Despite being widely anticipated in the 1990s as a revolutionising force in the legal sector, class actions have remained remarkably rare in English litigation, and the recent rejection by the High Court of a class action by Lloyds shareholders in connection with the disastrous acquisition of HBOS has done little to encourage group litigation in the English courts. This article will consider the reasons for the continued scarcity of class actions in England and Wales and consider which sectors are best placed to utilise the available procedures in the future.
The emergence of formal class action procedures in England and Wales following Lord Woolf’s 1996 Access to Justice Report have been well-documented. However, despite being widely anticipated in the 1990s as a revolutionising force in the legal sector, class actions have remained remarkably rare in English litigation, and the recent rejection by the High Court of a class action by Lloyds shareholders in connection with the disastrous acquisition of HBOS has done little to encourage group litigation in the English courts. This article will consider the reasons for the continued scarcity of class actions in England and Wales and consider which sectors are best placed to utilise the available procedures in the future.
At present, there are three types of class actions available in England and Wales, none of which appear to have been used frequently since their introduction. The rules for Group Litigation Orders (GLOs) are set out in the Civil Procedure Rules Part 19 (CPR 19) and provide a means of joining together claims which have a cause of action raising common or related issues of fact or law, but have only been used 103 times since 2000, and only eight times since 2016. Similarly underused is the mechanism for representative actions, which is also included in CPR19, under which a representative may bring or defend an action on behalf of others who have the same interest. Class action claims brought before the Competition Authority Tribunal (CAT) have been the most neglected, with only three ‘opt-out’ collective action competition claims being brought since that procedure was introduced in 2015.
The case for class actions
Despite the lukewarm reception to the reforms in 2000, there are clear policy advantages which would arise from the more widespread use of class action procedures in the UK.
By allowing joint legal representation and avoiding the necessity of repeat cases with identical evidence and legal issues, class actions would lower the cost of litigation and the efficiency of the legal process. The ability to aggregate claims would also help to overcome the problem that small recoveries do not provide incentives for individuals who would otherwise need to bring solo actions. It would also help ensure that a defendant who causes widespread harm, but does so in small amounts against each individual plaintiff, is required to compensate all of those individuals for their injuries. In other jurisdictions, class actions are also often uniquely effective in changing the behaviour of the class in which a defendant is a member, forcing whole categories of individuals or corporations to adapt their customs. From the perspective of the courts, class actions also reduce the risk of conflicting judgments and incompatible standards, improving certainty for all parties.
Class actions are not, however, without their critics. In practical terms, there is a concern that class lawsuits elsewhere in the world bind claimants to low, nominal or ‘coupon’ settlements from which they derive little or no benefit. Indeed, to some commentators, the main beneficiaries of class actions are often the attorneys and litigation funders who facilitate their prosecution. More fundamentally, there is a concern that a proliferation of class actions in the UK would pave the way for an increasingly litigious culture, which could have the impact of reducing commercial certainty and indirectly increasing costs for businesses and consumers alike.
Slow development in the UK
That the number and scale of class actions in England and Wales continue to lag behind their counterparts in other common-law jurisdictions such as Australia and the US is broadly attributable to two factors.
Firstly, despite the reforms of the last 20 years, there remains no procedural framework for non-competition class actions in England directly equivalent to those available in Australia and the US. By requiring claimants to ‘opt-in’ by filing individual claim forms, the GLO regime introduced in CPR 19 in 2000 creates a major administrative burden to large-scale class actions. In contrast, class actions in the US, for example, are almost always initiated on an ‘opt-out’ basis, with all putative class members assumed to be part of the claimant class unless and until they opt out. Accordingly, the GLO system is considerably less accommodating to class claims which arise from large numbers of small individual claims. This explains the scarcity of product liability class claims in England and Wales, as it is often extremely difficult to identify, and seek the consent of, sufficient numbers of former customers in order to bring a meaningful claim against a vendor.
The English courts’ narrow interpretation of the ‘same interest’ has also prevented representative actions – where one party acts as a representative for other prospective claimants – from becoming a widely used mechanism for commencing actions on behalf of large numbers of individuals.
Secondly, it is generally acknowledged that the rules on costs in English proceedings heighten the risks for prospective claimants in a class action. This is because, if their action is unsuccessful, class action claimants in England and Wales will usually be liable to pay a share of the defendant’s costs, in addition to their own. This contrasts with the costing models of other jurisdictions, such as the US, where each party generally bears only its own costs, significantly mitigating any potential downside from commencing class action. The greater availability of punitive damages in jurisdictions outside of England and Wales further tips the balance in favour of claimants, augmenting the potential rewards in a successful action.
Sectors of growth
There are, however, a number of sectors which appear set to experience a considerable growth in class action claims in future years.
Data privacy claims. Following the introduction of the General Data Protection Regulation (GDPR) in 2018 and the enormous increase in financial penalties for non-compliance contained therein, there is now an increased awareness of data privacy rights in the UK from both data subjects (individuals) and data controllers or processors (companies). This heightened focus on data protection has combined with a proliferation of data breaches to create fertile ground for class claims, most evidently demonstrated by the GLO class action by 5500 employees against WM Morrisons in respect of a data breach caused in 2017 by a disgruntled ex-employee. This trial is set for the Supreme Court in November 2019 and if WM Morrisons are unsuccessful in their appeal, the case could open the door to a number of class actions against organisations processing personal data.
Competition claim. In 2015, the rules for cases heard before the CAT were amended to allow for class actions to be made on an ‘opt-out’ basis. This has the potential for vastly increasing the scale of class action competition claims. The test case for this new regime will likely be the £14bn Mastercard claim brought by the former chief financial services ombudsman Walter Merricks. In this claim, Mr Merricks argues that Mastercard’s breaches of EU competition law has led to almost all UK customers paying higher prices on purchases from businesses that accepted Mastercard. It is estimated that around 46.2 million people could benefit from the payout, which would be the highest number of beneficiaries of any class action in the world. Although this claim was dismissed by the CAT in 2017 on the basis that it would be too challenging to calculate individual losses, in July 2019 the Supreme Court gave Mr Merrick leave to appeal to the Court of Appeal. The success of his appeal has major implications upon the approach of the judiciary to ‘opt-out’ class action claims in the future.
The future of class actions in the UK therefore appears to be finely in the balance, with cases and judgments to be heard in the upcoming months set to determine whether the reforms of the last 20 years will have, belatedly, introduced an effective means of bringing such claims.