Calls for opt-out approach to litigation funding as survey makes case for reform

Calls for opt-out approach to litigation funding as survey makes case for reformThird-party litigation funding for class actions is supported by almost half of the legal profession but more needs to be done to make it fully viable, research commissioned by The Lawyer shows.

A YouGovCentaur survey of 1,426 lawyers found that one in five respondents felt that external funding for claims could make a difference to group litigations being able to proceed.

An additional 29 per cent felt that this could only work for class actions involving large sums per claimant – as opposed to consumer actions such as that involving JJB Sports football shirts, in which consumers would only stand to receive around £20 each.

Norton Rose disputes partner Sam Eastwood (pictured), who is a proponent of litigation funding, says the main problem with the UK ­system is that it works on an opt-in rather than an opt-out basis, making it complicated and expensive to fund.

In the opt-in system the size of the claimant group needs to be known before the case gets to court, meaning that only those named on the claim are entitled to damages. Total damages will vary depending on the number of people claiming.

With opt-out, anyone ­eligible for compensation can claim it after an award has been granted, but they need to opt out if they do not want to be involved in the case.

“The current opt-in system in the UK means class actions are unattractive
for third-party investors, ­particularly where the ­damage for each individual claimant is low, but this could be about to change,” says ;Eastwood. ;“The ­Ministry of ­Justice [MoJ] is currently considering Civil Justice Council [CJC] proposals supporting an opt-out arrangement for collective redress in the UK. If the Government backs this, it would change the dynamic significantly and make it a lot easier for funders to back such claims.”

The CJC’s recommendations also call on the ­Government to bring in generic collective action across the civil justice ­system, including the ­Competition Appeal Tribunal and the Employment Tribunal.

According ;to ;The Lawyer’s YouGov survey, as things stand a third of ­successfully funded cases have been for damages of between £100,000 and £1m. If the CJC proposals are accepted it may result in a shift towards the top end of more than £100m, which currently accounts for 1 per cent of funded wins.

US class action ­specialists Cohen Milstein Hausfeld & Toll will be one firm ­looking to take advantage of any changes the MoJ might make.

Cohen Milstein had hoped to claim around £270m for consumers after the Office of Fair Trading estimated this was how much customers had lost due to supermarkets and dairy processors colluding to fix the price of products such as milk and butter in 2002 and 2003.

However, the firm had to abandon its attempt, as funding the claim was an issue when it became clear it was too risky for investors to front up the cash to fund the claim when they would probably win back between £5 and £10 (The Lawyer, 28 January).

Anthony ;Maton, ;a ­dispute resolution partner in the firm’s London office, said that if the opt-out ­system had been in place when Cohen Milstein was considering the dairy class action, he has no doubt it would have been possible to run the action.