Economic progress in Britain is being obstructed by an increase in class action lawsuits
News Article: IEA Warns of Speculative Lawsuits in UK's Competition Class Action System
A new report published by the Institute of Economic Affairs (IEA) has raised concerns about the surge of speculative lawsuits in the UK's competition class action system. The report suggests that the current system, which was designed by the UK parliament, could potentially cost the economy up to £18bn.
According to the IEA, around one new class action is filed each week in the UK, making it one of Europe's most active jurisdictions for this type of legal action. This high volume of cases has led to a substantial economic cost, with £11bn in lost market capitalization for innovative firms. A recent analysis by the European Centre for International Political Economy estimates that the economic cost could amount to £18bn.
Scott Campbell, Partner at law firm Hausfeld, has welcomed the discussion about improving the system but emphasizes that anti-competitive behavior stifles competition and economic growth. He states that the current competition class action regime in the UK is incurring a substantial economic cost that slows innovation, with money that would otherwise be allocated towards innovation and investment being set aside for legal costs to defend against large, expensive claims.
The report proposes a package of measures to focus the regime on strong, economically justified cases. These proposals include requiring funders to deliver upfront payouts, creating a market for claims, and tightening certification tests to weed out weak cases and wasteful disputes. The IEA claims these steps will curb speculative litigation, ensure class actions deter anti-competitive behavior, and prevent unnecessary economic costs.
The think tank Adam Smith Institute had a report out last October stating that the current system is undermining trust in businesses as well as the legal environment. Dnes, another organisation, suggests that class actions can play a vital role in deterring anti-competitive behavior and protecting consumers, but the UK's regime has gone off course.
The government stated that since 2015, the opt-out caseload has grown significantly, with tens of billions of pounds in damages claimed and hundreds of millions of pounds spent on legal fees. However, Scott Campbell points out that the current system has strict safeguards, and the courts have the power to manage these cases effectively.
The report is in response to the Department for Business and Trade's call for evidence on the opt-out collective actions regime. The report states that the system can be fixed by fixing the misaligned incentives built into the system to restore focus on genuine harm, speed up justice, and support growth. The IEA believes that these changes are necessary to ensure the UK's competition class action system serves its intended purpose and does not hinder economic growth.
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