Class Actions in England and Wales: Right around the Corner?

Class actions have long been a feature of the US litigation landscape.  They can be an effective tool for justice where a claimant’s individual claim is not large enough to justify bringing alone, but can be joined with other similar claims to create a substantial joint claim.  They have not traditionally played such a large role in English litigation, although in recent years have been widely tipped as the “next big thing”, fueled in part by an influx of US “plaintiff firms” and litigation funders into London.

This article explores what class actions are, the methods available for bringing them in England, and whether they really are “right around the corner”.

Class Actions in the USA

Class actions in the US have led to some of the biggest damages awards and settlements in any courts worldwide.  Famous examples include the $7.2 billion offered in 2008 to the shareholders of Enron, the energy company that collapsed in 2001 in a cloud of scandal, and more recently in 2018, the $2.95 billion paid by Petrobras to its shareholders after allegations of corruption caused a significant reduction in the value of its shares.  They differ from other collective claims in that the claim can be brought by one representative on behalf of all other claimants in the class, which greatly reduces the administrative burden for the claimants.

Under the US civil procedure rules, any representative of a class can bring a claim on behalf of that class if they can prove that (i) the class is “so numerous that joinder of all members is impracticable”; (ii) there are “questions of law or fact common to the class”; (iii) their claim or defence is “typical of the claims or defenses of the class”; and (iv) they “will fairly and adequately protect the interests of the class.”  Proving these four points, known as “class certification, is a key battleground in US class actions.  If the representative succeeds in having their class certified, all persons or companies that fall within their defined class are automatically joined as claimants in the claim unless they expressly opt out.  The US does not have the same “loser pays” cost shifting rules as England, so there is very little risk in pursuing such a class action and little reason to opt out.  This, plus the fact that the US courts can issue punitive damages (unlike in England where damages cannot exceed the claimant’s loss) means there is a huge incentive on defendants to settle if they find themselves facing a successfully certified class.

In addition to shareholder actions like those mentioned above, class actions are common for product liability cases: if a product goes wrong in some way then anybody who purchased that product may be added to the class.

Group Litigation Orders

Until recently, the closest equivalent to a US-style class action in England was a group claim managed under the Group Litigation Order (GLO) provisions in CPR 19.

CPR 19.10 provides that the court may issue a GLO “to provide for the case management of claims, which give rise to common or related issues of fact or law”.  Unlike US class actions, GLOs do not allow “opt out” claims.   Every claimant must file their own claim form and “opt in” to the GLO claim.  If a GLO is made, all issued claims will be entered onto a “group register”.  Any judgment binding on one of the issues entered onto the group register will then be binding on all other claims containing the same issue.   This has obvious advantages over bringing multiple claims separately – there is no risk of contradictory judgments and certain claimants may sit back and let a “test” claimant take a claim forward, piggybacking off their success or failure.

However, it is not as streamlined as a true class action.  There is no representative bringing the claim on behalf of the whole class, which means that different claimants may have different interests and legal representation.  Additionally, the courts’ narrow interpretation of the “common or related issues of face or law” requirement means that GLOs have not become a widely used mechanism.  Since their inception in 2000, only around 100 have been brought.  There have been some high profile examples, such as the claim by RBS shareholders brought against the bank under section 90 of FSMA, which ended in a settlement in 2017.   More recently, the Supreme Court confirmed in Vedanta Resources PLC and another v Lungowe and others [2019] UKSC 20 that a group of 1,800 Zambian villagers could bring a claim against a mining company that polluted their living areas.  However, the GLO remains an imperfect mechanism and has not had the desired effect of heralding a new class action tradition in English litigation.

Competition Claims – the first opt-out class action mechanism

The Consumer Rights Act 2015 introduced the first “opt-out” mechanism for class actions, but only in relation to a small subset of claims: competition damages claims.  These occur when a competition authority such as the CMA in the UK or the European Commission finds evidence of breach of competition law, such as a cartel.  Following on from this finding, anybody who purchased the cartelized product and paid more for it than they would have done had it been priced fairly is entitled to claim damages.  These claims are in principle perfect for class actions, since they involve large numbers of claimants with small but similar claims.

These claims, which are heard in the Competition Appeals Tribunal (CAT), must go through a similar class certification process as in the US, where a representative must show amongst other things that that the claims are brought on behalf of an identifiable class of persons, raise common issues and are “suitable” to be brought in collective proceedings.

Despite much speculation that this new mechanism would spearhead a new dawn of class actions, only a handful of claims have been issued so far, although this has included a £14 billion claim brought by the former financial ombudsman Walter Merricks against MasterCard (Walter Merricks v MasterCard Inc & Ors).  This is the largest claim ever issued in the UK courts and relates to the European Commission’s ruling that MasterCard breach EU competition law by “setting a minimum price merchants must pay to their acquiring bank for accepting payment cards in the [EEA] by means of … interchange fees”.  Anybody who used a MasterCard between May 1992 and June 2008 could potentially be a claimant.  At first instance, the CAT rejected Mr Merricks’ application for class certification on the basis of his proposed methodology for calculating damages.  However, this decision was recently overturned by the Court of Appeal who found that the CAT were demanding “too much of the proposed representative at the certification stage” and had conducted “some form of mini trial”.  Although Mr Merricks must now return to the CAT to re-attempt to certify the class (if MasterCard does not appeal to the Supreme Court), the Court of Appeal’s decisions shows that they are eager for this class action system to start functioning effectively.  However, the fact remains that this class action mechanism has now been in force for nearly four years and not a single class has been successfully certified.

Conclusion

As the US model shows, class actions can be an effective means of handling certain categories of large claims, including shareholder actions and product liability claims.  The English legal system is yet to introduce an effective means of bringing such claims, but such is their potential power as a tool (and potential financial reward for law firms and litigation funders that bring and invest in such claims) that is likely to be a matter of when not if class actions take off in England and Wales.