THE BLOG

Are We Courting a US-Style Appetite for Litigation?

01/10/2013 09:49

A man called Ernie Chambers once filed a court action against God. His claim against the Almighty was for "widespread death, destruction and terrorisation of millions upon millions of the Earth's inhabitants."

In another similarly stranger-than-fiction episode, a judge filed a claim against a dry cleaner for ruining the trousers of his suit.

The suit cost £700 - but damages figure in the law suit filed by Roy Pearson was nearly £50 million.

These are just two cases which highlight how courts which are designed to protect those who have been wronged or injured, can be made to look foolish. Thankfully (depending on where you live) they did not occur in the UK, but in the USA.

Chambers had been a long-serving Senator in Nebraska when he filed his claim.

He did it, it is reported, to expose how the court system was open to abuse of frivolous claims being brought and is quoted as saying: "The Constitution requires that the courthouse doors be open, so you cannot prohibit the filing of suits, anyone can sue anyone they choose, even God.'"
Pearson was a judge in the District of Columbia when he filed what is commonly known as the "pants lawsuit".

Here in Britain, we have long heard there is a growing culture of litigation.

But there are deeply concerned voices saying we are in danger of hurtling towards a culture of non-meritorious, frivolous and bogus claims which are suffered by our American cousins.
The claims mentioned above, and examples which are similar, make for great headlines. But companies bought into court face the prospect of paying out huge damages if they end up losing and during the entire process, rack up huge legal bills.

In tough times, money spent on litigation should really be spent building a business.

Criticisms of that we are becoming more like the US have emanated from the USA itself.

The Wall Street Journal recently carried an article reporting on concern that a culture of litigiousness would spread across the UK and Europe through legal systems adopting 'collective redress' - or class action - systems.

If anyone should see the warning signs of heading to a 'Wild West' scenario of litigation abuse, surely it will be experts who have seen it unfold in the US?

If they are right, it would be a harmful reflection and indicator of how society could be heading.
Recent figures from the CBI suggest the legal services industry in the UK is flourishing, although statistics show a number of law firms are in danger of going out of business.

One criticism relating to the UK is that one particular element of the legal services industry is being allowed to flourish unchecked. This industry is that of litigation funding, where companies, such as the firm I am consultant to, Vannin Capital, invest in civil cases in return for a spoil of the pay outs.

It is argued this is in danger of lighting the touch paper on the litigation culture.

There is little doubt, the third party funding industry in the UK has grown rapidly.

There is currently around £500 million ready to be invested by Vannin Capital and our competitors.

But to boil it down, the key terms here are investment and returns. There is no disputing that there is the threat of rogue elements attempting to cash in, as there are in any industry with high-return on investment potential.

By backing a claim and paying a claimant's legal fees, funding companies are seeking to put not only their money but their reputation on cases they believe will win, not ones they believe have no merit and will end in failure.

It would not be good business to gamble on outside bets and serious claims by companies and individuals who have a right to protect their business from wrong-doing, make up the majority of cases presented to us. No right-minded funder would invest in cases that are not meritorious. It simply does not happen. As I have written in the Global Legal Post, I do not believe it is fuelling a rise in claims, particularly Professional Negligence.

But this aside, the court system of England and Wales does not have the same flaws as those in the US.

The most effective bar to frivolous litigation, and a significant differentiating factor from the US system, is the in built safeguard provided by the adverse costs regime that exists in England and Wales. In England, the loser pays the winner's legal fees. If you start legal proceedings then you immediately put yourself at risk of paying those costs if you subsequently lose or if you withdraw the claim. That can be a very heavy financial burden and ensures that Claimants are, on the whole, cautious about commencing legal proceedings.

As a society, we are far from being dragged headlong into a world where we are suing each other and companies over nonsense.

And in case you are wondering, while Ernie may have sued God to highlight frivolous claims, the guy who sued over the suit was deadly serious and sued for inconvenience, mental anguish and attorney's fees for representing himself.

The case went to trial. His defeat was a long overdue intervention from common sense.