Britain’s biggest companies are reducing the amount of money they set aside for legal claims and regulatory fines, as some of the post-crisis wave of scandals and related litigation recedes.
In the past decade, courts and regulators have imposed large fines for scandals including rigging interest rates and mis-selling financial products. This drove up the amount FTSE 100 companies set aside against potential legal costs to £34bn in 2016. The following year, however, that had dropped to £24.8bn — a fall of 27 per cent — according to Thomson Reuters Practical Law, which compiled the data from company reports.
Banks accounted for 60 per cent of this total, setting aside £14.8bn for potential costs in 2017. Most recently, Standard Chartered agreed to a $1.1bn settlement with US and UK authorities over Iranian sanctions violations.
Thomson Reuters also highlighted the cost to BP of the 2010 Deepwater Horizon disaster — $65bn by the end of 2017 — as a major contributor to total corporate legal liabilities over the past few years.
But even as costs fall for some companies, lawyers say that class actions — individual claims grouped into one lawsuit — mean big businesses must continue to keep their legal war chests well funded.
FTSE 100 companies have faced more than 70 such cases so far, according to Thomson Reuters. Most were in US courts — where awards have historically been higher — but there have also been cases in the UK, Argentina, Canada and Mexico.
In the UK, the supermarket chain Morrisons is fighting a high court ruling that it is liable for a data breach in which the salary and bank details of 100,000 staff were published online by a former employee — the first data leak class action in the UK.
Tesco is also facing a group investor claim over a £250m accountancy scandal, while two years ago RBS settled out of court with thousands of shareholders over a 2008 share issue.
Many class actions are backed by litigation finance businesses, which fund claims in return for a share of settlements or damages.
Class actions are also spreading internationally. Law firm Dechert said in a report this month that non-US companies were becoming targets of securities class actions filed in the US.
Of the 403 securities class actions filed in the US in 2018, 54 targeted non-US businesses. David Kistenbroker, a securities litigation partner at Dechert, said the trend was “up significantly”. Between 2010 and 2016, the average number of cases against non-US issuers was 29.
Class actions can follow EU rulings that competition law has been broken — as with the proposed consumer claim against Mastercard.
In the UK, shareholder claims can be brought collectively if, for example, a company has published false information or not informed the market of “material developments”, leading to a fall in the share price when the true position becomes known.
Simon Bushell, a partner at law firm Signature Litigation, said data breaches also had the potential to generate class actions for “very sizeable damages”.
The big question was if the right to compensation under new data protection laws could be “bundled together collectively as the basis for a class action”, he added.