Recent media coverage and reports anticipate an increase in class actions in Europe and suggest that, within Europe, the UK will be at the forefront of this development.

Whilst some media speculation may appear scaremongering and sensationalistic, certain developments in the UK litigation landscape support the suggestion that the system is becoming increasingly prepared for, and perhaps more accommodating towards, such actions. For example:

  • In May 2000, new rules were introduced into the English rules of court process, to provide a structured mechanism for the management of multi-party actions by way of a Group Litigation Order (“GLO”). The objective was to provide expeditious and effective access to legal redress for individuals, including where the levels of loss might be disproportionately small compared with the likely costs of pursuing a remedy.
  • In July 2006, the Department of Trade and Industry published a Consultation paper on representative actions in consumer protection legislation to consider whether representative bodies should be permitted to bring actions on behalf of consumers[1], recognising this as a potential area of growth for multi-party claims. The Consultation highlighted the need to facilitate access to justice in such cases but stressed a desire to avoid spurious or frivolous claims.
  • In November 2007, the Office of Fair Trading published its recommendations following from its April 2007 discussion paper on “private actions in competition law: effective redress for consumers and business”, which specifically addresses whether there is a need to further develop the procedures for representative actions in competition law matters. Current laws, introduced by the Enterprise Act 2002, allow a specified body to bring proceedings on behalf of two or more consumers in relation to established infringements of competition law, so long as all claims represented relate to the same infringement.[2]

English procedure

In broad terms, a “class action” is an action usually involving multiple claimants against the same defendant seeking compensation for loss arising from similar or the same facts or issues. Under the English system, there are no limits on the potential numbers of claimants or defendants to a claim. There are generally three options for the management of multi-party claims:

  1. Where claims have already been issued, but separately, and the court considers that because of the facts and issues involved it would be convenient to hear the claims together, it may order that they be consolidated.
  2. It might, however, be more convenient if such group claims are managed from the outset, before the issue of proceedings. In these circumstances, the matter might proceed by way of representative action.
  3. Under a GLO.

Where more than one person has the same interest in a claim, that claim may be initiated (or the court may order that it be continued) by one or more persons as representatives of any other person who shares that same interest. A judgment or order of the court will bind all of those parties represented in the action but may only be enforced against a non-party to the action with the permission of the court. In the English system, there are presently only limited circumstances where a representative action may be pursued on behalf of persons who cannot be identified (i.e. claims relating to the estate of a deceased person, trust property or the meaning of a document).

A GLO may be made to provide for the case management of claims giving rise to common or related issues of fact or law (broader than the ‘same interest’ requirement in representative actions). A GLO will provide for a register to list the claims which will be managed by the GLO. The register is advertised so other potential parties can come forward and be included - essentially requiring them to “opt-in” to the action. This contrasts with the US system which requires potential claimants to “opt out” if they wish to avoid being bound by the court’s decision.

Any judgment or order made in a claim listed on the group register is binding on all other parties to claims entered on the GLO at the time the judgment or order is made (unless the court orders otherwise). The court may also direct that a party subsequently entered onto the register is bound by an earlier judgment or order. The GLO will give other directions for the management of the claim and may also provide for certain claims to proceed as test claims to determine general issues. Non-GLO issues in individual claims will be determined separately.

Even where a number of potential claims arises out of common or related facts, a GLO might not be the most appropriate way to proceed, and consideration should be given to factors such as expense and proportionality. While a group action might facilitate access to court for those who might otherwise be concerned about the complexities of the court process and the costs involved, management of the claim within a GLO will not necessarily result in reduced legal costs.

Class actions in the US are typically funded on a contingency fee basis (allowing the legal representatives to provide their services on a no-win/no-fee basis, but taking a proportion of damages recovered if successful).

This is not permitted under English law and the question arises as to how multi-party actions in England will be funded if they are to become common in the UK: will this be dependent on the introduction of contingency fees or on third party funding? Further, in the current English court system, unlike the US model, multiple claimants typically have to contend with the possibility of facing an order to pay the defendant’s legal costs if the claim fails. This raises the question of whether or not expansion of class actions in the UK will require a modification of the current costs and funding rules; this is something that has been considered by the Office of Fair Trading in its recently published recommendations relating to competition law actions.

Whilst these, along with other factors - such as the absence of jury trials and of punitive damages awards - might discourage or delay the development of a class action culture in the UK, it would be prudent for businesses to prepare for growth in this area. Certain steps, such as ensuring that indemnity insurance covers liability for collective actions, will be specific to this particular risk; others, such as proper monitoring of complaints and maintenance of detailed product development and safety records, should form part of standard risk management systems in any event.

Businesses should also bear in mind that, as long as the English system does not provide for private actions to be brought on behalf of consumers generally, the conclusion of an English “class action”, whether by settlement or court decision, will not result in certainty for the defendant - which could still face further claims by individuals not represented in or party to the action.