Last week, the Civil Justice Council (CJC) (an advisory group to the Minister of Justice) published its final recommendations on the issue of collective redress (‘class actions’), which can be found at http://www. civiljusticecouncil.gov.uk/files/Improving_Access__to_ Justice_through_Collective_Actions.pdf.
The CJC had published its draft recommendations in August (see our August briefing, A new collective action, English-style?). The thrust of the CJC’s final proposals remains exactly the same: that there is a need for a more efficient and effective procedure for collective actions to enable ‘access to justice’ for consumers and small businesses.
As widely anticipated, the final paper goes further than the draft as it includes draft procedural rules and a draft practice direction. These are highly detailed provisions covering some 37 pages and including 35 separate rules. There is also an outline of a Collective Proceedings Act setting out the areas that require legislation. The Recommendations have been submitted to the Lord Chancellor and Secretary of State for Justice as formal advice. A response is expected in Spring 2009.
In summary, the CJC’s key recommendations are:
- the ultimate introduction of a generic collective action, with piloting by sector specific reform (eg in the competition law area)
- broadening the nature of representative bodies that can bring claims to include single representative claimants and ad hoc bodies, as well as authorised bodies (like consumer watchdogs) – although it does not seem intended that an ad hoc body could be formed by a plaintiff bar law firm;
- a heavy dependence on the judiciary to control the procedure with enhanced forms of case management by specialist judges and a great deal left to their discretion;
- claims could be brought on an opt-out basis where it is in the best interests of justice (subject to judicial certification);
- changing the law to permit the award of aggregate damages (to avoid the need for claimants to prove individual loss);
- consequential changes to the law of limitation; and
- all settlements to be approved by the court in a ‘fairness hearing’.
The draft rules go into considerable detail. The CJC considers that they include ‘brakes’ on the recommended process, to control abuse. These brakes include that: the collective action is intended to complement the existing regime; the courts should only certify a claim as such if collective proceedings are the most appropriate means for the fair and efficient resolution of the common issues, and if the collective proceeding has a real prospect of success; and hence that the opt-out regime is not to be seen as automatic but is only to be used if judged a superior approach. The court may refuse to certify the class if the cost to the defendant of identifying the class members and distributing the amounts ordered to be paid would be disproportionate, looking at the likely total of those amounts if the claimant were successful (presumably to avoid ‘nuisance’ de minimis claims). The current regime, including the existing GLO mechanism will remain, leaving the courts, as gatekeeper, to assess on a case-by-case basis at the certification stage which procedural mechanism is the most appropriate (opt-in, opt-out, mixed-certification or another noncourt based redress mechanism). The CJC says that the opt-out collective action underlies the other procedures, as a kind of last resort, but the hierarchy is not explicit in the draft rules.
Other points to note are as follows.
- The opt-out provisions would only apply to claimants within the jurisdiction. However, it would be possible to have a sub-class of non-resident claimants opting-in to proceedings, thus giving the collective action scope beyond this jurisdiction.
- The draft rules make provisions for the aggregate awards of damages (the proposal seeks further general consultation on this controversial issue). There are limited opportunities for defendants to contest the use of aggregate damages including challenging the merits or amount or basis of an aggregate award, and requiring individual proof of monetary claims due to the individual nature of the claims. This challenge could be at the level of the class or sub-classes (where the facts were distinguishable).
- There are specific provisions about payment of any undistributed residue of an aggregated damages award to a trustee, to be applied in any manner that may reasonably be expected to benefit class members generally. The return of unclaimed damages to revert to the defendant is envisaged, but only as one of a series of possibilities.
- The court could decertify the claim if the conditions were no longer satisfied but it is questionable how much impact this protection would have in practice.
The draft documents are expressly a starting point and are not conclusive.
The CJC is not concerned about the risk that the proposed opt-out collective action would lead to so-called ‘blackmail suits’ with unmeritorious actions prosecuted to obtain a settlement. It considers the concerns as to the experience in the US are unfounded in England, because the pressure of costs for defendants is muted and because of full costs shifting, which should remain. However, the CJC does recommend some protection to defendants by proposing the ability to award security for costs in such actions. This would ensure that representative parties and their funders would have to focus their attention on the fact that not only would they, if unsuccessful, face a costs bill but also that from the certification stage they would be required to provide security for those potential costs.
In general, great confidence is placed in the role of the judiciary to control the process and prevent abuse. If adopted as drafted, much would depend on the decisional practice of the judges as to how dramatic the actual shift in the litigation paradigms would be.
The report comes shortly after the European Commission published its Green Paper on consumer collective redress in Europe. The Commission put forward four options for consultation, ranging from no action at EU level to the most extreme option of an EU-wide measure (binding or non-binding) to ensure that a collective redress judicial mechanism exists in all member states. However, the paper is quite general and does not, itself, assist in predicting any particular outcomes at the European level.
The issues of collective redress and litigation funding are closely related. The CJC recommendations come hot on the heels of another of its reports, this time on contingency fees. The report considers alternatives to the current system, conditional fee agreements (CFAs), and supports introducing damages-based contingency fees should CFAs, or the related ‘after the event’ insurance market, fail.
2009 is likely to be a pivotal year from a mass litigation perspective. There is considerable weight behind increased access to justice, in England particularly, both in terms of improving the procedural mechanisms to bring claims and encouraging methods to fund those claims. If these recommendations gain momentum, there will be a significant change in the nature of litigation and compensation in England and Wales. If they fail, despite that weight of support, inertia is likely to carry the day for a considerable period.
Given the pace of change in relation to collective redress and third party funding, we will be publishing early in the new year a further client guide on developments across Europe, which will consider some of these issues in further detail.