The US Chamber of Commerce (USCC) is a well-known opponent of third party litigation funding. You can see a summary of their objections and counter-arguments in another of my articles here. Now they have gone one step further in their crusade against the funding industry, backing a new campaign entitled, somewhat ironically, Justice not Profit. It is intended to oppose the provisions of the Consumer Rights Act 2015, which permit ‘opt out’ class actions in competition law claims.

‘Opt out’ class actions

In a class action, a claim is brought by a representative on behalf of a certain category of claimants (for example, the victims of a particular infringement of competition law). In the UK, we have traditionally operated ‘opt in’ class actions, in which claimants will only join proceedings when they actively assert membership to a class. Now, however, ‘opt out’ class actions are to be permitted in competition law claims in front of the Competition Appeal Tribunal, which means that claimants will automatically fall within a class until they take certain prescribed steps to opt out.

On first glance, this is a positive step. At Vannin, we have seen a number of very credible class actions falter because the ‘book building’ process necessary to assemble a large enough group of claimants did not get off the ground. Surely access to justice should not depend on the ability of a group to be successful marketers? Opt out class actions will allow corporate wrongdoers to be held to account and, owing to the publicity of a successful claim, increase the number of victims who are compensated.

The objections

Whilst proponents of access to justice may welcome the first small step towards opt out class actions, the USCC have laid out a number of concerns worth countering:

Unchecked third party litigation funders

The USCC argue that a lack of regulation means that the justice system is vulnerable to funders ‘gaming’ the system and extracting settlements from companies to the detriment of consumers.

Firstly, third party litigation funders are regulated by the Association of Litigation Funders (ALF). One can critique the ALF (though it has proven itself a prudent supervisor of the industry to date), but to say that funding is not regulated is simply incorrect. Secondly, funders have no interest in gaming the system; their interest is in funding high quality cases that will win so that they make a profit. In this respect, funders and claimants are aligned. Thirdly, claimants and funders will necessarily share in the damages recovered, but the claimant has a choice whether to use funding and the ability to negotiate terms with a range of funders. They also derive the critical benefit of not having to put any of their own money at risk.

If the USCC believes in justice, surely enabling more claimants to bring legitimate claims, increasing the likelihood of claimants being able to participate in class actions (which they may never have heard about in an opt in regime) and holding wrong doers to account is something to be fully supported.

Increased costs for businesses

The USCC claims that the funding of opt out class actions will increase costs for business, but fails to acknowledge the impact of the ‘loser pays’ principle in English law.

It is true that if more litigation arises as a result of these changes, there will be more cost for corporations to defend these claims. However, unlike in the US, if those claims turn out to be ill founded, the corporation will have all of its costs paid for by the claimant. This ‘loser pays’ principle acts as a significant disincentive to pursue ill-considered claims and is something that the USCC perhaps overlooked. The situation in the US, where it makes financial sense to settle a claim you know is not legitimate because the legal fees would outweigh the settlement, is not something that should happen here.

Consumers are exploited

The USCC claims that opt out class actions exploit consumers, but what about when one of their members exploits a consumer?

There is already a huge imbalance of power between corporations and individuals. Class actions are a tool which allows the ‘small guy’ to seek redress and is, therefore, something that a healthy justice system should support. Opt out class actions have the potential to increase the number of consumers being compensated for corporate wrongdoing and increase the accountability of corporations.

Funders may well see an opportunity to fund these claims, but, as mentioned before, it is up to the representative of the class action to determine whether a particular funder offers value, taking into account all the circumstances surrounding the claim and the terms being offered.

UK legal system compromised

It is somewhat sensationalist to claim that the UK legal system will be compromised by permitting opt out class actions in respect of competition law claims. Perhaps it is the start of a trend towards opt out class actions in more areas, perhaps it is not. Either way, this appears to be a carefully considered dipping of the toe in the water which, for the reasons outlined above, is unlikely to have any meaningful detrimental impact on the legal system. Only time will tell whether it enhances access to justice in practice.

It is disappointing that the USCC continues to promote such a negative story on third party litigation funding when those who actually work in the industry out see the positive change it is creating in both enhancing access to justice and developing a viable alternative asset class for investors.

Chris Smith is a leader in business development at Vannin Capital.