ONE of America’s leading class-action law firms is establishing a UK practice that plans to encourage British pension funds to sue the companies they invest in.

Cohen, Milstein, Hausfeld & Toll, which specialises in suing large companies on behalf of pension funds and other institutional investors, will open for business in London this year.

British investors are more than ever willing to take part in US litigation, said Mark Willis, head of the firm’s international securities practice. Rather than suing companies in the British courts, the firm will represent British institutions that want to join, or initiate, shareholder lawsuits in America.

The lawsuits, which include class actions — in which a group of institutions or individuals band together to sue a company in which they have invested — win billions of dollars for disgruntled investors each year.

Although such lawsuits have mainly been launched by US investors, European institutions are becoming increasingly active. Cohen, Milstein, which will act for British institutions rather than individuals, is representing a group of European pension funds that were bondholders in Parmalat, the collapsed Italian dairy group, and are now suing for damages in America. Hermes, the activist UK fund manager, has a lead role in a similar lawsuit, handled by Grant & Eisenhofer, for Parmalat equity holders that is running concurrently.

Cohen, Milstein is also acting for KBC Asset Management, a Dutch fund manager, which is suing Royal Dutch Shell for damages over its mis-statement of oil reserves.

Despite the potential for recovering millions, British institutions are wary. Class-action lawyers usually work for contingency fees, taking up to 20 per cent of any payout.

However, Dr Daniel Summerfield, a senior adviser to the £26 billion Universities Superannuation Scheme, one of Britain’s largest pension funds, says in a paper, US Shareholder Litigation: A Primer for European Institutional Investors, that suspicion of shareholder litigation is unfounded and institutions that do not participate are ignoring a way to maximise long-term returns.

He said that although most shareholder lawsuits focus on past losses, some look to the future. These carry corporate governance demands, such as splitting the roles of chief executive and chairman or restricting executive pay, and are designed to improve, rather than punish, underperforming companies.

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