A dramatic surge in class action lawsuits and third-party litigation funding is creating a crisis for the British economy, undermining its reputation for legal stability and primarily enriching funders rather than victims.
The American Dream, British Reality
While Hollywood films like Erin Brockovich and Michael Clayton romanticise the little guy taking on corporations, the reality in Britain is far less glamorous. Following the success of stories like Mr Bates vs The Post Office, the UK has witnessed an explosion of these collective legal actions.
However, a recent Adam Smith Institute report, 'Judge Dread: How lawfare undermines business confidence in the UK', warns that this trend is creating a cottage industry of third-party litigation funders (TPLF). This new legal environment often sees cases that should benefit consumers instead lining the pockets of those who bankroll the claims.
The Staggering Cost of Litigation
Since the report's publication, evidence of the problem has mounted. There have been enormous payouts for cases involving minor infractions, such as sharp sales practices by car salesmen. In the Mr Bates case, a staggering 80 per cent of the settlement went to the case's backers, not the victims.
Most recently, a landmark judgment found Australian miner BHP liable for a dam collapse in Brazil that killed 19 people. The lawsuit, brought in London and claiming up to £36bn, highlights how the UK's courts are being used for global disputes with little connection to Britain. This will not go unnoticed by companies considering investing in the UK.
Consequences and the Call for Reform
The Department for Business and Trade has admitted the scale is far greater than anticipated. Their call for evidence revealed that since 2015, "tens of billions of pounds in damages [have been] claimed and hundreds of millions of pounds spent on legal fees". This dwarfs the original impact assessment which estimated an annual cost to business of just £30.8m.
With a huge court backlog and this new wave of class actions, Britain's legal system is increasingly seen as a liability. Even Chancellor Rachel Reeves has recognised the issue, attempting to intervene in a Supreme Court case over car sales compensation.
So, what can be done? Sam Bidwell, author of the ASI report, suggests regulating third-party litigation funding like other investments, demanding full transparency. Another proposal is to introduce arbitration clauses into regulatory decisions, putting the power to provide compensation back into businesses' hands.
The truth is clear: the current system exploits British courts, businesses, and everyday rights. Tackling this issue is a class action the government must take to restore confidence and protect the UK economy.
