Global business groups oppose UK class-action proposal

NEW YORK Tue Feb 5, 2013 10:45am GMT

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NEW YORK (Reuters) - A groundbreaking proposal in Britain making it easier to bring antitrust class actions has business groups worldwide fearful that London will become a center for litigation abuses.

Last week, Britain's government proposed a system of "collective actions" that would allow individuals and businesses be part of a class of plaintiffs even if they do not participate in the lawsuit. The proposal, which has yet to be drafted into legislation, would make it easier for individuals and small businesses to recoup damages from price-fixing cases.

The proposal would move Britain closer to the American class-action system, which Europeans have long resisted and derided for what they call its excesses. Under the current system in Britain, all members of a collective action must actively opt into a case and participate.

The government said changes are needed because it has become too costly to bring private lawsuits alleging anti-competitive behavior.

"What is needed from government is to create the legal framework that will empower individual consumers and businesses to represent their own interests," wrote Britain's business minister Vince Cable in a paper outlining the government's proposal.

CHAMPION AND CRITIC

Cable, a Liberal Democrat in Conservative Party Prime Minister David Cameron's coalition government, is seen as a champion of the average citizen and a critic of the financial sector. Cameron has not publicly commented on the proposal.

Business groups in Britain and abroad have already lambasted the proposal. Confederation of British Industry Chief Policy Director Katja Hall said in a statement the government's proposal had "let the litigation genie out of the bottle by adopting U.S.-style collective actions."

The U.S. Chamber of Commerce Institute for Legal Reform echoed those concerns in a statement, predicting it would bring Britain closer to the "toxic U.S.-style litigation culture" and that it would burden business and hurt consumers.

Between 2005 and 2008, there were only 41 antitrust cases of any kind that reached a judgment, according to the British government. By contrast, there were 677 private antitrust lawsuits filed in the United States last year alone, according to statistics compiled by the Administrative Office of the United States Courts.

The government stressed it wanted to guard against "frivolous or unmeritorious litigation." The proposal would not allow two basic features of the American class-action antitrust practice: contingency fees which allow plaintiffs' lawyers to earn around a third of damages collected in many lawsuits; and treble damages which automatically triple damages under U.S. antitrust law.

Taking away those elements will make Britain "less attractive" to some American trial lawyers thinking of moving to London, said Jon Lawrence, a litigator at the London corporate law firm Freshfields Bruckhaus Deringer.

'LOSER PAYS' RULE

The proposal also keeps Britain's "loser pays" rule that makes those who bring unsuccessful cases pay the other side's costs. Few small businesses will want to risk losing, said Robert Lande, a law professor at the University of Baltimore School of Law who specializes in antitrust.

Another element of the British proposal that could discourage American class-action attorneys is a judicial test to assess the adequacy of the representative plaintiff, said Vincent Smith, a partner at the London law firm Sheppard & Smith. The goal of the provision, according to the government, is to prevent unmeritorious lawsuits from going forward.

American class-action attorneys who are used to choosing their own clients without a high degree of scrutiny will have to be prepared to change how they operate, Smith said.

"They will need to think hard before they dip their toes in and harder before they take a swim," Smith said.

Many have described the British government's proposal as a radical departure from the current system, and some lawyers said they expect the government eventually to take more steps to make the system friendlier to plaintiffs.

Michael Hausfeld, one of a few American plaintiffs' lawyers with operations in London, said he was "cautiously optimistic" about business opportunities for his firm under the plan.

Hausfeld played down the prohibition against contingency fees and treble damages. He noted that Britain allows for plaintiffs to collect interest on damages accrued prior to a judgment, which could help make up for the lack of treble damages.

He also noted that under Britain's rules, successful lawyers can seek a multiplier of their regular hourly fees.

But Hausfeld suggested the biggest victory to come from the proposal may be a shift in thinking about the value of class actions. He said he first raised the idea of introducing more American-style class actions in Britain 13 years ago at a gathering of parliamentarians and lawyers.

"We were called nutters," Hausfeld said.

(Reporting by Andrew Longstreth; Editing by Howard Goller and David Gregorio)

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