Class actions are of course well-established in the United States, but class action litigation has never been as well-developed in the UK. Among a number of reasons for this arguably is the lack of an “opt-out” class action procedure in the UK. However, as detailed in an interesting July 2019 memo by Colin Hutton of the CMS law firm entitled “Opt-Out Class Actions in the UK: Are We Entering a New Era in Litigation?” (here), several recent developments suggest that there may be “gradual but significant changes that may well alter the litigation culture in the UK permanently.”
As evidence of these changes in the UK litigation environment, the paper’s author cites two developments: First, the introduction in the Consumers Rights Act 2015 of an opt-out procedure in the Competition Appeal Tribunal for actions relating to breaches of the competition law; and Second the introduction in Scotland of the Civil Litigation (Expenses and Group Proceedings)(Scotland) Act 2018, which will allow Scottish Courts to make opt-in and opt-out procedures available for all types of claims.
Opt-Out Procedures Before the Competition Appeal Tribunal
The Competition Appeal Tribunal (CAT) procedures have only been in place a short time but there is already an interesting case history regarding the statute. In 2016, shortly after the new CAT procedures went into effect, a former chief ombudsman of the Financial Ombudsman Service, launched a CAT action against MasterCard, based on a 2014 European Court of Appeal ruling that dismissed MasterCard’s appeal of a lower court ruling that the credit card company had used its dominant position to extract excess fees, resulting in consumers being overcharged.
As an initial matter, this action did not fare well, as the CAT refused the claimant’s application for an order to proceed on a class action basis. The CAT rejected the application on two grounds, finding that the application was supported by inadequate data and that it would not be possible to determine the individual losses sustained by each claimant.
However, on July 4, 2018, the Court of Appeal reversed the CAT’s ruling. Of particular interest here, in reversing the CAT’s decision, the Court of Appeal’s opinion, according to the memo’s author, “sounds a note of support for the new procedure”:
The power to bring collective proceedings introduced …by the Consumer Rights Act 2015 was obviously intended to facilitate a means of redress which could attract and be facilitated by litigation funding and had Parliament considered it necessary to limit this new type of procedure to what would be required for assessment of damages in an individual claim then it would have said so.
While the Court of Appeals opinion’s support for the use of the collective redress procedure is significant, the author notes that the Competition Appeal Tribunal “is only a small part of the civil justice system as a whole.” (It should also be noted that the credit card company defendants in the action have been granted permission by Britain’s Supreme Court to challenge the Court of Appeal’s decision.) There are, the author notes no other active proposals to introduce opt-out procedures in any other courts in England & Wales. However, the adoption of opt-out procedures “is being actively progressed in Scotland.”
The New Group Procedure in Scotland
The Civil Litigation (Expenses and Group Proceedings)(Scotland) Act 2018 enacts a new “group procedure” that includes both opt-in and opt-out processes. The new opt-out processes will permit actions on behalf of all claimants domiciled in Scotland (who do not proactively opt-out) and (b) and claimants outside Scotland who proactively choose to opt-in.
The Act provides that group proceedings may be brought in the Court of Session, with the permission of the court, by a representative party on behalf of a class of persons. For permission to be granted, the claims will need to raise common issues and reasonable efforts must have been made to identify and notice class members.
The Act went into effect on January 30, 2019, but the group procedure will not become “operational” until forthcoming rules are put in place. The rules will further detail the circumstances in which group proceedings may be brought and will specify any particular types of claims that are to be excluded from the proceedings. The rules will also provide further detail about who may be authorized as a representative and what steps are required to initiate a claim.
Relevant Developments in Europe
The paper cites two developments in Europe that the author says represent “other drivers for change”: the EU’s Collective Redress directive and the advent of the General Data Protection Regulation (GDPR).
As noted here, in 2018, the European Commission set out a new directive on collective redress as part of the “New Deal for Consumers.” The directive sets out minimum standards for collective redress in EU member countries. As noted here, this initiative recently advanced with the European Parliament adopted the Commission’s proposal. The author suggests that this EU initiative “adds to the general mood music that there is a need for effective collective redress tools for these types of claims.”
With respect to GDPR, the EU’s new privacy regulation carries a widely recognized risk of significant regulatory fines (a topic I recently discussed at length here). The author suggests that the “potential for mass civil claims” with respect to GDPR violations following mass data breaches “is an equally significant risk.” Indeed, the author notes, “it is difficult to think of a better case study for the debate on opt-out procedures than the data breach landscape post-GDPR.”
The author notes with respect to data breach-related collective actions that in England & Wales, for the foreseeable future, “collective redress will only be available through the existing opt-out procedures.” In Scotland, however, these types of claims may be made under the new Group Procedure “so there may be an opt-out procedure available for mass data breaches in the UK very soon.”
From a litigation funder’s perspective, the “large claimant pool associated with a mass data breach offers an attractive investment opportunity when redress is available by way of an opt-out procedure.” The early grant of permission of an application for a mass data breach claim to proceed under the new Scottish opt-out procedures “appears fairly likely.” As well as automatically extending to all Scottish claimants, such a claim could cover opt-in claimants from the rest of the UK as well.
The Future of Opt-Out Actions in the UK?
The author concludes by noting that given the “logic” for the existence of the opt-out procedures in the competition tribunal, “it is not difficult to see it being extended to other areas of the law and further reform coming down the line in the court in England & Wales.” However, while the policy objective behind the collective action procedures – that is, to improve access to justice for individual claimants – in “understandable,” there are competing policy considerations such as “ensuring that the primary beneficiaries of such actions do not end up being the advisers and investors rather than the claimants.” Going forward, the CAT, the Scottish Court of Session, and the EU “will be looking to balance these competing considerations as they establish the ground rules for operating these new procedures.”
The UK-related developments the author describes represent only a part of numerous developments in various jurisdictions that, in my view, evidence what I have previously described as the global rise of collective actions. In many jurisdictions, these collective procedures are primarily intended for consumer redress, or are (like the UK competition law procedures) are targeted to a specific area of the law. As things stand in many jurisdictions, these mechanisms are not necessarily available for investors who claim to be aggrieved by alleged misrepresentations. However, the increased recognition of collective mechanisms makes it increasingly likely than in the event of a scandal or other high-profile event that concerned individuals may be able to find a way to proceed collectively.
As increasing numbers of jurisdictions adopt collective redress mechanisms, one of the interesting questions is whether or not the mechanism will allow group claims to be pursued on an opt-out basis. The UK law’s provision for opt-out collective actions in competition claims was already an interesting introduction of the opt-out mechanism to the UK litigation environment. The provision for opt-out litigation in Scotland is, as the author notes, another significant step in opt-out collective actions becoming an important part of the UK litigation landscape.
I think the author’s suggestion the mass data breaches could be the circumstances in which collective redress claims on an opt-out basis in Scotland (and, on an opt-in basis, in the rest of the UK) is an interesting one. It will be interesting to see the extent to which the author’s prognostications come to pass.
There is nothing about the new Scottish procedures to suggest they were put in place in contemplation that they would provide a mechanism for aggrieved investors to pursue their collective claims on an opt-out basis. On the other hand, at least at this point (while we are still awaiting the implementing rules), there is nothing to suggest that investors might not seek to use the new procedures to seek collective redress, particularly in situations in which there are significant numbers of aggrieved investors in Scotland. The forthcoming rules could of course have something to say about these possibilities. However, subject to whatever the rules may ultimately provide, it will be interesting to see if the new Scottish group procedures are taken up as a mechanism for investors to seek collective redress on an opt-out basis for investors based on Scotland.