Journal

Virtual Roundtable with Benjamin Williams QC - Group Actions

Group Actions

[Begins at 28:55]

Ben, Jeremy and Andy looked at two recent cases and reviewed the history of group actions as well as discussing the differences between traditional opt-in group litigation and its statute created opt-out near relative.

Representative actions have been around since Victorian times. If a group of individuals has the same interest and can be formed into a readily defined class, one member of the group is able to act as the representative for that class. The class members are given collective representation through the class representative and, if the representative’s claim is successful, the outcome is binding on the other members of the class. Historically, representative actions were used for relatively small and closely defined classes of claimants, for example a group of shareholders.

Prior to the introduction of the Civil Procedure Rules in 1999, there existed forms of group litigation under the inherent jurisdiction of the courts. Since 1999 CPR 19 permits group litigation orders (GLOs) to be made where there are claims which "give rise to common or related issues of fact or law". GLOs are ‘opt-in’, claimants must be identified, and their names must be added to the claim form. Their details must appear in the group register and the group register must be maintained and updated. It is a labour-intensive process and even with high profile litigation such as the diesel emissions litigation, only a fraction of the total number of possible claimants come forward to join an opt-in group.

For a long time, it was seen as a fault of our justice system that there was no means of obtaining collective redress on an opt-out basis. There was significant interest in the market and among ‘consumer champions’ in introducing a mechanism which would allow businesses to be held to account in a way which does not require individuals to come forward and actively participate. Whilst the government has said that it does not support an opt-out mechanism across the board, The Competition Act 1998 as amended by the Consumer Rights Act 2015 filled that gap in relation to cases proceeding in the Competition Appeal Tribunal (CAT). The initial inertia in taking forward a collective action is much easier to overcome, there is no need for book building, or any of the bureaucracy associated with creating and maintaining a group register, and the mechanism produces larger damages pots for distribution amongst all eligible class members (other than those who have expressly opted out), not just the few who would have come forward and joined an opt-in group action. Crucially, there is also no need to identify every individual claimant.

Mr Lloyd, the representative claimant in Lloyd v Google, wanted to use the representative action mechanism to bring a very large data breach claim against Google. The claim failed at first instance, succeeded on appeal, and then failed in the Supreme Court on technical grounds relating to the nature of the tort.

One of the concerns in the case was that different claimants had different potential damages and measures of recovery. The Supreme Court did not accept Mr Lloyd’s offer to reduce the level of damages for all members of the group to the level of the lowest common denominator.

Looking beyond the judgment, the Supreme Court made very encouraging noises about the importance of access to justice and consumer redress and the possibility of using Rule 19 representative actions to bring opt-out representative claims if the right case can be identified. In this context the right case would have a clearly identifiable class with a common interest, and the remedy for all members of the group would have to be the same.

Notwithstanding the encouragement of the Supreme Court for possible future representative actions, some difficult issues will need to be considered, particularly in relation to funding.

How will a representative action involving litigation funders and solicitors be structured where the individual members of the class have no relationship with each other, the solicitors, the funders, or any ATE providers? How does everyone get paid?

Solicitors acting on a post Jackson CFA will receive their basic charges and disbursements if there is a win, but no success fee is recoverable inter partes. DBAs are not helpful, because although the DBA will provide for the solicitor to take a percentage of the damages, the only party to the DBA will be the class representative. With a maximum percentage deduction of 50% of the class representative’s damages (which might only be £1,000 or less), that is clearly unworkable for the solicitors.

If a representative action produces a declaration that a right has been infringed, but a second stage of litigation is needed to establish the level of damages, litigation funders will not want to fund an undoubtedly expensive first stage if there is no guaranteed recovery of damages. Litigation funders will also not be able to bind the whole class to an agreement with the class representative to pay litigation funding costs.

It is ironic that everything which makes these actions attractive for individuals stems from their opt-out nature, but it is their opt-out nature which makes them problematic for lawyers and funders.

A mechanism is needed in representative actions to ensure that solicitors and funders are properly compensated for the risks they are taking. Other jurisdictions already provide this. In the United States and Australia charges can be deducted before the distribution of damages and, in this jurisdiction, the CAT provides for the payment of charges before the damages are distributed. The CAT also has a mechanism for dealing with unclaimed damages. All of this has been achieved through primary legislation, but none of these mechanisms are available to Rule 19 claims, where lawyers and litigants are shoehorning a modern consumer collective action into a slightly ramshackle 19th century procedure.

Representative actions are only going to work if third party funding is available, and solicitors and funders are willing to take the risk of getting involved in these sorts of claims.

