The Times: Hands off our claimants, please

Is there a head of steam building up to introduce US-style class action to Britain? Consumers will not be so lucky

David Greene
December 4, 2007

From the legal media it looks as if our civil court process will become inundated with US-style class actions. But is British business really heading into the abyss of mass litigation in the UK courts?

After a constant flow of conferences held by the International Bar Association, American Bar Association, the Office of Fair Trading (OFT) and now the Civil Justice Council (CJC), a head of steam seems to be building for the import of the US process, with all its alleged ills. In reality, there remain substantial barriers.

Of more immediate impact – and concern to some – is the trend of American courts to extend their jurisdiction in a piecemeal fashion to cover events and parties in Europe, with a resultant export of litigation from Europe to the US.

The Woolf reforms and “no win, no fee” replacement of legal aid for personal injury have changed the way in which litigators practise and individuals access the courts. The introduction to the UK of US-style contingency fees based on a percentage of the damages has also been floated. In two recent green papers, the European Commission has suggested Europe-wide US-style litigation for competition claims and claims by consumers in product liability.

The proposals seek to fill the gap between regulators’ resources and those breaking the law in deliberate and organised action. In America, 95 per cent of the regulation of antitrust laws is affected by private claims in front of the courts; here it is 5 per cent. The green papers examine how private redress could be encouraged to relieve the regulators of some of the burden of enforcement. These proposals are the dynamic behind discussions at the OFT and CJC.

Meanwhile, the US plaintiffs’ Bar is showing a keen interest in recruiting claimants in the UK. The aim is not to develop claims in Europe, but to export claims in which the US courts are accepting jurisdiction. So if you have a choice as a claimant, the US will be first every time: no risk on costs, contingency fees and high damages make it attractive. If a UK claimant can be recruited either as a lead plaintiff or as a candidate for opting out of the class settlement, the returns for the attorneys can be significant.

This interest is likely to be heightened by a series of decisions in the US courts. In a claim by shareholders against Vivendi, the judge in the Southern District of New York decided arbitrarily that English claimants could litigate claims before the courts, but Germans could not. All turned on the view of the court as to whether a class judgment or settlement would be enforceable; yes in England but no in Germany.

In a shareholders’ claim in the same court against Glaxo, a UK institution was enthroned as lead plaintiff. In a claim by shareholders against Shell for misstatement of oil reserves, the European claimants settled the US action and have come back to the Netherlands for approval of that settlement by a Dutch court to bind the class of claimants.

But there must be some US connection for the US court to accept jurisdiction for European claimants; in another claim by shareholders against Parmalat for fraud, the US court refused jurisdiction because the allegations related to conduct only in Italy. Yet in an increasingly global economy, scope for some US connection is significant.

Shall we find a corresponding growth in US-style class actions in Europe? The main barrier is the European rule that the loser pays the costs. This is applied vigorously in England and Wales, and is a disincentive for people to join in an action in which their personal loss is small. Although the courts have tried to mitigate this rule by capping of costs and sharing of costs pro rata, any wholesale removal of the principle will not happen.

And while the principle survives, it is difficult to develop a full-blown US system by which you are in the class unless you actively opt out; liability for costs can work only if parties actively opt into the process and take on the responsibility. Contingency fees may free lawyers to take on mass cases but they work only when damages are substantial.

The other barrier is simply the state of the law. US law allows, for instance, shareholders to sue companies, officers, auditors and other professional advisers for fraud on the market. Even with the changes in the Companies Act, such a claim here is difficult if not impossible. English rules on reliance and causation in assessing damages present more problems, even if there were an opt-out class process. The recent Court of Appeal judgment here in MAN v Freightliner displays again the hurdles facing such claims.

There is a need to widen remedies for the aggrieved consumer. Australia and Canada have done so and there is much to learn from developments there. Some European jurisdictions are making tentative steps. Collective action through consumer bodies, such as Which?, may be a partial answer; but if there are to be meaningful reforms to promote private redress and enforcement, they must be bold. In the present political and jurisprudential climate that looks unlikely.

The author is a partner and head of litigation at Edwin Coe LLP

http://business.timesonline.co.uk/tol/business/law/article2992278.ece

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