If you were asked to name a well-known example of a class action, the first one to spring to mind might be Hollywood’s Erin Brockovich, based on the true story of a Californian community that claimed for damages against an energy corporation for suspected groundwater contamination, and secured a multi-million-dollar settlement. Although the likes of Brockovich and John Grisham have brought class actions into popular culture, the UK, particularly the English courts, have a long-established procedure to accommodate these cases. Scotland too, has now entered this area of law, having introduced class action rules this summer.
This latest development in UK class action capacity is a reminder that GCs and corporate organisations should be awake to their responsibilities and the notion of potentially hundreds, even thousands, of claimants coming together in one action against them. Pharma, automotive, energy, media and finance are all sectors that have been subject to group litigations.
The events of the past year though, have created ‘a perfect storm’ for class action activity –the global pandemic for example, and the impact it has had on processes, product development, and the potential for human/corporate error. Increased online activity too, creates opportunity for data breaches –and a greater focus on climate change means environmental impact is likely to come under closer scrutiny. Being alert to these possibilities is critical to organisations’ ability to prepare for, and manage, such cases.
The snowball effect
Many jurisdictions have rules to facilitate class actions, which gives rise to the opportunity for forum and jurisdiction shopping –indeed, there are instances where class actions arising in Africa have been pursued in the English courts.
With claimant firms alert to suitable new cases, groups can spring up in multiple jurisdictions and, in a global economy, reputational issues can arise quickly across multiple customer channels. In-house counsel often find themselves in the middle of a storm in which they have to manage a potential existential problem or a risk involving large sums of money. The larger the group and/or the number of jurisdictions involved, the more essential it is that a GC has a clear strategy for handling the fallout.
The English system
Although group litigation has been possible in the English courts for over a century, class actions in England and Wales are now primarily dealt with through Group Litigation Orders (GLOs).
In contrast to the US opt-out system for class actions, in which all members of a class are automatically included unless they specify otherwise, GLOs are simply a mechanism for managing multiple claimants. To participate, a claimant must first pursue a claim in the usual way.
While GLOs do not allow for ‘passive’ participation in litigation, there are real benefits and efficiencies in terms of case management. Rather than claims proceeding independently, with the risk of inconsistent decisions, all claims subject to a GLO are added to a ‘group register’, and any judgment in one case will generally apply to all. Where appropriate one claimant may become the ‘lead’ claimant. A GLO-specific costs regime also ensures that any individual claimant will only ever be liable for their pro rata share of any costs awarded.
In the past 20 years, approximately 100 GLOs have been made. An average of five per year might seem modest, but perhaps reflects the existence of other, older mechanisms for managing multiple claimants –for example, representative actions and the courts’ inherent case management powers.
Recently, however, there has been an increased focus on GLO litigation. In addition to high-profile matters in the finance and automotive sectors, litigation funding is another key element; the economies of scale offered by the GLO regime can offer attractive returns for those investing in claims.
It is perhaps unsurprising that there is growing international interest in using the English courts. Recent years have seen groups of claimants from far-flung jurisdictions attempting to secure GLOs, with the aim of suing English corporates for the alleged wrongs of their overseas subsidiaries. Cases like these are likely to help set the parameters for future international GLO proceedings before the English courts.
Class actions in Scotland came into force on 31 July 2020. Like England, Scotland uses the opt-in system. Applicants commencing an action in Scotland must first be authorised by the court. A number of factors are considered, including:
- the applicants’ experience;
- interest in the proceedings and any potential benefit they will obtain; and
- ability to demonstrate ‘sufficient competence’ to litigate the claims, including financial resources to meet any cost awards.
Separate permission is required for the case to proceed and a group register (listing pursuers) must be filed alongside the application and provided to the intended defender.
The defender then has an opportunity to respond to applications to start group proceedings and to authorise the representative party. It is possible to appeal against the grant or refusal of permission to bring group proceedings so it’s worth looking closely at these early stages –an early challenge could be beneficial. Principally, the group of claims must raise similar or related issues of fact and law –an obvious pattern in many cases, but less so in others.
Interestingly, additional group members can be added up until the trial. While we are yet to see a case example, it does raise the prospect of a class swelling as the case progresses –another area where diligence and challenge may arise for defenders. Fraudulent claims are also a possibility. Importantly, the court must agree that proceeding as a group will be more efficient than separate claims – and there is a real prospect of success.
What this means
It is likely that any jurisdiction with new rules will see an increase in the uptake of new cases –and Scotland is no different. A rise in Scottish class actions being raised could hinge on the influence of funding. Like England, litigation funders, working in conjunction with claimant law firms, are likely to establish a greater presence north of the border.
Look to overseas jurisdictions for insight
With Scotland falling into line on class actions, the UK now has greater capacity for class actions that cross borders. But there remain areas where, when properly advised, early challenges to class actions can allow in-house counsel to effectively manage a strategy that will appeal to boards and, in the best examples, mitigate risks. A final point to GCs is to look at developments in the US and Australia, where class actions are more prevalent. They will provide insight on the shape and source of class actions that are likely to descend on the UK in the future.