Are US style class actions really coming to the UK?
Published 14 January 2016
On 1 October 2015, the Consumer Rights Act 2015 came into force and introduced “opt-out class actions” for the first time in the UK.
News of the new Act has invariably been accompanied by headlines warning of the imminent threat of waves of US style mass litigation actions, and vastly increased exposures for companies and potentially their insurers. But is this really the case? To answer this question, it is necessary to analyse in further depth the implications of the changes.
The first thing to recognise is that the changes are limited to competition claims. The new Act amends the Competition Act 1998 to introduce a new class action regime for breaches of competition law (specifically cartel conduct or abuse of dominant position) allowing collective proceedings for damages claims, which will be heard by the Competition Appeals Tribunal (“CAT”). This will now make it significantly easier to bring class action proceedings for competition cases.
All potential collective proceedings will first have to be approved by the CAT. The CAT is then able for the first time to specify that the collective claim can be brought on an “opt-out” basis, rather than just an “opt-in” basis. Whilst “opt-out” actions are common place in the US, they were until now prohibited in the UK. This is a significant change.
If a collective claim is brought on an “opt out” basis:
- It will automatically be brought on behalf of all members of a defined class domiciled in the UK (unless any member elects to opt out). This means it will not be necessary first to identify every individual claimant;
- Any decision by the CAT will be binding on all members of the class;
- Aggregate damages can be awarded to the group, without the need to assess the amount of damages recoverable by each individual class member.
The other key change introduced by the new Act is that competition collective claims can now be brought by any suitable class representative - previously any collective claim had to be brought by the Which? Consumer Association.
The changes introduced by the new Act will certainly make it easier and more affordable to bring a collective action for competition claims and as such it is anticipated this will lead to an increase in the number of claims. At the same time, however, it seems unlikely that the new Act will herald the dawn of US style mass litigation (at least for now). The reasons for this are that there are still significant differences between the litigation regimes in the UK and the US.
In the US the damages regime is very different: Juries hear the case and set damages, which can then be trebled by the judge, if he or she considers the Defendant should be punished. In the UK, damages are assessed by the judge and are compensatory not punitive. This means that awards in the UK are much lower and therefore quite simply there is less to play for and less financial incentive for claimants, and more importantly their lawyers and costs funders.
In the US, “opt-out” class action claims are not confined to competition claims, as they are in the UK. In the US, class actions can be filed on numerous grounds for example against retailers and manufacturers relating to faulty goods and services, against companies and directors for securities claims, data protection violations and fraud. There is therefore (at least for now) less scope for "opt-out" class action claims in the UK.
The third key difference is the costs regime. In the UK (unlike the US) the standard principle is that the loser of a case pays the winner's costs. This is a natural filter to deter frivolous or speculative claims, which does not exist in the US. This is likely to mean there will be far fewer class actions in the UK.
Against this background, it seems the more sensational headlines warning about the perils of US class actions, and the impact they will have on UK companies and their insurers are somewhat overstated. That said litigation costs funders are circling. If reports are to be believed, they have identified the recent FOREX fixing scandal as a possible test case for the new regime. Everyone will be monitoring carefully the first “opt out” class actions to be approved by the CAT under the new rules. The first few decisions are likely to shape the developments of UK class action practices.
At present whilst “opt out” class actions are limited to competition claims, it seems the impact of this new regime on D&O insurers is likely to be limited. The focus of any class action will be the company, and any attempts by the company to try to pass on liabilities to its directors are likely to fail following the decisions in Safeway v Twigger and Jetivia SA v Bilta (UK) Limited. It is possible the company may have entity cover under its D&O policy, however, whether this would respond to such competition claims will depend on whether the entity cover is limited to securities law claims, and/or if the policy contains antitrust exclusions. In any event, D&O insurers, like everyone else, will be keen to observe the first class actions. Only then are we likely to get a feeling whether competition claims are truly the thin end of the wedge, and if US style opt-out class actions are likely to be extended to other types of consumer claims in the UK in the not so distant future.