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Posts Tagged ‘UK collective action’

Anyone interested in curious in an outsider’s critique of the U.S. class action system should be following the debate over the adoption of an opt-out collective action scheme in the U.K.  Opponents of opt-out collective actions point to the “looniness” of the American system as a reason why not to adopt a similar scheme.  Proponents say that a U.S.-style class action procedure is the only way to preserve justice and access to the courts for consumers.  Should the U.K. try out lawsuits, American Style, or should they follow the European Wayand leave mass justice to government regulators?  This op-ed from the Times Online entitled Class Actions: Why Are We Waiting? offers arguments from both sides of the debate.

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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  Neil Rose of the British publication the Law Society Gazette reports that the paper has obtained unpublished government research calling for an opt-out collective action procedure for dealing with a backlog of equal pay, discrimination, and other employment claim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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Litigation funding by private corporations other than law firms or individuals who are not lawyers is generally prohibited here in the US, but the concept is catching on overseas, especially in jurisdictions that have a “loser pays” rule for allocating fees and costs.  This recent entry from The D&O Diary summarizes an article predicting that the ability to assign of securities claims in the UK to private equity firms and hedge funds will lead to an increase in securities filings in that country, by relieving some of the risks of the loser pays rule.

Today, Stuart Wilson of the Australian Shareholder’s Association published this op-ed in The Australian discussing private funding of shareholder class actions Down Under.  The article discusses the role of a listed litigation funding company, IMF Australia, which recently funded a successful class action and earned a healthy fee for its services.  Mr. Wilson discusses the impact of new companies and law firms moving into the “fledgling industry” of litigation funding and the possibility that they will drive the price of litigation funding down.  For the moment, though, he says that IMF’s “stranglehold” on shareholder class actions allows it to keep its fees high.  Even so, he defends third party litigation funding as a mechanism for providing access to justice for millions of shareholders who would otherwise not have any practical means of bringing their claims.

Addressing the possibility that third party litigation funding will open the door to the “frivolous shareholder actions” that he seems to concede are common in the US, Mr. Wilson says no, pointing to two factors.  First, he points out that losing plaintiffs, and in turn, the funder, can be assessed litigation costs.  Second, he argues that faced with the prospect of having to pay costs in losing cases, IMF takes a conservative approach in deciding which cases to pursue and that “only the strongest cases are considered.”

I guess time will tell whether this same conservative approach will prevail as the new players move into the securities class action litigation funding market and the competition increases.  The bigger question is, what happens if the officers or directors of a company that funds securities litigation make a false or misleading statements to their own shareholders about that litigation?

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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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