State of the Nation – Are the UK and the US regimes moving ever closer?

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State of the Nation

17/07/2023

The US is arguably the birthplace of class actions. It has a well-established and thriving ecosystem for claimant law firms to bring huge claims against companies. This differs from the UK, which has historically provided limited scope for US-style class actions. While recent reforms in the UK expand the scope and potential for class actions, there are still many notable differences between the two regimes. Time will tell whether the UK will chart a similar course or evolve into something fundamentally distinct.

US v UK

In England and Wales, there is an incomplete hotch-potch of procedural mechanisms which claimants can pursue to bring mass litigation. The development of these mechanisms reflects the growing appetite for group claims in our modern consumer society.  In an era of mass production of goods and widespread use of digital services, there is an increased focus on mass litigation, with claimant lawyers and litigation funders increasingly lobbying policy makers for class action reform and bringing mass claims which challenge the courts to expand group litigation procedures.

Although the term ‘class action’ is often applied to any mass claim in the UK, formally, class actions as most would recognise, are only permitted for a breach of competition law before the Competition Appeal Tribunal (CAT) – as part of a regime which came into force in 2015 via the Consumer Rights Act 2015. However, there have always been other ways of bringing class and mass claims in England and Wales, primarily through group litigation orders (GLOs), or representative actions.

Representative actions, permitted under Civil Procedure Rule (CPR) 19.8, are a form of ‘opt-out’ claim which allow a representative claimant to bring a claim on behalf of anyone else with the ‘same interest’.  Whether claimants have the ‘same interest’ is a hotly disputed test which continues to produce significant case law in the area.

In addition, claimant lawyers have also long been able to group a large number of claimants together as co-claimants on the same claim form, therefore producing a de facto group claim. Bookbuilding a group of claimants in this way takes a lot of time and cost and can therefore be much harder to bring than a true ‘opt-out class action’.

The UK regime contrasts sharply with the US, which allows almost any claim to be brought initially as a “putative” class action or class action in “name” only before State or Federal Courts. Christopher Schmidt, BCLP partner and global practice group leader for class actions and mass torts, explains that, in practice, this means “a slew” of claims are filed every day. The putative class action lawsuit does not become a class action until a judge “certifies” the lawsuit as a class action based on a contentious, often lengthy process that involves extensive legal briefing and expert analysis of critical evidence. If the class action is certified, everyone in the class is bound by the results unless they opt-out. In the US, class actions are automatically opt-out, apart from labour law issues which are opt-in. “If you’re looking to reach a global and final resolution or if you’re looking to really resolve a thorny issue, the opt-out system has advantages because it forces everyone to participate unless they opt-out or object,” believes Schmidt.

The CAT class action regime in the UK allows opt-out claims – and, as our CAT analysis shows, opt-out claims have become the most common before the Tribunal. However, BCLP partner Ed Coulson says, “the policy makers were very conscious of trying to develop a regime which is, by design, different to the US”. Schmidt agrees with his London colleague, saying, “UK and European courts have to date done a better job than the US in keeping frivolous claims out of the system. In the US, the first defence strategy when faced with a class action is often to pursue an aggressive motion to dismiss or ask the court to take an early look at class certification issues. Sophisticated experts are hired to assist in finding a way to dispose of a claim at the earliest stage”.

There’s a number of highly developed strategies that we have deployed in the past, with great success. Many of those strategies are adoptable to the UK and EU, Schmidt adds.

Another mass litigation procedure in the US is multidistrict litigation (MDL) – in which individual cases on the same issue are consolidated for discovery and other purposes. “One of the biggest flaws is there’s not an adequate way to weed out frivolous claims, or those that are liable to have no merit. As a result, you accumulate a vast number of claims with contingent liability with no good way of disposing of them. The system encourages an over-filing of claims where the underlying claimant has no desire to litigate their claim through trial,” Schmidt says.

