Robert Rothkopf provided a funder’s view on group and class action proceedings in the UK for the Houthoff Class Action Survey 2024. The survey offers perspectives on class action trends in 12 jurisdictions.
Robert’s predictions for the future of class actions in the UK included the expansion of claim types that will be permitted under the opt-out jurisdiction, and confirmation of the court’s jurisdiction to order defendants to pay litigation funding costs on top of damages where defendant wrongdoing and/or litigation conduct is egregious, instead of claimant’s meeting funding costs from compensation.
Thanks to Houthoff for their initiative in leading this important research.
First published in the Houthoff Class Action Survey 2024. A PDF copy of this interview is available here.
In the dynamic world of class action litigation, one name that has been making waves is Robert Rothkopf, the founder of Balance Legal Capital (BLC). Established in 2015, BLC provides financial backing for commercial disputes and group/class actions in the UK and Australia. Catering to businesses, law firms, insolvency professionals, and groups of individuals alike, BLC’s capital is instrumental in covering legal fees and disbursements associated with pursuing a claim.
Before embarking on his journey with BLC, Robert held a pivotal role as a litigator in the International Dispute Resolution and Arbitration Group at Herbert Smith Freehills LLP. Here, he honed his skills advising multinational companies on commercial and investment disputes, laying the ground work for his future endeavours.
“Class actions” in the sense of “representative proceedings” in England and Wales are currently only available in the Competition Appeal Tribunal (CAT) for cases that engage competition law. Such class actions can be brought for consumers and businesses. There is a more limited “representative proceeding” in the English High Court under Civil Procedure Rule 19.8 for other claim types but these actions are proving impractical.
“There is a clear need in England and Wales to expand the representative/opt-out regime to cover more claim types outside of competition actions,” according to Robert.
Robert was sceptical as to whether there is an increase in environmental, social and governance (ESG) related actions or just an increase in the use of the ESG label. ESG- related claims are usually conducted as group actions – by which Robert means “opt-in” groups of claimants – for example, shareholders claiming against a listed entity for share price damage arising from revelations of bribery, or environmental harm, or the diesel emissions claims brought against car manufacturers. These claims do not fit within the representative action machinery of the CAT because they do not (for the most part) engage competition law.
An exception to this is the collective action against the UK water companies in the CAT – Professor Carolyn Roberts v Thames Water Utilities Ltd and others (1635/7/7/24) – where it is argued that the water companies abused their dominant position in allegedly misleading the regulators regarding frequency of sewage spills which then gave them the right to overcharge consumers. This case both fits into the class action regime of the UK’s CAT and can be classified as an ESG case.
When asked whether England & Wales permits alternative ways for collective redress such as assignment of claims, Robert responds that currently, assignment of claims is only possible from insolvent entities, or through insurance subrogation. However, there have been limited exceptions to this in England and Wales. Robert believes that this area is ripe for review as it may well provide a better aggregation mechanism than the opt-in group claim regime which can be uneconomic for low value claim book builds, or the flawed CPR 19.8 regime which so far requires identical claims and losses for each class member, or the CAT which is currently restricted to competition cases.
A desirable change in the class action regime in the UK would be to expand the claim types that can be brought under the collective action procedure so that consumers and groups of business can assert their rights and hold defendant corporations to account outside of the competition context and in a more cost effective way.
Litigation funding is an essential part of any collective action regime as the cost of bringing these actions is beyond the reach of most claimants and the cases are risky.
Robert does not consider it likely that abuse of class actions will occur in England and Wales. As he puts it, “it is not economically viable to “abuse” class actions”. The financial risk and costs of litigation are too significant to embark on class actions without conviction in the merits. Cases with weak merits make bad investments. With a multitude of regulated professional lawyers involved on both sides, including solicitors and barristers, and judges at the heart of the process, the risk of ‘abuse’ is purely theoretical.
Interestingly, Robert notes that the real area of abuse lies not in the initiation of class actions, but in the conduct of the defendants: “Attritional defence tactics intended to cause delay, such as withholding evidence, bare denials, and attacks on funding arrangements are often deployed. These moves simply drive up costs and adverse costs risk. Defendants would rather fight on every front other than the substantive dispute, and this tendency is the real challenge to a timely and cost effective result.” Robert would like to see procedural timelines kept short, and for defendants who abuse the system to receive adverse costs orders along the way.“The Post Office Case is probably the best-known example of abusive defendant conduct in UK group litigation where litigation funding was crucial to exposing a huge scandal. Sadly, we see unreasonable sharp conduct by defendants in other cases. As we continue to navigate this complex landscape, it’s clear that maintaining the integrity of class actions is a joint responsibility that requires vigilance and ethical behaviour from both claimant and defence-side participants.”
The UK and US legal systems differ in many ways. For starters, there are no “adverse costs” in the US. Whereas a losing litigant in the UK is liable to pay the winning party’s costs (which disincentivises spurious claims), parties in the US can bring claims without any liability for the other side’s costs if they lose. This may be why the US is more litigious than the UK.
Another difference is that the US class action regime covers many more claim types, whereas in the UK it is currently limited to competition actions.
