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Lord Hodgson of Astley Abbotts is former MP for Walsall North (1976-79) and Deputy Chairman of the Conservative Party (1995-2000). He carried out the Government’s review of the Charities Act 2006.

The message in the build-up to the Prime Minister’s Conference speech in 2013 was that the Conservative Party is ‘unashamedly’ pro-business.  I hope this will also be the message up to the 2015 General Election. It is also the only way to rebalance the economy, attract new investment and produce the sustainable recovery Britain desperately needs. Through cutting corporation tax, extending business rate relief and getting rid of red tape, the party should rightly be vocal in trumpeting the measures it has taken to support business.

Meanwhile, the Consumer Rights Bill is undergoing scrutiny in Parliament. Overall, this Bill contains some very sensible measures. Yet buried deep within it is a little-known clause, Clause 80, which has the potential to undermine Britain’s road to recovery. It has received little commentary and little debate, but it could potentially have a significant impact on British businesses. Clause 80 proposes to establish an ‘opt-out’ class action regime in the UK, potentially importing the worst aspects of the American anti-business litigation culture into the UK.  Under the current law a person has to agree to any action taken on his behalf (ie. “opt in” to them).

This could have a very negative impact on Britain’s businesses. An opt-out regime will ratchet up the scale of potential liabilities in the UK by dispensing with the need for consumers’ consent to be obtained before legal action is taken on their behalf. Instead of consumers having actively to opt into legal claims against businesses, lawyers and funders will have the ability to bring a case on behalf of large groups of people, without their knowledge.

Such claims will damage UK competitiveness and put jobs at risk, as companies are forced to spend time and resource defending frivolous cases that might not otherwise have made it to court – inevitably these higher costs will be passed on to the consumer. There is a significant danger that allowing opt-out class actions in the UK would open up the legal system to the worst abuses of the U.S. class action culture through a loss of claimant control, more abuses of the system and the risk of “blackmail settlements”. The impact could be particularly severe for those small- and medium-sized businesses who are suppliers to major companies, since they are likely to find themselves conjoined in these actions.

The CBI expressed similar views during the Committee Stage of the Consumer Rights Bill, saying:

“The vast majority of the Bill is supported by the CBI and our members. The one exception to that is introducing the opt-out private actions regime. We think that that is not the best way to deliver effective redress to consumers. Experience of other jurisdictions who operate on that basis suggests that most of the financial claim does not reach the end consumer; it gets soaked up by the legal costs involved”.

We need a system of consumer redress that delivers for consumers while protecting businesses, and potentially public sector bodies such as the NHS, from frivolous and profit-driven litigation. The ideals behind the Consumer Rights Bill are laudable but their implementation must be focused on measures that give consumers the most effective course for redress. For example, increasing the coverage and quality of Alternative Dispute Resolution (resolving disputes between consumers and businesses out of court) would give consumers a faster, cheaper and more accessible form of mediation.

For centuries the UK has been seen as a bastion of judicial fairness, with a legal system that other countries look to replicate. It is a system that has taken centuries to evolve and flourish and is one that has kept dishonesty at bay. The introduction of opt-out class actions, funded by a burgeoning litigation funding sector, threatens this. I shall be tabling amendments to the Bill calling for these measures to be removed and so backing British business in the process.

16 comments for: Lord Hodgson: We must not import American-style anti-business litigation culture into the UK

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