the allocation of the £200 million settlement.
Innsworth Capital, the US-based funder of the action, has told the High Court that it should not be handed less from the deal than the Access to Justice Foundation, a charity, which is also set to benefit from millions of pounds of unclaimed cash.
