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Efforts to expand access to collective redress in the UK have been the subject of several recent entries here at ClassActionBlawg (see these entries dated October 9, September 1, and August 28).  According to an article published today in the Times Online, a British appellate court has dealt a setback to reformers by rejecting theories of damages considered novel in the UK but available under certain circumstances in US courts.  The case involves claims by a feed supplier against chemical companies for price-fixing and other acts of illegal competition in the vitamin market.  Unable to prove compensatory losses, the plaintiff sought other remedies, including disgorgement of profits and punitive damages.  The court rejected these theories, upholding a long-standing principle that civil damages should be limited to those necessary to compensate the plaintiff for losses caused by the illegal competition. 

Lawyers interviewed for the Times Online article predicted that the ruling could negatively impact collective redress reforms that have been proposed by the Civil Justice Council (CJC), because the inability to collect non-compensatory damages and the requirement of proof of individual compensatory damages could reduce the desirability of bringing collective actions for competition violations. 

For better or for worse, I’m not convinced this is true.  The same problem should apply, at least conceptually, in many types of cases brought in the U.S., yet class actions are commonly pursued in the US even where compensatory damages are the stated remedy being sought.  Difficulty in proving individual compensatory damages is not necessarily a disincentive because of the refusal by courts in many jurisdictions to consider individual problems in proof of damages at the class certification stage and the likelihood that the case will result in a settlement before the case gets to the point where the individual damages issues get resolved.  Part of the problem is the perception of the risk that if liability is found, courts will gloss over the lack of proof of individual damages for all or part of a class in an effort to ensure redress for whatever portion of the class was harmed.  However, many cases never get to the point where this issue is actually addressed.  Added to this problem is the fact that the plaintiffs’ bar is constantly thinking up new ways to argue that individual injuries and damages can be proved through “common” evidence.  One illustrative example is the use of the “fraud on the market” theory that has been adopted in securities cases and is now finding its way into consumer fraud cases.  Many of these theories are illogical or subject to proof only through questionable “expert” analysis, but the mere threat that they might succeed is often all the leverage the plaintiff needs to leverage a settlement where all members of the class obtain some relief without ever having to prove to a court that all members of the class were truly damaged.

Of course, the loser pays rulemay be a barrier to same level of entrepreneurial creativity in the UK as we see in the US.  Moreover, the possibility that lawyers in the UK will be able to think up creative ways to get around the proof of compensatory damages requirement may not be the best argument to persuade the government decision makers to accept the CJC proposals.  But, it seems unlikely that yesterday’s damages ruling means that if the CJC’s proposals are adopted, no one will have incentive to use them.

On the other hand, having a collective action procedure that never gets used wouldn’t be a first.