In November 2009 the government introduced a Financial Services Bill to Parliament, which includes provision for collective actions in the financial services sector.

If the Bill is passed, it has the potential to transform the way in which parties can pursue complaints against banks and other financial institutions. Significantly, the Bill allows actions to be brought on an opt-out basis, subject to the court’s discretion, and also provides for the possibility (subject to Treasury regulations) of aggregate damages awards and cy-pres distributions. If implemented successfully, it is likely that these proposals will form a model for the introduction of collective actions in other fields beyond financial services.

In February 2010, draft court rules to govern collective actions were published by a working group set up by the Civil Justice Council (which included Herbert Smith partner Stephen Wisking). The aim was to provide a procedural framework for any new forms of collective action which might be introduced in particular sectors, including the new regime proposed under the Financial Services Bill. The rules will now be considered by the Civil Procedure Rule Committee and, subject to any proposed changes, will be put out for consultation.

Key points of interest include:

  • The court will act as gatekeeper in determining which actions may be brought collectively. In doing so, it must be satisfied that collective proceedings are the most appropriate means for the fair and efficient resolution of the common issues.
  • Claims will not have to satisfy a preliminary merits test to be certified as appropriate for collective proceedings, but the respondent can apply for summary judgment or strike-out at the application stage. The court may also have regard to the merits as part of its overall assessment.
  • The court will have a wide discretion as to whether an action can be brought on an “opt-in” or “opt-out” basis and as to who will act as class representative to bring the action on behalf of the class.
  • In considering whether to approve the class representative, the court must be satisfied that the applicant will be able to pay the defendant’s recoverable costs. The class representative may also be ordered to provide security for the defendant’s costs.