By Alex Veitch, Director of Policy, British Chambers of Commerce

Small and medium sized enterprises (SMEs) are facing severe economic headwinds right now. But as firms face the daily challenges of high interest rates and stubborn inflation, there’s another potential hurdle on the horizon. A rise in collective action lawsuits risks slowly creating a litigation culture, similar to the United States.  

To help tackle the problem right now, the BCC is delighted to be becoming a member of Fair Civil Justice. Launched just over a year ago, the organisation is striving to protect the interests of consumers, businesses and the civil justice system. We wholeheartedly support FCJ’s objectives.  

Scrolling through your social media feeds, you may have already seen adverts for this type of action. They ask whether you’ve had a bad experience of a particular business, such as a bank or an airline. Collective action claims involve multiple claimants grouping their claims to seek a remedy against the same defendant or several defendants.  

They are increasingly more common in the UK because legal changes have allowed them to be, but also because of an influx of cash from third-party litigation funders. Funders, such as hedge funds, invest in the case for a proportion of the damages awarded. The funders and the lawyers benefit from the struggles of others and FCJ is campaigning to put safeguards around this business model, to avoid spurious claims launched solely to make a profit. That’s something we want to be part of to help businesses and consumers.  

SMEs could be particularly vulnerable in the future. A recent report by FCJ showed that 15% of UK SMEs have faced legal action or the threat of it in the last five years – estimated to represent a total of around 120,000 businesses. But only 8% of SMEs have had proceedings initiated against them through an ombudsman and only 7% have had an alternative dispute resolution – both of which provide faster, more cost-effective routes to redress. A majority of SMEs (62%) have some form of complaint resolution mechanism in place already.  

The real fear going forward is that claimant law firms will swoop in and hit SMEs across the UK – 20 American firms have set up shop in the UK – unless safeguards and protections are put in place. That’s why we’re joining FCJ – to protect businesses across our UK network of 53 accredited chambers.  

So what can be done now? FCJ is calling for: 

• Increased use of Alternative Dispute Resolution mechanisms like ombudsmen, so businesses spend less time and money on legal services and more on growing their business. 
• Litigants to be required to demonstrate trying to reach a resolution before going to court, so there is less pressure on the legal system from small businesses threatened by legal action. 
• More publicly available resources for SME decision makers to access support and understanding. 

The BCC is all about making the UK the best place to start and grow a business. The legal system should be there to support, not hinder, the world of business. Taking immediate action to address the escalating trend of collective action litigation is imperative.