The Backdoor Class War That's Making British Firms Shiver; UK SHAREHOLDER GROUPS AND INDIVIDUALS ARE BEING ENCOURAGED TO JOIN MASS LAWSUITS AGAINST COMPANIES HERE AND ABROAD

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Byline: JAMES ROSSITER

BUYERS and sellers of anything from a Dinky toy car to an Impressionist painting via auctioneers Sotheby's or Christie's over the past 10 years may have had a nice surprise over the past couple of weeks. They will have opened letters promising a guaranteed minimum payment of $20.

All they have to do is sign an agreement to settle a class action, under way in the US civil courts, and its British equivalent. These once venerable houses are paying out $20 million (pound sterling13 million) each in compensation to drop the claim after being found guilty of criminal price-fixing during the 1990s, which saw Sotheby's former chairman Alfred Taubman go to jail for a year and a day and pay a $7.5 million fine.

Should those lucky winners read the small print, they may be in for a shock.

American attorneys can grab a quarter of the winnings for their trouble - a mere $10 million. Small wonder a handful of British lawyers are wising up to a very American way of suing big business.

Sure enough, the same auctioneer settlement reveals "counsel in the English Action" - Marble Archbased group litigation specialist ClassLaw - will "seek fees" of up to pound sterling500,000.

This may seem like small change relative to the carve-up by the US lawyers.

They have the advantage of a legal system which tolerates a nowin, no-fee system of paying attorneys, something which is only a recent introduction to the UK. But courts take a dim view of lawyers taking big cuts.

Litigants in British civil proceedings, group actions included, still tend to pay lawyers upfront for time spent on their cases and they risk having the courts force them to foot the bill for the other side's costs if they lose.

This can deter individuals with little financial means, but half-decent cases, from pursuing their grievances.

In contrast, the US system fosters a victim culture, encouraging individuals or shareholders to take a company to task any time they, or as often as not the lawyers, feel there is compensation to be had.

Class actions are lawsuits where many similar claims are lumped together to recover sums regularly in the pound sterling1 million-plus range.

British companies had taken solace from the different way of paying lawyers, hoping that alone would keep a mass litigation culture at bay. This hope may be short-lived.

ClassLaw co-founding partner Stephen Alexander, who led the London-end of the auctioneer litigation, says there is scope for "bringing in US class actions against predominantly British businesses through the back door".

He points to his firm's success in March on behalf of Cable & Wireless UK shareholders. After a flurry of hearings in the US, they can now effectively join an American class action, under way since December and led by holders of C&W's American Depositary Receipts.

These ADRs, about 10% of the shareholder base, claim the Londonlisted telecoms provider gave "materially false and misleading statements to the market for the period between August 6 1999 and December 6 2002." They allege C&W should have come clean earlier about a promise to cover taxes of up to pound sterling1.5 billion arising out of its sale of its 50% stake in mobile operator One2One to Deutsche Telekom. The case continues.

One partner at a top 10 City law firm describes Alexander as "a maverick, simply trying to drum up new business".

But, alarmingly, Alexander reveals ClassLaw has just agreed to act as the London office of one of the bestknown US class-action specialists, Milberg Weiss Bershad Hynes & Lerach. That firm is handling one of the largest multibillion dollar suits against most big US and European investment banks over alleged fraudulent share offer practices during the tech boom. Goldman Sachs, CSFB, Citigroup, Merrill Lynch and Morgan Stanley are among those named. …