The Government recently confirmed its intention to introduce ‘collective actions’ in the UK for competition law. Not only should this enable large numbers of consumers and small businesses to obtain redress against anti-competitive behaviour, but an important by-product is that leftover damages could benefit access to justice more generally.
Collective actions are a mechanism allowing large numbers of claimants to sue through a single piece of litigation. A representative party leads the case on behalf of a group each of whom could have claimed individually. They are known famously as ‘class actions’ in the US.
Currently in the UK there are ways groups can litigate: representative proceedings under CPR 19.6, group litigation orders under CPR 19.11 and representative claims in the Competition Appeal Tribunal (CAT) under section 47B of the Competition Act 1998. Additionally, CPR 3.1(2)(g) allows courts to consolidate individual cases into a group action. However, all the British procedures have real limitations and are seldom used.
Take the system for representative claims in the CAT – in the 10 years since its introduction it has been used just once. This followed JJB Sports Plc being fined £6.7 million by the Office of Fair Trading (OFT) as part of a cartel that illegally price-fixed the sale of replica football shirts. In 2007, the consumers’ association Which? lead a claim hoping to obtain redress for many of the estimated 1-2 million people overcharged about £15. However, the procedure required each person to actively ‘opt in’ to the litigation, and notwithstanding a media campaign by Which? only a few hundred signed up.
In contrast, collective actions can be undertaken on both an ‘opt in’ and ‘opt-out’ basis. The latter means all those affected are presumed to participate unless they opt-out. This particularly assists cases where traditional litigation is not cost effective because the individual loss is small, as with the football shirts.
There have been attempts to introduce collective actions here. In 2008 the Civil Justice Council (CJC) recommended collective actions be introduced generally in the UK. The Government instead decided in 2009 they be considered on a sector-by-sector basis, first proposing financial services which would for instance have enabled consumers to collectively sue their banks. However, that proposal was lost in the ‘wash up’ before the last election.
During 2012 the Department for Business, Innovation & Skills consulted on reform to private actions in competition law, and last month announced their response. Subject to necessary legislation, the Government intends that the jurisdiction of the CAT be extended so it becomes the major venue for competition action. The aim is that individuals and businesses can more easily challenge anti-competitive behaviour. This would include not just ‘follow-on’ litigation after the OFT has made a finding of illegal behaviour (as with the football shirts), but freestanding cases where the OFT does not act. Significantly, opt-out collective actions would be permitted.
Recognising some of the concerns associated with US class actions, the Government will introduce a number of safeguards. Firstly, all cases will be subject to a process of judicial certification including an early merits test and assessment of the appropriateness of the representative party. Secondly, the group will not extent to claimants domiciled outside the UK, unless they specifically opt-in. Thirdly, exemplary damages will be prohibited. Fourthly, the CAT rules will be amended to confirm that generally the loser must pay the winning party’s costs. Contingency fees (where the successful lawyers take a cut of the damages) will be prohibited. Finally, claims will only be allowed to be brought by the individuals or by genuine representative parties such as consumer or trade associations, and not law firms or third party funders. The detail of these safeguards is yet to announced.
In collective actions the court can make an ‘aggregate damages award’ representing the compensation due to the whole group. In the football shirts case this would have allowed the judge to order the cartel to pay damages to all the consumers affected, save those who opted out. However, experience from other jurisdictions has shown that some damages may remain undistributed, for example because not all individuals can be contacted.
A traditional option for dealing with unclaimed sums is to use ‘cy près’ where the leftover money is directed to purpose close to the original objectives of the litigation. A particular problem reported by the CJC is that US class-actions judges are often lobbied by charities or lawyers trying to persuade the court their destination is preferable to another. Another option is to ‘escheat’ the funds to Government, although criticised as a form of taxation. Alternatively unclaimed damages could ‘revert’ to the defendant, and whilst used in Australia has the downside of providing a windfall to the company that has been found liable and so reduces any deterrent effect.
Another choice is to share the damages amongst those claimants who did come forward, but they equally end up with a windfall, possibly many times their entitlement. The final option is perhaps the most simple, to have a single prescribed destination for unclaimed sums. This gives certainty to all parties before and during litigation as to where residue monies will go, and so removes the danger of lobbying of judges and satellite litigation.
Access to justice
Following consultation the Government confirmed their intention there be a single destination for unclaimed sums and that this be Access to Justice Foundation. The decision was based particularly on the reports of the CJC and the Jackson Review of Civil Litigation Costs, and the Foundation’s unique status the national destination for pro bono costs under Legal Services Act 2007, section 194. A settlement will still be free to choose an alternative way of dealing with residue funds.
But it could be argued that the Foundation is a destination that may have little in connection with the litigation, the claimants or their lawyers. But that I think is the point.
An opt-out action could produce significant sums of damages of which only a proportion will be collected, and it is important those driving the litigation do not do so, even in part, with a view to benefitting from any residue funds. As with pro bono costs, the Foundation will be independent of the litigation, receiving the funds in the public interest pursuant to statute.
Moreover, at their heart collective actions aim to enable access to justice for claimants who might otherwise be unable to litigate individually. There is therefore a logical, even moral, connection in using leftover damages from such cases to support further access to justice for the public in need. Whilst there is some way to go until such funds might emerge, this is undeniably an important by-product.