London (Parliament Politics Magazine) – SMEs are currently encountering significant economic challenges. In addition to grappling with high interest rates and persistent inflation, there is another potential obstacle on the horizon. The rise in collective action lawsuits poses a risk of gradually fostering a litigation culture akin to that of the United States. To address this issue promptly, the BCC is pleased to announce its membership in Fair Civil Justice (FCJ). Established just over a year ago, this organization is dedicated to safeguarding the interests of consumers, businesses, and the civil justice system. BCC wholeheartedly endorsed FCJ’s objectives.
One may have already come across advertisements for this type of action while scrolling through social media feeds. These ads inquire whether you have had a negative experience with a specific business, such as a bank or an airline. Collective action claims involve multiple claimants joining forces to seek redress against one or more defendants. Such claims are becoming increasingly prevalent in the UK due to legal changes that have permitted them, as well as an influx of funding from third-party litigation financiers.
These financiers, including hedge funds, invest in the case in exchange for a portion of the awarded damages. While the financiers and lawyers benefit from the struggles of others, FCJ is advocating for safeguards to be implemented around this business model to prevent frivolous claims launched solely for profit, committed to being part of this effort to assist businesses and consumers. SMEs could be particularly susceptible to future challenges.
A recent FCJ report revealed that 15% of UK SMEs have either faced legal action or been threatened with it in the past five years, amounting to approximately 120,000 businesses. However, only 8% of SMEs have had proceedings initiated against them through an ombudsman, and merely 7% have utilized alternative dispute resolution methods, both of which offer faster and more cost-effective avenues for seeking redress. The majority of SMEs (62%) already have some form of complaint resolution mechanism in place.
The primary concern moving forward is the potential intrusion of claimant law firms targeting SMEs throughout the UK. It is worth noting that 20 American firms have already established their presence in the UK. However, this can be mitigated by implementing safeguards and protections. This is precisely why BCC (British Chambers of Commerce) have decided to join FCJ, as it enables them to safeguard businesses across the extensive network of 52 accredited chambers in the UK.
FCJ recommended steps to be taken to address this issue and advocated for the following solutions:
- Increasing the utilization of Alternative Dispute Resolution mechanisms, such as ombudsmen. This approach would allow businesses to allocate less time and financial resources towards legal services and instead focus on their growth.
- Requiring litigants to demonstrate their attempts at reaching a resolution before resorting to court proceedings. By doing so, the legal system would experience less strain from small businesses facing legal action, thereby alleviating pressure.
- Enhancing the availability of publicly accessible resources for SME decision makers. This would enable them to access the necessary support and knowledge required to make informed decisions.
The BCC’s objective is to establish the UK as the premier destination for commencing and expanding businesses. Consequently, the legal system should function as a supportive entity rather than an obstacle to the business world. Taking immediate action to address the escalating trend of collective action litigation is of utmost importance.