The US also has jury trials for civil matters and punitive damages whereas the UK does not. That said, damages awards in the CAT are intended to more than merely compensatory but to deter misconduct by the defendant.
In jurisdictions such as England and Wales, TPLF is not only permitted but is also positively regarded by the judiciary and the government as an important component of access to justice.
Litigation funding is self-regulated by the Association of Litigation Funders of England and Wales (ALF), which mandates that members demonstrate sufficient capital to meet obligations under funding agreements and have limited termination provisions in their funding agreements.
Regulation on anti-money laundering (AML) checks falls under the purview of other regulators, such as the UK’s Financial Conduct Authority, if the funder is regulated by them. Solicitors accepting funds from a funder are required to satisfy themselves as to the AML checks under their own professional conduct rules.
Given the existence of a competitive market for fundable cases, the involvement of regulated legal professionals in all cases, including solicitors and barristers on both sides, as well as judges at the heart of the case, it is unclear what further TPLF regulation would be required in this jurisdiction.
Funders generally advance capital to claimants to meet litigation costs on a non-recourse basis – meaning that if the cases loses, the investment is lost, but if the case settles or wins, the funders’ capital outlay and a return is paid out of the settlement or judgment proceeds.
If the proceeds received turn out to be less than hoped, the claimant might receive less than 50% of the proceeds after the capital is repaid to the funder together with any lawyers’ success fees and adverse costs premiums. This can also be a function of costs having been higher than forecast at the outset of the litigation, generally driven by optimistic claimant lawyers at the start or the defendant’s strategy of outspending the claimant side and obfuscating the process. Obviously, the more the claimants have to spend in responding to attritional defence before the case is resolved, the more capital has to be reimbursed to the funder. Funders try to limit risk of disappointing quantum outcomes at the case selection stage but this is one of the risks of any litigation, and the risk is shared by the claimant and other stakeholders in the litigation through a priority payment waterfall in the finance documentation.
The problem of some claimants being disappointed with the distribution of proceeds at the end of a case could well be solved by granting the courts discretion to order the defendant to cover the funding costs, (and any lawyer success fees and adverse costs premiums) particularly where the defendant’s conduct leading up to the dispute or indeed in the conduct of its defence has been unreasonable or egregious. While such jurisdiction clearly exists in English commercial arbitration, as evidenced by cases such as Essar v Norscott [2016] EWHC 2361 (Comm) and Tenke v Katanga [2021] EWHC 3301 (Comm), some lawyers believe it also applies in English litigation. Robert continues
“I think this should apply outside arbitration cases.The express grant of this discretion to the court would bring in a moral hazard for defendants before they use scorched-earth defence tactics.”
The rising popularity of class actions is a significant development in the global legal landscape. These collective legal proceeding sare increasingly recognised as crucial for providing effective redress for consumers and businesses, and for holding defendant corporations accountable.There is a growing consensus that the UK needs to support and develop its class action regime, expanding it beyond the realm of competition claims so that more legal rights can be upheld.
We ask Robert what he would consider an undesirable development in the field of class actions. His answers refers to a subject very dear to him: “The introduction of regulations that limit access to litigation funding under the guise of consumer protection. For instance, imposing express caps on litigation funding returns would simply provide an advantage to defendants. This would reduce the scope of cases that can be funded, enabling defendants to avoid addressing the substantive merits of a dispute. Such a development would undermine the very essence of class action litigation, which is to provide a platform for collective redress and accountability which only works if there is litigation funding available to take the risk from the hands of claimants who can’t finance their claims themselves. Unless of course, litigators, barristers and experts would be willing to work pro bono.”
When asked what he thinks the most important development in the future of class actions will be, Robert responds: “I foresee for the near future, in appropriate cases, the recoverability of funding and adverse costs insurance from the defendant, and the expansion of the opt-out regime to claim types outside of competition law.”
First published in the Houthoff Class Action Survey 2024. A PDF copy of this interview is available here.
Balance is proud to share that we are supporting the Justice and Equity Centre (formerly the Public Interest Advocacy Centre) in its pursuit of strategic social justice litigation.
Balance is proud to support Velitor Law in their pursuit of landlords and insurance brokers for secret commissions.
Balance is proud to have been ranked again in the Chambers and Partners 2024 Litigation Support Guide in both the UK and Australia.
Robert Rothkopf, has been invited to speak at The Commercial Litigators Forum panel event discussing The Post Office Case on 12 June 2024.
Jeremy Humm will be taking part in the upcoming Thought Leaders 4 FIRE Webinar “Litigation Funding Post-PACCAR – What has happened since the decision and what happens next?”
Balance is a member of the Association of Litigation Funders of England & Wales. Our membership of the ALF requires us to satisfy on an ongoing basis stringent financial and capital adequacy tests and to comply with the ALF Code of Conduct.
Balance is a founding member of the Association of Litigation Funders of Australia, and a member of ILFA, the International Legal Finance Association.
Balance Legal Capital LLP is authorised and regulated by the UK’s Financial Conduct Authority.
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