English Classes

Class actions have historically been the preserve of the US
justice system, but all is not lost for UK and EU consumers,
with the OFT driving forward change. Scott Campbell

English ClassesIn the UK and other EU member states there has historically been little hope of consumers recovering the losses they have suffered due to mass wrongs as there have been no collective action procedures and few lawyers interested in running such actions. This contrasts with the US, where there is a very strong tradition of collective redress (legal mechanisms through which a group of victims of a common legal infringement are given redress for harm they have suffered) working in tandem with public enforcement. This has enabled victims of mass wrongs to recover damages through the US courts, often following on from regulators investigations. There is now a definite step-change in the policy-forming communities of the UK and the EU, particularly in the competition and consumer areas, in that there is a desire to learn lessons from the US experience and to apply those lessons appropriately within the domestic context in order to improve the systems of collective redress in the EUs member states.

Dear dairy

The Office of Fair Trading (OFT) preliminary ruling that supermarkets and dairies had been involved in price-fixing set the right conditions for consumers to kick-start a class action.

This class action, also known as a group litigation order, or collective redress, is being considered by law firm Cohen Milstein Hausfeld & Toll, which believes that shoppers who bought diary products such as milk and butter from supermarkets including Asda, Morrisons, Safeway, Sainsburys and Tesco acted in a way that is detrimental to consumers.

Customers of these supermarkets and dairies such as Arla, Dairy Crest, Lactalis McLelland, the Cheese Company and Wiseman ended up paying higher prices for food as the organisations had colluded to fix the price at an artificial rate.

Possibly tens of thousands of consumers are being effected by the price-fixing, which is against the competition rule.

It is a classic case where consumers have collectively suffered massive harm, but it would be too expensive for the individual alone to recover compensation. By clubbing together the legal costs drop, making the claim worthwhile.

It is believed that consumers could recover around 270m from the supermarkets and dairies.

For more on the dairy claim, go to Lawyer2B.coms sister website www.thelawyer.com

In competition matters the OFT is taking the lead in this debate in the UK. It is driving forward proposals that should give consumers an increasingly effective means of collective redress in the English courts by enhancing existing English collective redress mechanisms, such as group litigation orders (GLOs), representative actions and the methods available in the Competition Appeal Tribunal (CAT). In this article we will concentrate on competition law as a practical example, but collective actions may apply equally to redress for breaches of securities laws, consumer protection laws and other forms of mass tort where a large number of victims have suffered loss in the same or similar circumstances. Competition law is designed primarily to ensure that markets and consumers are protected from the negative effects of anticompetitive behaviour, such as participating in price-fixing cartels, which give rise to falsely inflated prices, and to punish those found to be engaged in anti-competitive behaviour.

The landscape in the US
What lessons can be learnt from the US experience of collective redress? In the US recovery of losses by victims of breaches in antitrust law often occur through the litigation vehicle of the class action, whether in the context of a claim following on from a regulatory decision or a standalone claim where claimants act independently of regulators to press their case against alleged anticompetitive behaviour in the courts.

Class actions, within the US context, are a mechanism by which collective redress may be given to groups of persons with similar claims against a defendant or joint defendants. The class action is designed to allow those with similar claims to proceed as one, with a named claimant (or lead plaintiff in the US) acting as a representative on behalf of the class during the course of the litigation. In US antitrust (competition law) claims, anyone with individual standing in relation to the claim and who satisfies certain requirements of the US Federal Rules of Civil Procedure (the rules) can bring a class action. The main requirement under the rules is that the plaintiff who assumes the role of lead plaintiff must share a common bond with the members of the proposed class. Also, under the rules, the characteristics of all class actions have been codified as requiring each of the following elements:

questions of law or fact common to a class of persons similarly situated;
whose joinder is impracticable;
whose interests will be adequately represented; and
by one whose claims or defences are typical of the class.

In order for the claims to proceed on a class basis, at a fairly early stage the lead plaintiff must prepare a motion to have the appropriate US court certify the case as one that is appropriate for class status and to define the scope of the claim. Once class certification is granted, a notice is sent to all prospective class members detailing the nature of the proceedings. At this stage class members typically have the choice either to remain in, or to opt out of, the class. By opting out plaintiffs retain their own right to bring a case independently of the class action.