However, the number of MDL cases is dropping; statistics from the Judicial Panel for MDL shows case volume has approximately halved in the past decade. By the end of 2022 there were 171 pending MDLs, with product liability and trust cases collectively representing more than half the case volume. The vast majority of class action claims in the US settle before certification or afterwards, and Schmidt estimates that defendants are successful in defeating class certification in more than 90 per cent of cases.

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Costs, funding and damages

Litigation funding is a growing factor in fuelling the growth of claims on both sides of the Atlantic. In the UK, third-party funding is generally required to get a claim off the ground, given the high up-front costs associated with initiating a class action. As at the time of writing, the impact of the Supreme Court’s recent judgment in the Trucks collective proceedings regarding the enforceability of certain litigation funding agreements remains to be seen.

In the US, and increasingly in the UK, there is a significant amount of private capital supporting plaintiff lawyers to bring class action litigation – but this is rarely, if ever disclosed in the US. In the UK, a successful party may recover a significant portion of costs.  In the US, plaintiff lawyers bring class and mass actions on the contingency fee award model, seeking a percentage as high as 35% of the class-wide recovery. While the courts ultimately have the power to review the reasonableness of the attorney fee award, the contingency fee award model creates a powerful financial incentive to pursue class action claims because the “pay-out” for plaintiff lawyers, and their financiers, can be tens of millions. This makes early resolution or settlement even more important, and defendants are incentivised to seek ways to win the case early to minimise their cost exposure.

You need to have a sophisticated client who realises that they are not going to be held hostage by the class action procedure and they’re prepared to really fight. You have to really know when, and if, to take a certified class action to trial, says Schmidt.

BCLP is one of only a few firms that has tried multiple certified class actions to jury verdict.

US courts can also award treble or punitive damages to plaintiffs, which is not possible in the UK. Coulson says this is advantageous for defendants. “You can’t simply pile it so high that defendants have to pay out to de-risk,” he says, adding that the requirement for obtaining adverse costs cover in England and Wales also benefits defendants to class and mass actions. “There are some limiters on the way these things can be launched without any checks and balances, so from a defendants’ perspective, that is better.”

The increasing activity in class and mass litigation before the English courts means that defendants should consider alternative ways of dealing with claims, according to Coulson. This is especially the case in situations where a claim has merit: “Where a defendant assesses that claimants can prove loss and there is a viable mass litigation mechanism to pursue damages, you might want to think seriously about voluntary redress. This could stop further claims being made via class action” he says.

Is the UK following in the footsteps of the US?

There is a sense that, with the growth of mass consumerism, class actions are only going to grow in the UK and Europe – despite the cultural differences with the US. The EU’s Representative Actions Directive came into force in 2020. The law says every EU Member State must, as a minimum, have some form of consumer redress via collective action. The Directive allows for flexibility by Member States, including whether claims can be brought on an opt-in or out basis. According to Coulson, several Member States have already gone a lot further whilst others are only now taking baby steps to enable the minimum level of consumer class action required by the directive.  The risk of facing mass litigation therefore varies widely from country to country.

At a glance, the UK and the US regimes seem to be moving closer. There are signs of a growing industry to support, and fund, an increasing number of claims – particularly in the CAT. But it seems unlikely that any country will ever hit the same proportion of class action activity as in the US, especially if safeguards are put in place to prevent it.

“Key for English courts is to look at appropriate ways to weed out frivolous class actions at the earliest point, to control the influence of financed class actions, and look at whether the class action needs to be certified at all. If certified, make sure the resolution is truly a just and fair one for both the corporate’s side and the plaintffs’ side,” concludes Schmidt.

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MEET THE AUTHORS

2 Articles

Christopher Schmidt

Partner and Global Practice Group Leader – Class Actions and Mass Torts, St. Louis
3 Articles

Graham Shear

Partner and EMEA Leader – Litigation & Investigations, London
4 Articles

Edward Coulson

Partner, London