How class-action lawsuits are drowning UK plc.

Lawyers warn that businesses could be hurt by competition laws becoming a new source of income

Justin Le Patourel, just moments before the UK’s very first class-action lawsuit was to start, made a final plea to BT.

Former Ofcom official and consumer advocate, former Ofcom official, urged UK telecoms giant to refund three million customers who claimed they were overcharged on their broadband and landlines.

Le Patourel declared on the first day of his eight-week case: “Time is really of the essence.” Over 40 percent of our claimants have reached the age of 70 and more than 150 of them die every day.

BT did not flinch. The FTSE100 company denied its pricing was anticompetitive, and vowed that it would vigorously defend the £1.3bn claim for compensation at the Competition Appeal Tribunal when the case started in January.

As a new wave of class actions makes its way through English courts, many of Britain’s largest businesses will have to decide whether they want to charge into battle or reach a peaceful settlement.

Tom Cassels is a litigation partner with Linklaters. He says that “every business which has a consumer-facing product or service, someone will be thinking of them as a potential target for a mass action.”

The London-listed companies Barclays, NatWest, Stagecoach and Vodafone have all been targeted by mass claims that demand hundreds of millions of dollars, if not billions of dollars, as compensation for alleged violations of competition laws.

Last month, PRS for Music became the target of former Blur drummer Dave Rowntree and Labour candidate for Mid Sussex. Rowntree accused the UK firm of violating competition rules following the misallocation of hundreds of millions in music royalties.

The British copyright group denied the allegations and said they were incorrect.

In 2015, the UK competition courts introduced class-action lawsuits of US style.

A class-action law allows one person to sue a company on behalf of millions affected individuals, who are included in the lawsuit unless they opt out.

The legal route has been open for nearly 10 years. However, the cases are only now picking up since the Supreme Court allowed former financial ombudsman Walter Merricks’ claim for £14bn in card fees against Mastercard to be brought forward in 2019.

Since then, lawyers have scrambled for new cases which could lead to lucrative payouts both for the consumers and litigation funders who are funding the claims.

The industry claims that it is helping to restore the balance of power between consumers and companies.

Martyn Day is a senior partner with Leigh Day, and co-president The Collective Redress Lawyers Association.

Now that it’s there, I think they have to be more on their game.

Businesses are worried about the sheer number of cases that they receive.

Some people are concerned that ambulance chasers are filing bogus claims to get a big payday.

Many claim that the Competition Appeal Tribunal (which handles class-action suits) has set the bar for certification too low – the process by which claims are certified and whether they should go to trial. This means that class actions, which some consider to be baseless, are allowed through.

One senior lawyer at the magic circle says, “I hear defendants complaining about certification being too simple.”

It may be that you win, but the decision-making process costs millions of pounds because there was no proper filter.

Businesses are also concerned that lawyers and funders fabricate class actions based on findings of competition watchdogs, and then cram them into competition courts where they do not belong.

Observers have highlighted a class-action lawsuit against six of the UK’s largest water companies including Thames Water for allegedly failing to report pollution incidents and charging millions of customers too much.

It is more likely that this is an environmental issue than a matter of competition.

Boris Bronfentrinker is a partner in the US law firm Willkie Farr & Gallagher. He says that “Competition Law has been stretched and twisted and everything possible done to make it fit these cases.”

Some consumers may also bypass market watchdogs by taking their complaints directly to court. It duplicates the many regulatory processes that companies already have to deal with, which further burdens businesses.

Litigation funding firms have responded to these criticisms by stating that, due to the risk of large financial losses, they can’t afford unjustified competition claims.

Steven Friel is the chief executive at Woodsford. Woodsford was a funding firm that settled a class-action lawsuit against Stagecoach for £25m earlier this month. He says, “We will suffer significantly because these tickets are expensive.” We don’t take this action without being very convinced.

Cases can be very lucrative, even though they are expensive. According to a recent Law.com study, law firms estimated that they earned over £1bn from the UK class action cases before they had settled or been concluded.

Litigation funding firms argue that complaints about costs should be directed to the companies they are taking against, accusing them trying to outspend and overlast their competitors.

The boom in class-action lawsuits is also criticized for being short-sighted.

Seema Kennedy is a member of the Ofwat Board and executive director at Fair Civil Justice. She says that businesses who are on the hook for large payouts will pass those costs to consumers through higher prices.

The former Conservative MP continues, “Consumers often get drawn into these litigations without fully understanding the risks and alternatives to litigation.”

Neil Purslow is the chairman of the International Legal Finance Association, and the co-founder of Therium Capital that funded the civil suit of the subpostmaster against the Post Office. He believes these criticisms to be misguided.

He argues that the class action system “preserves integrity of UK’s business-friendly culture and discourages bad actors from acting without impunity.”

It also promotes the rule-of-law, which is essential to attracting foreign investment into the UK’s economy.

BT’s case was concluded in March, but a verdict has not yet been delivered. Not only will BT be watching the outcome with interest, but so will other British bosses who are worried that their company might be next.