This has certainly been the case in the UK over recent years, as the UK system struggles to adapt to a regime in which reliance upon legal aid to fund civil claims is no longer an option in most cases.
While, in some respects, the nature and extent of product liability litigation in the UK over recent years has been somewhat subdued, recent developments at both national and EU level point to inevitable change on the horizon.
There can be no argument that there is a level of ‘litigiousness' among the citizens of the United Kingdom (as in many other parts of Europe) that would be more than sufficient to support a booming product liability system - for better or for worse - depending on one's perspective. It is equally certain that, while the requisite legal principles are well established to support product liability claims, the missing ingredient is a sufficient level of ‘access to justice' to encourage a greater level of claims to be brought.
This is not to say that, from a manufacturer's perspective, doom is on the horizon, nor should we expect in the UK the kind of litigation system that has developed in the United States over a period of many years. The key point, however, is that one should not underestimate the likely impact, or the importance of the various developments in the UK and at an EU level that might encourage the bringing of claims against product manufacturers.
The key lesson is that global manufacturers need to have a proper understanding of the changes that are happening in Europe, and need to take these developments into account when dealing with their product liability risks in Europe. Whether defending product liability claims, dealing with compliance issues, or developing risk-avoidance strategies, it is important that all steps are taken with a properly-guided understanding of the context in the complex European regime.
CHANGE IS IN THE AIR
Recent years have brought a marked change in the activities of the European Union in matters relating to consumer safety.
Most importantly, there has been a significant increase in the level of activity within Brussels to regulate product safety in the interests of consumer protection. Certainly, there has been a proliferation of directives and regulations focussing on product safety, with the development and expansion of the ‘new approach' directives, and the promulgation of product-specific measures (eg, the ban on phthalates in toys). There has also been a marked change in the underlying philosophy behind this kind of regulation, with an increasing emphasis on the ‘precautionary principle'. While enforcement of these extensive measures has for some time been recognised as the ‘weak link' in the European system of safety regulation, that is now changing rapidly, as the authorities at an EU level implement a range of measures to improve the level of enforcement within the member states.
Alongside these developments, we have seen an increasing focus on consumer education, and in particular measures to ensure that consumers are aware of their rights. This has become a central plank of the European Commission's consumer protection policies, and is reflected in much of its activities in this field.
Indeed, the growing importance of consumer protection issues at a Commission level is highlighted by the appointment, as of January 2007, of Commissioner Meglena Kuneva as the European Commission's first commissioner for consumer protection. Her influence in the development of consumer policy in the EU since her appointment has been significant.
These developments are important, because they foster a risk-averse environment in Europe, together with a climate in which consumers, if injured or disappointed by a product, will more likely believe that this is a reflection of a failure in the behaviour of somebody involved in the supply of the product. Consumers in Europe are being trained to be intolerant to risk, and to look for somebody to blame (and therefore against whom to claim) if a product fails or causes an injury.
HUNTING IN PACKS
Coupled with the effects of greater enforcement and regulation in the product liability area, we are starting to see creep into the rhetoric of the policy-makers, both in the UK and at a Commission level, the notion that effective enforcement of regulations can only be fully effective if consumers are empowered to assert their rights against companies that breach those regulations. Furthermore, we have seen the popularisation of the concept that effective consumer redress is only achievable in Europe if there are effective mechanisms to facilitate ‘collective redress'. In other words, the concept has been developed that adequate enforcement of consumer safety is dependant upon their being an adequate mechanism for consumers, collectively, to make claims against companies. In other words, it is suggested that the system in Europe needs some sort of class action mechanism, or other procedural device performing a similar function.
These developments are significant, because they reflect a change in approach at policy level within the European Commission. The idea of encouraging consumer claims to support the enforcement of regulations is a notion that has been promoted in the US for many years, to try to justify the nature of the litigation system in that country. It has not, however, traditionally been a feature of the European policy debate, where the prevailing view has been that the enforcement of regulations is the exclusive responsibility of the authorities - and indeed it would be an abdication of their responsibilities for them to suggest that consumers must play a role in active enforcement. This is a significant change in the rhetoric underpinning the European debate that should not be underestimated.
They also come at a time when many EU member states are instituting reforms at a national level to facilitate collective actions for the benefit of consumers. In the UK itself, there is an ongoing debate about the adequacy of existing procedural rules for group actions, and the question of whether there is a need for reform to introduce class action procedures into the UK system.
THREE'S A CROWD?
While the debate over collective action continues in the UK, the focus of the ‘access to justice' issue in the UK more broadly has been centred on questions of the funding of litigation - and in particular on the options for third parties to become involved in litigation funding.
Litigation funding by third parties is not new in the UK. In formal insolvency contexts, limited types of de facto funding have been permitted for some 100 years.
Outside the insolvency context, the funding landscape began to change in 1967 when the Criminal Law Act abolished maintenance and champerty as crimes and torts. It also saw the effective abolition of legal aid, which left many claimants without access to public funding. By the end of the 1990s, section 58 of the Courts and Legal Services Act (as amended) permitted solicitor's conditional fee arrangements (CFAs), subject to strict regulation. This allowed a solicitor to defer all or a percentage of their costs pending a successful outcome, at which point the solicitor receives an unpaid standard rate plus a success fee, which is recoverable from the opponent.
