uk flagIs collective action litigation in the U.K. about to get a significant boost? That is the question many are asking as the new collective action regime introduced by the Consumer Rights Act of 2015 goes into effect on October 1, 2015. The Act’s provisions facilitate collective proceedings for competition law breaches before the Competition Appeal Tribunal (the CAT), by granting the CAT the power to grant collective proceedings orders and to grant collective settlement orders. As discussed in a September 30, 2015 memo from the Allen & Overy law firm (here), these changes have raised concerns that the new regime will “lead to a surge of U.S.-style class actions in the U.K.”


As discussed here, the Act was first introduced in Parliament in January 2014 in order to consolidate and update existing consumer protection statutes. The Act received Royal Assent on March 30, 2015.


The Act introduced a number of changes, including new collective action procedures that for the first time allow U.S.-style “opt-out” collective claims, in addition to the “opt-in” type of claims that previously were permitted. As the law firm memo notes, opt-out collective proceedings, while a standard feature of U.S. class actions, were “not previously permitted in the U.K.”



In addition, a collective action can now be brought by someone who will “fairly and adequately act in the interests of the class members,” rather than just certain specified bodies. Note that a claim can now be brought by any person who has suffered loss or damage, including both consumers and businesses, by contrast to the previous requirement that a CAT collective action must be a “consumer claim.”


However, while the new regime contemplates the possibility that businesses may bring claims, this regime addresses only claims alleging infringement of competition law (that is, alleged business arrangements that prevent, restrict or distort competition within the UK or the EU, or that abuse a dominant position affecting trade within the UK or between EU member states).


An additional feature of the Act’s “opt-out” collective action procedures is that the opt-out class would apply only to members of the defined class domiciled in the U.K.; class members who are not domiciled in the U.K. must opt in to be included in the proceedings. The Act defines the considerations that the CAT should take into account in order to determine whether the collective action should be “opt-in” or “opt-out.”


As the law firm memo notes, “although they have not yet been tested, the new class action rules will change the litigation landscape for potential claimants and their lawyers, as well as for defendants.” It will, the law firm notes, be “easier for claimants to bring collective actions” for breaches of the competition laws. Those who have breached competition law “can expect an increased likelihood of a class action being brought against them, with increased liability arising from opt-out collective proceedings.”


However, the extent to which these revisions will usher in a new era of class action litigation in the U.K. remains to be seen. These procedures do not alter the “loser pays” principles that apply to civil action in the U.K., meaning that the claimant (or the class representative in collective actions) will be liable for the defendant’s costs if the claim is unsuccessful, which, according to the law firm memo “could put a break on claims.” The law firm memo does not mention the possibility, but it would appear to be a fair question whether or not litigation financing arrangement would provide a way for prospective litigants to address these concerns about the “loser pays” model. (Refer here for a recent discussion about the impact of litigation financing in connection with the prospective U.K. securities litigation relating to Tesco.)


The first few decisions, the law firm memo notes, will be “vital” in shaping the development of UK class action practices and determining whether “claimants will seek to bring increasingly large and complex cases.”


I find these developments to be very interesting. I have been fortunate over the past several years to travel to a number of countries outside the United States; often in business meetings and in conferences overseas I am the only American in the room. I am quite accustomed to hearing people in these meetings reviling the excesses of the U.S. legal system, and hearing them say that no matter what, their system would never be like the awful U.S. system. But as time has gone by, a very funny thing has happened. Over time, the litigation procedures in a number of countries have taken on features that start to look more like those used in the U.S. The U.K.’s option of “opt-out” collective action procedures is just the latest example of this phenomenon.


To be sure, there are still dramatic differences between the collective action procedures in the U.K. and the class action procedures in the U.S., the U.K.’s “loser pays” principles being the most important part. Just the same, I am always interested to observe what seems to me to be a gradual process of convergence, where legal systems around the world increasingly take on common features, including features that historically were associated with the “excesses” of the U.S. system of litigation.


It is important to emphasize in connection with these new collective action procedures that they apply only with respect to competition law infringements; these procedures are not available for other alleged legal violations. The extent to which these new procedures would represent a significant expansion of liability exposure that might impact the results of D&O insurers would depend in part on the identities of the parties named as defendants in the legal proceeding – that is, is the named defendant only the involved corporate entity, or are individual directors and officers named as defendants as well?


By the same token, the extent to which these kinds of claims would also depend on the extent of entity coverage available under the policy, and in particular whether the entity coverage available in the policy is limited to claims alleging securities law violations, or extend to other types of legal violations as well.


If the policy extends to legal violations other than those under the securities laws, then the extent of coverage available will depend further on the presence or absence in the policy of an antitrust exclusion, and, if present, the reach of the exclusion, and if absent, whether and to what extent the policy includes separate retentions or coinsurance provisions for antitrust claims.