A vast amount of time in the British courts over the past few years has been devoted to a class action lawsuit against a mining company for the worst environmental disaster in the country’s history. Except the company in question is Australian, and the country in question is Brazil. What on earth is going on here? Well this dates back to 2015, when an iron ore mine in Minas Gerais, Brazil, suffered a catastrophic collapse, leading to devastating flooding.
As awful as this is, what relevance does it have to British courts? Initially, when the case was first heard, it was ruled not very much. In 2020 the case, brought to the court by UK law firm Pogust Goodhead and funded by the American investment manager Gramercy, was summarily chucked out with the judge ruling the case amounted to an abuse of the process of the court as “the wasted time, costs and duplication of effort involved in advancing the same case simultaneously in the two jurisdictions would be considerable and liable to give rise to incompossible findings”. That decision was overruled, based on the fact that compensation provided in Brazil appeared to be inadequate, amongst other reasons.
Again, why is this being tried in an English court? Well, when it comes down to it, it’s for the sole reason that BHP, at the time, was dual listed in the UK and Australia. As a result, hundreds of thousands of Brazilians are now partaking in a lawsuit against BHP seeking tens of billions of pounds worth of damage.
This is a mind-boggling phenomenon, and is a relatively new one to our legal system. It was only with the introduction of the Civil Procedure Rules and Group Litigation Orders at the turn of the century that they became feasible. Under these changes, several claimants can bring their claims together, using a single claim form, on the basis that these claims “can be conveniently disposed of in the same proceedings.”
It’s clear what a nightmare this is proving to be for international businesses seeking a base on our shores. International, activist, investors are now able to fund huge class action lawsuits against businesses from outside the UK, for incidents that happen outside the UK.
And if that wasn’t bad enough, a further legislative change in 2015 only piled on the pressure by significantly expanding the remit of class action proceedings for competition law breaches. Namely the Consumer Rights Act, under which class action suits can operate on an “opt-out” basis — where whole groups are assumed to be represented in the case unless instructed otherwise, as opposed to “opt-in” proceedings where individuals have to approve their inclusion.
The next tale in the story of class action suits taking over the legal system was the Merricks vs Mastercard case in 2020, under which the Supreme Court ruled that a case representing over 40 million Mastercard users could proceed to trial at the Competition Appeal Tribunal (CAT). Since then, the CAT has drastically lowered the bar for cases to be heard.
It’s the perfect tale of how, through a couple of poorly thought through, poorly designed pieces of legislation, Britain has been rendered ungovernable. One unaccountable quango, the Supreme Court, has opened the door for another unaccountable quango, the Competition Appeal Tribunal, to play host to trial after trial involving millions, even tens of millions of people, often with no idea that they’re even being included in an individual case.
Unsurprisingly, the Competition Appeal Tribunal has since been hearing a growing number of highly speculative, tenuous cases with what should be very weak grounds.
There is now a chance to pull some of these runaway quangos from the brink. A major development that has eased some of the extraordinary pressures on the UK court and legal system from these case has been a ruling that Litigation Funding Agreements — the means by which third parties fund these cases — are a type of Damages Based Agreement, as the return on investment is dependent on the level of damages secured by the claimants. Without complicating things too much, this increases the regulatory burden on third party funders, limiting their ability to bankroll such cases. This is a helpful development given the growing trend of organisations using court cases involving the often serious suffering of significant numbers of people as an investment to make money off. Except, as the Adam Smith Institute notes in its paper on this subject, there are early signs that the CAT is willing to grant permission for cases to be heard in which LFAs are modified and therefore will not constitute a DBA.
Now all corners of the world are reaching into British law
What’s effectively happened here is that, while there has been initial involvement in this emerging and spiralling trend in the UK legal system from Parliament and our legislators, since then we’ve allowed the courts and quangocrats to use that legislative foundation to completely transform large parts of the legal system, in particular around competition law. Given the eye-watering number of regulations businesses now have to abide by — again much of it shaped and formulated by regulators acting with only minimal parliamentary accountability — this situation could spin further out of control.
Much can and should be done, from cutting back much of the regulatory framework created in recent decades, to significantly reducing the quango state. It was once the case that British law reached into all corners of the world, now all corners of the world are reaching into British law.