The acceptance of third-party funding in England as a legitimate means of promoting access to justice is yet another move towards greater access to justice. The courts have upheld the validity of arrangements where it is clear the risk of interference with justice did not exist, evidencing a clear move away from viewing arrangements such as these as contrary to public policy. There has been a change in focus: from being prima facie unenforceable, third-party funding arrangements will now be enforceable unless there is something about the arrangement that is particularly objectionable.
The courts' attitude to third-party funding is now reasonably well established. In Arkin v Borchard Lines & others (2005), the Court of Appeal ruled that "a professional funder, who finances part of a claimant's costs of litigation, should be potentially liable for the costs of the opposing party to the extent of the funding provided".
Increased public attention and fanfare followed the release of a report of the Civil Justice Council (CJC) in June 2007. Taking the decision in Arkin as the starting point, the CJC recommended that:
Properly regulated third party funding should be recognised as an acceptable option for mainstream litigation. Rules of Court should also be developed to ensure effective controls over the conduct of litigation where third parties provide the funding.
As a statutory body responsible for advising the UK government on the effectiveness and continuing reform of the civil justice system, advice by the CJC is highly influential. In the CJC's view, the need for third-party funding is particularly acute in the context of group litigation, and
...third party funding should be encouraged, subject to (i) the constraints laid down by Arkin and (ii) suitable regulation of commercial third party funders to ensure consumer protection particularly in the retainer relationship between funder, lawyer and client, and who has control of the litigation.
The high costs of pursuing litigation and the risks of the consequences of failure have been identified by the Office of Fair Trading (OFT) as key obstacles to the bringing of public liability actions. The OFT has echoed the position of the CJC:
The OFT takes the view that third-party funding is an important potential source of funding... third-party funding should be encouraged.
It was agreed at a conference of the CJC in 2008 that some form of regulation for third-party funding should be introduced, with voluntary self-regulation being favoured. The CJC has introduced a draft code of conduct for third-party litigation funders, aimed at facilitating the development of a competitive and responsible litigation funding market. It is intended that the CJC code will set minimum standards of behaviour and outline the key terms required to be covered in any contract between a funder and the client.
Matters such as the supervision and regulation of individual funding arrangements and the funding industry as a whole are currently being considered by the Standing Committee of Attorneys General.
There are strong indications that some level of regulation will follow. Former High Court Judge Sir Gavin Lightman recently stated that London's competitive advantage as a leading centre for litigation and arbitration requires that the English approach to third-party funding be flexible and forward-thinking. Certainly the CJC's advice suggests a continuing favourable outlook.
The Law Society is also considering changes to the Solicitors Code of Conduct to ensure that solicitors are not prohibited from working with funders.
FEAR OF THE UNKNOWN
We have for some years been seeing the impact of recent changes: commercial enterprises are already involved in the funding of some claims in England, including some very substantial ones. A host of new players have now entered the market. Hedge funds and private investors are increasingly looking on group actions as an investment opportunity given the current state of the shares and property markets.
It should be no surprise that manufacturers are starting to become concerned that the increase in the availability of third-party funding will generate more claims against it, including large group actions.
Will this really lead to an increase in the number of cases brought? Investment in litigation is for profit, so some say that fears of a proliferation of unmeritorious claims are misguided. Third-party funders are likely to scrutinise claims with considerable diligence and current statistics show that funders are only likely to be tempted to invest in cases where the potential damages are very significant and the likelihood of success of greater than 70 per cent. Since these funders are run according to profit-making principles, it makes no sense to back a weak claim and it is likely that such claims will not be entertained in such a way. The risk of having to pay the successful parties costs is real.
The reality is that options for litigation funding will not in themselves solve all of the access to justice problems that are perceived to exist in the UK, nor will they alone bring about an explosion of litigation. The development of these options is, however, an important factor in the changing litigation climate, in which the risks of litigation are ever increasing.
The broader issue, is that while existing systems are seen to be failing to deliver access to justice for consumers, the pressure is continuing to mount for some more radical reforms. The most obvious areas for such reforms are in the areas of class actions, contingency fees, and modifications to the ‘loser pays' rule that exists in the UK system.
Whilst the changes in the claims environment in the UK - whether generated nationally or of EU origin - might seem relatively insignificant in isolation, they are changes that will prove to be significant over time, when considered in their wider context.
For international product manufacturers, it is self-evident that they must stay closely in tune with the changing environment and learn the lessons from recent examples of large brand names that have very publically failed to understand and deal with the risks that have confronted them in Europe.
The risk climate in the UK, and across Europe, is changing rapidly. Europe is a complex part of the world from this perspective, and the developments we have seen emerge are having significant and long term implications.
We will never see in Europe a litigation regime that mirrors that which has existed in the United States for many years. The emerging system in Europe will be different: it will present different challenges for businesses, and require different solutions. Identifying those solutions requires a properly-guided understanding of the broader context and the underlying drivers of the relevant developments - and will continue to provide interesting challenges for product manufactures operating in European markets, as well as for product liability lawyers who deal with such matters on a European-wide basis.