In the US the lawyers for the plaintiffs and the proposed class take the burden of financing the litigation on foot. This involves costs such as experts, economists, court reporters, transcripts and documents. Depending on the size of a particular case, the costs of getting the litigation off the ground can range roughly from $1m to $20m (477,000 to 9.54m), not including lawyers fees. The lawyers fees are contingent on the success of the case, known as contingency fees, and are often calculated on the basis of a pre-agreed percentage of the fund recovered from the defendants on behalf of the class. However, such fees and costs must be approved by the court. Once the approved fees and costs are deducted from the recovered fund, the remainder is divided among members of the class by way of compensation for their losses.

The landscape in the UK
In light of the US experience, the main lesson to be learnt is that it is important that consumers have an effective means of access to justice in order to seek recompense for losses they have suffered as a result of illegal anticompetitive behaviour. Access to justice, in many ways, is facilitated by the US class action and litigation funding models. However, the current landscape in the UK is rather different to that in the US:

crucially, there is no vehicle for bringing class actions in the courts of England and Wales (nor, indeed, through the different civil regimes in place in Scotland and Northern Ireland);
the English system does not support the opt-out system of class membership employed in the US litigants must opt in to claims in the English courts;
the system of contingency fees by which class litigation is funded in the US does not exist in the UK, although a more limited system of conditional fee arrangements does provide for some limited degree of lawyers success fees; and upfront funding of the costs of bringing a claim can be facilitated by after-the-event insurance, third-party funding or a combination of the two; and
under English civil rules, in general the losing party to the litigation must bear the costs, as reasonably determined by the court, of the successful party, unlike in the US, where each party bears its own costs, whatever the outcome of the litigation. Therefore litigation carries greater cost risks in the UK.

These are fundamental differences that separate the UK system of collective redress from that of the US. Therefore, while lessons can be learnt from the US experience, they must be applied sensitively in the UK and broader EU context in order to work well within the pre-existing civil regimes.

However, the English civil litigation system does provide for two forms of collective redress that are distinct from the full-blown US system of class actions. The first is the GLO and the second is the representative claim.

Under the GLO regime, where there are multiple claims involving common or related issues of law or fact, it is possible to apply to the court to bring their claims together for litigation registered under one umbrella. The critical difference between GLOs and US-style class actions is that claimants must actively opt in and register their claims under the GLO. A notable consumer case that has used a GLO is the McDonalds Hot Drinks litigation. Alternatively, where a number of persons have the same interest in a claim (such as a group of shareholders or a trade union), that claim may be brought under the representative action regime, under the order of the court.

A specific regime is in place for competition-related claims from consumers. Where the OFT or European Commission has issued a decision against a party for a breach of competition rules giving rise to consumer loss, a group acting on behalf of consumers (a designated body) may bring a claim for compensation in the UKs specialist competition court, the CAT. One such case currently in the CAT is that brought by Which? against JJB Sports, which had acted with other retailers to inflate the price of replica football kits in the UK, where certain forms of damages are sought on behalf of consumers in respect of retail overcharges. The outcome of this case is still pending. In addition, in September this year the OFT provisionally found that large supermarkets and dairy processors had colluded to increase the prices of dairy products, which led to an estimated cost to consumers of around 270m (see box, page 33). The OFT is still to complete its investigation, but once it has done so it will be possible for consumer groups to pursue the supermarkets through the courts, using either a GLO, a representative action or the CAT to gain compensation.

While collective redress in the UK is in a nascent form compared with that in the US, there are strong indications that activity will continue to grow.

Potential future developments
The OFT, in tandem with work being advanced by other public bodies in the UK and by the Commission, is consulting on ways of making collective redress easier in the UK. It is expected that the OFT will make specific recommendations to the Government regarding potential changes to the system of civil litigation in England as it applies to collective redress for those suffering loss arising from competition law breaches. It appears that the key areas for potential modification that the OFT is looking at include whether England should: move closer to a form of the opt-out system; limit the cost implications for claimants bringing a collective claim; and liberalise the funding options available to claimants.

Whatever the specifics of the OFTs recommendations, it seems clear that in the UK and EU there is a definite drive to streamline the systems for collective redress available to private parties who have suffered loss. This policy goal, working in unison with existing regulatory enforcement of competition rules, can only have the effect of increasing the pressure on companies to comply with competition rules, thereby encouraging the competition that is essential to ensuring that markets work efficiently and produce the high-quality, keenly priced goods and services sought by consumers.
Scott Campbell is a senior associate at Cohen Milstein Hausfeld & Toll