Led by proposed changes contained in the Consumer Rights Act – which will come into force on 1 October 2015 – a quiet revolution could be about to begin in the field of group or collective actions.

The courts in England and Wales have long wrestled with the problems of managing claims involving large numbers of claimants. These claims bring challenges all of their own, from seeking to ensure access to justice at reasonable cost to more mundane logistical and administrative issues. However, one common feature of English attempts to solve these challenges is that the actions generally operate on an ‘opt-in basis’ – i.e. claimants must take a positive step to join the action in order to be considered a member of the class seeking redress and benefit from any award of damages. Examples include Group Litigation Orders (GLOs), introduced by the Civil Procedure Rules in 1999, and the current procedure for bringing representative actions by a ‘specified body’ in the Competition Appeal Tribunal (‘CAT’) for breaches of UK or EU competition law (s.47B Competition Act 1998).

However, the provisions regarding representative actions currently in place are widely considered to have been a failure, with only one collective action having been brought by the Consumers’ Association (the only currently designated ‘specified body’) since their introduction. This followed the OFT’s earlier decision to fine a number of businesses for illegally fixing the retail prices of replica England and Manchester United football kits. Losses from breaches of competition law are usually small and dispersed and this may be the reason why collective actions have generally failed to reach the necessary size required to sustain a claim.

GLOs have fared somewhat better, but have not necessarily had the impact that might have been expected when they were introduced.

However, reform is therefore on the way. The Consumer Rights Act 2015 not only contains provisions which seek to improve the existing ‘opt-in’ provisions for representative actions in the CAT, but, more radically as far as the English justice system is concerned, a new ‘opt-out’ regime is also proposed. This will be much more akin to the US class action system, where a claim is pursued on behalf of a specified class of unnamed claimants, who are deemed to be included in the action unless they have specifically chosen not to be involved.

The new regime gives the CAT the power to hear stand-alone actions under s.47 of the Competition Act 1998, with new procedures for collective proceedings before the CAT being introduced. At first glance, this regime seems to swim against the tide of current governmental opinion on ‘compensation culture’, and fears have been expressed in some quarters that a system of ‘opt-out’ collective actions might lead to an increase in weak claims being brought. A series of hurdles have therefore been introduced in order to try and strike a balance between improving access to justice for affected consumers and avoiding the worst excesses of the US system. These include:

  • requiring the action to pass an early certification test by the CAT – broadly equivalent to seeking permission in a judicial review claim – before it can proceed. This appears unlikely to be a formality as the CAT will have regard to matters such as the merits of claim, the likely size of the class, the level of damages sought and the appropriateness of collective action;
  • prohibiting exemplary damages and Conditional Fee Agreements; and
  • retaining the ‘loser pays’ presumption on costs.

The new regime appears to be based heavily on a recommendation made by the Civil Justice Council (CJC) as long ago as 2008, when it was suggested that, subject to appropriate safeguards, a generic opt-out system for collective actions should be introduced to supplement existing opt-in procedures. This recommendation was subsequently rejected by the Ministry of Justice as a general solution, although there was an acceptance of a need for sectorial opt-out system, as and where a specific need was proved. Although it has been a long time in coming, it looks as though such a system is now going to be put to the test.

Interestingly, the Act also provides an opportunity for businesses facing competition law claims to take the initiative and seek a ‘collective settlement’ to an opt-out collective action. This process will be available whether or not the CAT has made an order for a collective action, but if the CAT is satisfied that the terms of the settlement are ‘just and reasonable’, then all class members will be bound by the settlement except those who have opted-out or are not domiciled in the UK.

There is also provision in the Act for ‘voluntary redress schemes’ (effectively a form of alternative dispute resolution). If such a scheme is certified by the Competition and Markets Authority (CMA), then it can be taken into account when the CMA assesses the level of any fine for a breach of competition law.

As a result, a business facing a legitimate collective action might well be able to obtain a better outcome under these provisions by being proactive and seeking to resolve matters at an early stage. However, it remains to be seen how the changes will apply in practice.