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Posts Tagged ‘UK class action’

Emerald Supplies Ltd. v. British Airways PLC is already being heralded as a rejection of US-Style class actions in the UK, but my reading of the opinion leaves the question far from settled.  The opinion falls far short of foreclosing the possibility of a representative action in every case where the plaintiffs’ interests are not literally identical.  In fact, the opinion appears to turn on two flaws that may very well have prevented class certification under US procedure.

In articulating the standard for what constitutes “the same” interest sufficient to justify treatment of a case as a representative action under Civil Procedure Rule 19.6, Lord Justice Mummery was careful to say that “[t]his does not mean that the membership of the group must remain constant and closed throughout. It may indeed fluctuate. It does not have to be possible to compile a complete list when the litigation begins as to who is in the class or group represented.”  Opinion ¶ 63.  Instead, he articulated two problems in treating the case as a representative action, both of which would also be potentially fatal to class certification under Rule 23. 

First, he observed that there were problems in ascertaining who was a member of the proposed class:

The problem in this case is not with changing membership. It is a prior question how to determine whether or not a person is a member of the represented class at all. Judgment in the action for a declaration would have to be obtained before it could be said of any person that they would qualify as someone entitled to damages against BA. The proceedings could not accurately be described or regarded as a representative action until the question of liability had been tried and a judgment on liability given. It defies logic and common sense to treat as representative an action, if the issue of liability to the claimants sought to be represented would have to be decided before it could be known whether or not a person was a member of the represented class bound by the judgment.

Id.  Second, he observed that certain defenses might be available as to some members of the would-be class, but not others:

A second difficulty is that the members of the represented class do not have the same interest in recovering damages for breach of competition law if a defence is available in answer to the claims of some of them, but not to the claims of others: for example, if BA could successfully run a particular defence against those who had passed on the inflated price, but not against others. If there is liability to some customers and not to others they have different interests, not the same interest, in the action.

Id. ¶ 64.  In conclusion, Lord Justice Mummery returned to his concern about the inability to determine class membership without first ruling on the merits:

In brief, the essential point is that the requirement of identity of interest of the members of the represented class for the proper constitution of the action means that it must be representative at every stage, not just at the end point of judgment. If represented persons are to be bound by a judgment that judgment must have been obtained in proceedings that were properly constituted as a representative action before the judgment was obtained. In this case a judgment on liability has to be obtained before it is known whether the interests of the persons whom the claimants seek to represent are the same. It cannot be right in principle that the case on liability has to be tried and decided before it can be known who is bound by the judgment. Nor can it be right that, with Micawberish optimism, Emerald can embark on and continue proceedings in the hope that in due course it may turn out that its claims are representative of persons with the same interest.

Id. at 65.

The primary concern raised by Lord Justice Mummery is the problem of a “fail-safe” class, a common obstacle to class certification in the U.S.    Even under the seemingly more liberal US Rule 23, a class cannot be defined in such a way that requires the case to be adjudicated on the merits before it can be determined who is in the class.  (See recent CAB review quoting Anderson & Trask’s, The Class Action Playbook, comparing fail-safe classes to Schrödinger’s cat).  Thus, classes consisting of “all consumers who were defrauded” or “all purchasers who paid inflated prices due to the defendant’s act of price fixing” are not sufficiently ascertainable to be certified under Rule 23.

The secondary concern could also prevent certification under US law.  The fact that a defendant’s defenses may vary from person to person is often a consideration in denying class certification under Rule 23.

In short, it appears to this outsider that it may be too early to tell whether Emerald Supplies is truly the death knell for US-Style class actions in the UK, or whether it is simply the first in a line of decisions defining the contours of a more robust law of representative actions across the pond.

One thing is certain, though.  There are very few US judges who could get away with using the word “Micawberish” in an opinion.

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One more abbreviated post before I return from vacation.  Neil Rose of the British publication the Law Society Gazette reports that the paper has obtained unpublished government research calling for an opt-out collective action procedure for dealing with a backlog of equal pay, discrimination, and other employment claim against government agencies in the UK.  Here’s a link:

http://www.lawgazette.co.uk/news/class-actions-employment-tribunals-called-government-research

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UK legal publication The Lawyer has an interesting article out today for anyone tracking trends in class and collective action reform across the pond.  According to the article, Which?, a consumer organization granted the right to pursue collective redress on behalf of consumers harmed by conduct declared to have violated antitrust laws, isn’t convinced that it would pursue another one after facing several practical barriers in pursuing a case against a sports merchandiser for allegedly selling overpriced replica soccer jerseys.  Among the challenges cited by a lawyer for the group was the fact that few consumers found it worth their while to pursue a claim in light of the relatively modest amounts they stood to gain (£20 per person), the fact that consumers had to provide proof of purchase, and the fact that years had passed by the time the opportunity to make a claim became available. 

The report notes that even after a highly publicized media campaign highlighting the case, only about 500 consumers decided to participate.  The total amount of the settlement payout was around £18,000, plus reasonable litigation costs, as compared to a multi-million dollar penalty imposed against the company for its anti-competitive actions in the first place.   An earlier article by The Lawyervalued those costs at many hundreds of thousands of pounds, dwarfing the amount of the payout.  That article quotes a lawyer for which as saying that the use of an opt-in versus an opt-out system contributed to the discrepancy.

