26 April 2012
BIS mulls ban on law firms and third-party funders launching new collective actions
Lamb: promoting fairness
Law firms and third-party funders will not be allowed to initiate group actions for breach of competition law – and such cases will be exempt from the move towards allowing solicitors to work on a contingency fee basis, under proposals published this week by the government.
The Department for Business, Innovation and Skills (BIS) said it wanted to facilitate private actions for breach of competition law with the aim of increasing growth – by empowering small businesses to tackle anti-competitive behaviour – and promoting fairness.
Introducing opt-out collective actions for competition law will form a key part of this. But the risk of creating a “litigation culture” meant BIS is minded to restrict the ability to bring actions to those who have suffered harm and genuinely representative bodies.
BIS said in a consultation paper: “The government does recognise the concern of some stakeholders around lawyer-driven claims and, in particular, the dangers that could arise where the interests of lawyers or of the representative body diverge from that of the individual consumers or businesses that have suffered harm.”
Nonetheless, it has asked whether there would be merit in allowing law firms and/or third-party funders to bring cases.
In a bid to keep the playing field level for defendants, the consultation proposed not allowing claimant lawyers to charge on a contingency fee basis because it could “unduly distort the incentives to bring cases”. A BIS spokesman told Legal Futures that there would be continuing talks with the Ministry of Justice, which through the Legal Aid, Sentencing and Punishment of Offenders Bill is to allow contingency fees in all other contentious cases.
The consultation said the ‘loser pays’ rule should be maintained, but the court should have the power to employ “some form of cost-capping” if justified, or decide that the claimants’ costs could be more appropriately met from the damages fund.
BIS said that while lawyers believe private actions could be critical to challenging anti-competitive behaviour, research by the Office of Fair Trading (OFT) shows that business experience sees this as one of the less effective aspects of the current UK competition regime.
Private actions can also be complex and costly for individuals and small to medium enterprises, and they are often reliant on their case being prioritised for OFT investigation. Further, although the total damage caused by anti-competitive behaviour may be very large, the individual loss for each business or consumer harmed is often small, making the expense of going to court impractical.
The proposed regime would also see the Competition Appeal Tribunal hear more kinds of competition cases – and grant it additional powers to allow SMEs to bring cases quickly and cheaply – and promote alternative dispute resolution.
Business minister Norman Lamb said: “Our main aim for these reforms is to promote fairness and act as a further deterrent for firms behaving anti-competitively. Small businesses and consumers will be better equipped to represent their own interests, stop anti-competitive behaviour, and seek redress if they have suffered loss.”
By Legal Futures
Tags: competition, contingency fees, Litigation Funding, Office of Fair Trading
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