Would-be corporate defendants and their insurers have had cause for concern in recent times that the UK could see the introduction of US-style class actions. However, the Government's recent response on the issue offers comfort that wholesale revamping in this area is unlikely and instead that the desirability of collective action rights will be considered on a sector-by-sector basis. In December 2008, the Civil Justice Council (CJC), a body charged with advising the Government on the modernisation of the civil justice system, released its formal report on collective actions. In its report, the CJC stated that existing mechanisms in the UK for collective actions do not provide sufficient or effective access to justice for a wide range of citizens and that meritorious claims which could be brought are not being pursued.
The current mechanisms are twofold. First, there is a Group Litigation Order (GLO) whereby each claimant must "opt in" by issuing its own individual claim before it can be entered on the Group Register. Secondly, there is a "representative action" under Part 19 of the CPR whereby a claimant may continue in its claim as a representative of any other person who has the "same interest" (which is interpreted narrowly by the courts) in the claim. Neither of these mechanisms is common.
The CJC's proposed solution was the introduction of a new generic collective action which could operate on an "opt-out" basis. The system in the US operates on this basis, meaning that lawyers may bring a class action on behalf of multiple claimants without needing to be retained by, or even having to identify, each of them individually. All potential claimants are bound by the result of the litigation unless they have taken positive steps to opt out of the class.
Not surprisingly, the CJC's proposals have attracted significant attention. US-style class actions are seen to have some benefits for defendants in that they offer finality in respect of all potential claimants unless they have opted out. However, the concern long held by many is that the availability of the US model could lead to a litigation culture whereby businesses are plagued by a proliferation of claims without merit. A rise in the number of class actions would also be likely to lead to headaches for insurers dealing with aggregation of claims.
As well as controversy at a domestic level, the European Commission continues to debate whether a directive which would allow consumer collective actions to be brought in all EU states should be introduced in order to harmonise the position across the EU.
The Government's response
The Government responded to the CJC's report with its own formal report on 20 July 2009. The Government's overarching conclusion was that the creation of a generic collective right of action would not be appropriate in the UK.
Instead, the Government is of the view that collective rights of action should only be introduced where policymakers for a particular sector are satisfied that there is a genuine need. In addition, the Government has indicated that the policymakers would need to be satisfied that collective actions would achieve access to justice more costeffectively than other alternatives, such as separate claims by individuals or increased intervention by regulatory bodies.
The role of regulatory bodies
It may be, therefore, that sectors such as public utilities and finance, where there are already formal regulatory frameworks in place, will be less susceptible to the introduction of class actions. The Government also suggests in its report that regulatory bodies who are in a position to act on behalf of consumer or other groups could be given increased powers, for instance the ability to order compensation. This "regulation plus" model could simply mean class actions by another name and without the benefit of judicial impartiality. On the other hand, the scarcity of resources available to regulatory bodies is likely to mean that only strong claims would be brought under such a model.
Implementation of new collective rights of action
Where collective actions are to be made available in a particular sector, the Government envisages the Government department responsible for that sector introducing the changes by way of primary legislation. The Government department might also choose to identify in the legislation which specific bodies may bring collective actions on behalf of individuals or the criteria against which other applicants might apply to court to be authorised as the group representative in a collective action.
Opting in or opting out?
Although much emphasis was placed by the Government in its report on the necessity for a sector-by-sector consideration of whether or how best to cater for collective actions, the Government did express a preference for a "hybrid opt in" process rather than a full "opt out" model. Two possibilities for a hybrid process were discussed by the Government in its paper.
Under the first hybrid process mooted by the Government, a minimum number of optin claimants would be required, with additional members of the class able to opt in at any time before a decision on liability were reached. All those who opted in would be bound by the liability decision. Any who opted out before the decision or those who had done nothing would not benefit from or be bound by the decision. They could bring their own separate claims but the class action decision would operate as a precedent.
Under the second hybrid process mooted by the Government, claimants could opt in at any time before quantification of damages. Once a decision on liability had been reached, any claimants who had not expressly opted out beforehand would be bound by it. But those class members who had not opted in or out could still bring separate claims for damages if the liability decision was favourable.
These hybrid processes seem to offer little to defendant businesses who would wish to manage litigation and reach a final position in relation to all potential claimants as the quid pro quo to there being more scope for claims in the first place.
Certification
However, the good news for would-be corporate defendants is that the Government in its report recommended that, where collective actions were introduced, a strict certification process should be an essential element of the procedure. That is, the Government is of the view that prospective collective actions should be vetted by the court before permission to bring them is granted. The Government envisages that the court's considerations should include whether the claim has legal merit, whether the claim can be resolved more cost-effectively by a non-court mechanism (for instance, through regulatory action or an ombudsman) and whether the representative body or party is likely to be able to meet the defendant's costs if the claim is unsuccessful.
Cost shifting
In addition, the Government, in common with the CJC, is in favour of retaining the usual "loser pays" principle in relation to class actions. The principle (also known as "cost shifting") means that the loser of litigation pays the winner's costs. The Government described the principle as a significant deterrent to "blackmail litigation" which occurs in the US, whereby claims with little merit are brought simply in order to induce a settlement. The Government's support for the retention of cost shifting does, however, fly in the face of comments by Lord Justice Jackson in his May 2009 Preliminary Report on civil litigation costs. In that report, Lord Justice Jackson indicated that a no cost shifting rule in the context of collective actions merited serious consideration. (Lord Justice Jackson's final report is due in December 2009.)
Future developments
The Government concluded its report by signalling the next steps that it proposes to undertake in relation to the reform of collective actions. Although leaving the development (or otherwise) of collective actions to the Government departments responsible for various sectors, the Government intends, over the second half of 2009, to develop a policy framework document. It is envisaged that the framework document will assist Government departments in considering all of the relevant issues and adopting consistent conclusions where appropriate.
The Government does not intend to impose a timetable for the various Government departments to consider collective actions. However, the current climate provides fertile ground for them to do so promptly. Lord Justice Jackson's ongoing costs review has focussed attention on the high cost of litigation in the UK and issues of access to justice. In addition, there are now large classes of claimants with recession-based claims against their financial advisers and others. The issue of collective actions may therefore be near the top of many Government departments' "to do" lists come early 2010.
So, while the Government's refusal to endorse collective opt-out actions across the board may provide some comfort, the end result may differ widely, sector to sector. Given the serious repercussions that could ensue, those concerned may wish to make the most of any opportunities to influence the policy-making process in their sectors.
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