The issue of the cost of litigation versus the actual benefit to victims, however, is one that arises whether the system is opt-in or opt-out.  Even in the U.S., which technically has an opt-out system, actual monetary redress to alleged victims happens as a result of some sort of claim-in process, either as part of a settlement or a distribution of a judgment.  Unclaimed funds are either distributed pro-rata to those class members who do file a claim, returned to the defendant, paid to the government, or distributed to charity as part of a cy pres remedy.  In any event, the system does not in any way guaranty redress to those who don’t have the means to prove their entitlement to relief or who don’t find it worthwhile to pursue a remedy.

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Fullbright & Jaworski International attorneys Antony Corsi and Ian Pegram authored an article published yesterday in the Times Online discussing whether proposed opt-out collective action procedures are likely to lead to huge increases in litigation costs for companies doing business in the UK and due to a rash of frivolous class actions. 

As I have noted in previous entries, the British reforms have been proposed by a quasi-governmental “Public Advisory Body” called the Civil Justice Council.  Following a report issued in February, the CJC held a conference in March and issued specific recommendations for reforms to collective action procedures in August.  Most recently, a conference was held to discuss those recommendations in September in which lawyers, judges, academics, and trade union representatives provided comments on the recommendations.  Reports on all of these events are available on the CJC’s main web page under “What’s New.”

The recommendations would make British collective action procedures more similar to U.S. class actions, but overall collective actions in the UK would still be different from the truly representative class action system in the U.S.  This August 28 ClassActionBlawg entry summarizes the proposed changes.  One of the most significant changes would be the adoption of a procedure allowing collective actions to be brought on an “opt-out” basis (where absent plaintiffs would be bound by the result unless they affirmatively excluded themselves from the litigation).  Currently, the current UK standard for collective actions is “opt-in”, where plaintiffs have to affirmatively join the suit in order to participate.  As examples in the Corsi and Pegram article illustrate, allowing cases to be litigated on an opt-out basis as opposed to an opt-in basis can make a huge difference to the legal exposure, since oftentimes only a very small percentage of the potential plaintiffs bother to participate in an opt-in case.

Corsi and Pegram conclude that despite changes that would add certain features of U.S.-style class action procedure to the UK, those changes are not likely to produce the “American-style excesses” that many in the business community fear.  They point out that the CJC has been particularly sensitive to these concerns and has proposed procedures, including strict oversight by specialist judges, to prevent abuse of the process.  Walter Olson of Point of Law, discussing the article in this entry, opines that other aspects of civil procedure in the UK–such as stricter limits on forum shopping and a loser-pays attorneys fee-shifting rule–are more likely reasons why we might not expect a flood of class action litigation if the reforms are adopted.  As other commentators have pointed out, Europeans have different societal attitudes toward litigation in general and toward the role of the courts in providing redress for private harm, which may also play a part in tempering the legal exposure to businesses that might otherwise be expected to result from an increased availability of collective redress.

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Wales Online reported today on the increasing number of UK pension funds taking part as a lead plaintiff or “active participant” in securities class actions, which have to be pursued in other countries since the UK does not currently have a class action procedure.  The data comes from the National Association of Pension Funds, a UK assocation that provides resources to fund managers and trustees.  NAPF has reported a large increase in the number of pensions that have been involved as in a class action during the past year.  The report’s key findings included that of 23% of pension funds have now “actively participated” in a class action, while 73% participated in some form to collect a settlement.   In 2007, the NAPF published a guide for trustees of UK pension funds discussing the benefits of getting involved with securities class action litigation in the U.S. and other jurisdictions that have a securities class action procedure (specifically mentioned are Canada, Australia, and the Netherlands).  The guide, entitled Securities Litigation-Questions for Trustees is available at the NASP website.

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As reported today in the UK trade publication Professional Pensions, the Civil Justice Council, a governmental advisory committee charged with studying and recommending policy decisions relating to civil justice issues, issued a report earlier this month recommending that enhanced collective action procedures be adopted in the British civil courts.  The procedures, if adopted, would include many of the features of class actions in the United States.  Many of the recommendations are similar to those recently recommended by an advisory group in the Australian state of Victoria.

Here is a summary of the panel’s recommendations:

1) Introduction of a generic collective action procedure;

2) Procedures to allow a wider range of representatives to bring collective actions, ranging from individuals to “ad hoc bodies”;

3) Permitting both opt-in and opt-out actions, with tolling procedures to apply during the pendency of an opt-out action;

4) Strict certification requirements;

5) Enhanced case management of collective actions by specialized judges;

6) Permitting awards of aggregate damages in opt-out actions, which would involve changes to both procedural and substantive law;

7) Requirement that the court conduct a fairness hearing to evaluate the fairness of a collective action settlement to absent parties;

8) “Full” cost-shifting;

9) Cy pres awards allowing unclaimed funds to be distributed to a foundation or trust;

10) Recommendation that the changes be introduced by legislation as opposed to by changes to the civil rules.

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