UK: Class Actions In The UK: The Long Grass Beckons

Last Updated: 22 April 2010
Article by Julian Acratopulo, Susan Poffley and Luke Tolaini

The UK Government has published its response to the Civil Justice Council's paper on collective redress, and says that it does not support a generic right of collective action. Instead, it has called for an investigation of regulatory options that might provide compensation for claimants in certain sectors, and a sector-based approach to collective actions.

Last year we reported on the publication by the Civil Justice Council ("CJC") of its paper "Improving Access to Justice through Collective Actions".

That paper made eleven recommendations, and asked the Lord Chancellor for a formal response. That response was published this week, making a number of general comments about the Government's views on collective actions and providing specific responses to each of the CJC's specific recommendations.

The response will disappoint those who had hoped for the timely introduction of a collective redress regime, but will be a relief to those with concerns about a rise in large-value unmeritorious claims and the inevitable increased costs. While it does not rule out collective actions entirely, it states that there is no direct evidence of need across England and Wales, and suggests looking first at alternatives to court proceedings, and then a "sector-based approach" to the introduction of any new right of action.

Alternatives to action - the role of regulators

The response makes the point that alternatives to court proceedings should always be considered before proceedings are started. It suggests that regulatory alternatives might help to secure redress as regulators may have the capacity to deal with matters in a "holistic and relatively inexpensive and timely way". It does, however, caution that the effectiveness of this approach will depend on the resources available to the particular regulator, and notes that some regulators have expressed concerns that delivering compensation could distract them from their core role. The response says that the decision on whether to adopt a "regulation plus" model would be for the Government department responsible for the relevant sector, but it might be a more costeffective way of dealing with cases involving a large number of small claims. It points to the Regulatory Enforcement and Sanctions Act 2008 as providing for more flexible civil sanctions.

Collective actions - a sector-based approach

The CJC paper proposed the introduction of a generic collective action. The response does not support that proposal, but states that a "sector-based approach" is likely to produce a better outcome overall, and to be more achievable. Two reasons are given for this.

The first is the potential structural differences between the sectors which will require different consideration. The existence of a regulatory framework and the nature of the regulation in place is likely to vary substantially between sectors.

The second is that it will be necessary to undertake a full assessment of the likely economic and other impacts before implementing any reform, and a meaningful global impact assessment would be "virtually impossible to achieve." Further an "overall positive assessment would inevitably miss or underplay considerations specific to individual sectors, some of which might be significantly adverse." These include the risk of "blackmail suits" in particular sectors.

Representative parties

One of the recommendations by the CJC was that collective claims should be able to be brought by a wide range of representative parties, including individual representative claimants, designated bodies and ad hoc bodies. The Government does not believe that there should be a single approach or set of approaches to the issue of authorisation as some sectors will have strong appropriate bodies, capable and willing to act in a representative capacity, while in other sectors such bodies may not exist at all. Therefore, the best approach in any sector is likely to vary. Ministerial designation of one or more bodies or categories of bodies may be possible, or ad hoc court authorisation against generic or sector-specific criteria, or a combination of both. However, the response does not specify what these criteria should be, merely stating that the method of designation "should be determined by the department responsible for the relevant sector".

Opt-in or opt-out?

One of the most significant areas of debate on the issue of collective actions is whether they should be available on an opt-in basis (requiring every claimant to take a positive step to start or join in proceedings) or an opt-out basis (meaning that potential individual litigants in a defined class must elect not to take part in the proceedings, or be bound by the outcome). The CJC recommended that collective claims should be able to be brought on either basis.

The response states that the distinction between the two types of action is not necessarily clear-cut, and that every claimant will have to opt in sooner or later, if only to receive a share of the compensation awarded. Instead, it suggests looking at the stage in the process by which people have to come forward. This could be before the claim is issued, before the common issues of liability are decided, after the decision on liability but before the quantification of damages or after the quantification of damages. The response notes that the second, third and fourth of these models will involve some departures from the normal principles governing private civil litigation and that they will favour claimants. Protection for defendants will include a merits filter and robust case management generally.

Yet again, however, the response concludes that the appropriate model or models will need to be considered on a sector by sector basis, as would the principles on which damages are awarded.

Other issues

The response agrees with the CJC that a strict certification procedure would be an essential element of any collective action mechanism. It also agrees that the court will have to manage collective actions carefully. A further point of consensus is the issue of costs shifting. The CJC recommended full costs shifting, and the response states that "the court should retail full discretion to shift costs onto the loser". It notes that this is the normal order of the court, although the court may sometimes award limited or no costs to the winner in exceptional circumstances.

The response concludes by stating that rights of collective action should be considered and introduced on a sector by sector basis, with responsibility for the necessary primary legislation falling to the Government departments concerned, following consultation with stakeholders and assessment of economic and other impacts. There will be a policy framework document to assist policymakers and others to address all the issues.

The Government also says that it will work with the CJC to develop proposals for procedural rules to be put before the Civil Procedure Rule Committee. It will, however, be for the relevant Government departments to decide whether to consider introducing collective actions in their particular sector, and the timetable for doing so.

Commentary

The Government's response to the CJC working paper means that class actions are still a considerable way off for the UK. Further rounds of consultation will now take place. They will need to clarify exactly what "sectors" are intended to mean, and how a claimant (or court) is to decide which particular sector's rules will apply to a case which may overlap two or more sectors. We take the reference to "sectors" to mean types of claims such as consumer claims, antitrust claims and so on. While this sounds simple, there is a risk of forum shopping if some sectors are seen to have more claimant-friendly rules and procedures than others and the potential for satellite litigation and increased procedural complexity.

Other initiatives will also have to be considered. These include the White Paper on damages actions in antitrust cases recently published by the European Commission, and the collective redress benchmarks proposed by DG SANCO. In the UK, the Office of Fair Trading is also working in this area. The response is silent on how any UK regime will fit in with these initiatives although they do seem to be consistent with the sectoral approach favoured by the Government.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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