One way forward might be through judge-led law making, but many would say that this is a step too far and that primary legislation is needed. If the court does not consider the question of how damages will be distributed until the end of the case, funders will potentially be risking millions of pounds, not only because the claim might fail, but they also bear the risk that the claim will succeed, but the funder could still end up with nothing. Perhaps a funder who is willing to fund a representative action will need to grab the bull by the horns and ask for a pre-emptive decision that the legal mechanism for getting paid a share of the damages at the end of the case is acceptable to the court. Getting to this decision might cost hundreds of thousands of pounds rather than millions.

The second recent case discussed is one currently proceeding in the CAT. In FX, despite arguments put forward by both potential class representatives that an opt-in action would not work, the CAT held that the litigation was more suitable as an opt-in case (although that decision may be the subject to appeal).

Two rival possible class representatives, each with formidable legal teams fought it out, asking the CAT to appoint them as the class representative, while the defendants looked quietly on. Both potential representatives sought to persuade the CAT that they had the better funding position. The liability of the potential class representatives for costs was also considered. In terms of own costs, the indemnity principle has not been disapplied and the class representative is (theoretically) liable to pay, but any well-advised class representative will want the relationship to be non-recourse in nature. So far as adverse costs are concerned, whilst the class representative is notionally liable, there is an expectation that these costs would be indemnified by the funder and that the representative’s solicitor and funder would undertake only to seek payment from the undistributed damages. To do otherwise would have a chilling effect on the collective action regime.

In FX the two unsuccessful class representatives now face claims for costs from the banks. Every bank had its own legal team. At the five-day interim hearing when the carriage dispute took up half the time and in respect of which the banks were neutral, the banks served no evidence of their own and their input was limited to legal submissions and picking apart the Claimants’ evidence. The costs of the banks are nevertheless understood to be around £15M.

Each bank is entitled to instruct its firm of solicitors of choice, but it is an unsatisfactory position if that means that every firm can be active at the hearing with its own counsel and legal team. By contrast, in a traditional group action, there would be a lead solicitor and one counsel team. On detailed assessment, exotic arguments about funding and less exotic arguments about duplication will take place on a canvas which is infinitely larger than normal – because of the massive scale of these actions and the amounts at stake.

It is easy to see why businesses want to stop opt-out actions before the certification stage if possible. If they do get off the ground and are certified, the commercial pressure on businesses to settle as quickly as possible is huge because, as soon as a case settles, the defendant gets to keep the undistributed damages. Experience in the United States and Canada suggests that it is ‘remarkable’ if as much as 50% of the damages are distributed. In many cases only 5% or 10% of the damages are distributed. If a defendant settles they will get back 90% or 95% of the damages.

In the interests of balance, it should also be said that the behaviour of defendants in group actions is not always as good as it should be. The level of deductions from the damages pot in the Post Office litigation has recently received significant negative attention. The defendant behaved poorly during the litigation, litigating aggressively and employing every conceivable delaying tactic. The resulting increase in claimant costs produced deductions from the claimants’ damages as high as 85%. It is troubling that the court currently has no power in these circumstances to force the defendant to contribute to the increased costs of the claimants.

It would represent an entirely new development in competition law to say, for example, that although these increased costs could not be recovered from the defendant as costs, they could be recovered as damages.

The recovery from a paying party of an item which could be claimed as costs or damages is not new for those who litigate in the business and property courts. Those litigants are familiar with the recovery of pre-judgment interest as either costs or damages. Blue chip commercial clients are routinely awarded interest on their costs from the date on which they pay an interim or final invoice. This contrasts significantly with an impecunious claimant in a personal injury case with a disbursement funding loan, trying to recover from the defendant the interest paid on that loan. Costs judges have not been keen, historically, to allow interest to be recovered from the defendant on assessment.

This discussion has taken in just a few of the potential difficulties ahead for opt-out actions, particularly in relation to the distribution of damages after costs have been deducted from the damages pot.

A feature of opt-out actions is that the distance between litigants and any liability for costs is even greater than in other group actions. It is surprising therefore that there does not yet seem to be any appetite in the CAT, other than at a very high level, to control costs via costs budgeting. Perhaps it is too soon to expect to see this in cases which have only recently been certified.

Looking further into the future, in the personal injury world an entire industry has developed which challenges the deductions made by litigators from their clients’ damages. Could lawyers and funders face similar challenges in relation to unclaimed damages in opt-out group litigation? If the number of these actions rises as it is predicted to, then the answer may well be yes.

[Ends at 56:56]