Dnes: Time for a course correction
Litigation funders should have to purchase a small percentage of class actions before they are certified as part of efforts to improve the system, a think tank has recommended.
It also called for the creation of a “market” for class actions and “sharper economic tests” at certification to ensure that only cases that show real market harm proceed.
The 104-page paper, Class Act: The case for reforming Britain’s class action regime [1], is authored by competition lawyer Stephen Dnes and published by free market think tank the Institute of Economic Affairs.
It identified “several shortcomings” in the class action system, in particular that cases were not generating much money, “even against hardcore cartels”, that “some low-quality cases have crept in, but they are mixed up with stronger ones which ought not to be undermined by reform”, and cases were proceeding very slowly and encouraged costs overruns.
Mr Dnes called for funders “to put their money where their mouth is” by buying a portion of claims for a publicly disclosed amount before class certification, what he called seed payouts.
He explained: “This increases the focus onto the stronger claims, as the risk impact is greater in weaker cases. It also ensures that there is enough money in the case for purchasers to claim, i.e., that it is worthwhile, before it begins.”
It would also help clarify their value and allow for the creation of a market for claims. “If another funder thought that it could offer more, it could simply buy out the claims… Competition to serve the claimant class, and not just funders and lawyers, would then be stronger.”
Mr Dnes urged “more muscular class certification to distinguish strong cases from weak ones” – the latter tend to allege that markets might have been better, as distinct from alleging concrete harm to competition – and consolidation of losses to prevent “wasteful supply chain disputes”.
“From an economic perspective, the point is to deter harmful activity. That can be done using just one consolidated lawsuit, provided that it is large enough.”
The “strong incentives” these changes would introduce would help control legal costs, meaning they would no longer need to be supervised by the court, “as the funder would want to minimise them both to maximise its returns and to minimise the risk of buyout by a more efficient funder”.
The report cited recent research by City law firm CMS [2] that there were more than 655m class members of actions in the Competition Appeal Tribunal at the end of 2024 – equivalent to 10.4 class actions for every person in the country – and that their cumulative value was £134bn.
The regime risked becoming a drag on growth, imposing billions in costs while delivering little for consumers, it argued.
Mr Dnes, a partner at Dnes & Felver and also a law lecturer at Royal Holloway, University of London, added: “Class actions can play a vital role in deterring anti-competitive behaviour and protecting consumers, but the UK’s regime has gone off course.
“There is a real risk of friendly fire especially when innovative companies are sued. It is time for a course correction.
“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.”