Multi-party litigation: the future for recoveries?


Author: Steven Mash


This article was produced for R3 and RECOVERY Magazine and may not be reproduced or transmitted, in any form, or by any means without prior permission of the Association of Business Recovery Professionals.

For many years, group litigation and class actions have been synonymous with the United States: big claims, reams of claimants and damages measuring in the many millions. More recently, however, we are seeing litigation being brought in this jurisdiction by groups of claimants, borrowing in some respects from the US model but applying a very British spin to it. Are the English courts about to be  inundated with American style class action proceedings and if so, are they adequately equipped to cope with them?

In short, the answer to the first question is no, or at least not for some while. While Americans are more litigious as a nation and claimants reap the benefits of punitive damages, the English model of litigation doesn’t encourage litigation for the sake of it. Our “loser pays” costs system discourages speculative litigation and although third party funding is becoming more and more prevalent, it is still not universally accepted or understood (and funders, ultimately, are businessmen who want to achieve a return so won’t fund a matter unless there are good prospects of success).

However, businesses are becoming more alert to the concept that litigation is not just for when a contract has gone wrong or for when someone has not done as they agreed to do. Forward thinking companies, and individuals, are recognising that litigation can be and is a business tool which can reap substantial rewards. The recent or threatened multi-claimant actions against Royal Bank of Scotland, Lloyds Bank, Tesco Plc and Volkswagen demonstrate that individuals and businesses alike are joining together in very substantial proceedings (the above claims vary in total value from the hundreds of millions to billions of pounds) in order to take steps to get restitution from institutions where one would not automatically assume there was a right of recovery.

Are the English courts geared to deal with this upsurge in multi-party litigation? The answer is yes, but it is a fix rather than a perfect system.

Group Litigation Orders

Under the US Class Action model, a claim is brought by a claimant on behalf of the class of claimants who have suffered loss against the same defendant in the same way. Once endorsed by the appropriate court, the class is certified and anyone who falls within the class criteria is deemed included within the class, unless they elect to opt out. If they choose to opt out, they cannot take advantage of any favourable judgment that the class action might obtain, but similarly they are not bound by an unfavourable settlement and can bring proceedings in their own right if they so desire.

The English model is very different. Rather than class actions, we have Group Litigation Orders (GLOs). GLOs are made where there are a number of claims, a number of parties and “common issues of fact or law” will arise in those claims. A claimant does not have an automatic right to a GLO: the court has to sanction it and depending on which court the GLO is being sought in will have to receive consent from the head of that division.

Of particular import, however, is that unlike the US model there is no concept of automatic inclusion in a class (although see below for a recent development which qualifies this general position). Rather, under English law there is a need for a wilful “opt in” by a prospective claimant, in that the prospective claimant will need to commence proceedings (which can be done in common with a number of other parties if they have community of interest) in order to bring that claim under the provisions of the GLO. Once the GLO is granted, all claims which fall within the issues identified in the GLO as being “GLO issues” will be dealt with together under that GLO, will be entered on the Group Register and will be bound by any judgment or order made in relation to the GLO issues, but it is a necessary first step on the part of a prospective claimant that they issue a claim which falls within the provisions of the GLO. There is no catch-all class concept in our jurisdiction.

In order to obtain a GLO:

  • two or more claims need to have common issues of fact or law;
  • the application for a GLO can be made before or after the claims have been issued; and
  • the application needs to provide a summary of the nature of the litigation, the number and nature of claims already issued, the number of parties likely to be involved, the common issues of fact or law which are likely to arise in the litigation and whether or not there are any matters that “distinguish smaller groups within the wider group”.

Conducting a claim

Assuming the court is satisfied that the case is suitable for case management under the provisions of a GLO, it will order that a GLO be made and that a Group Register be established which records all of those claims which fall to be governed under the provisions of the GLO. The court will then hand down further directions for the conduct of the claim, in some instances identifying certain claims on the Group Register as being suitable to be prosecuted as test cases (in which instance the other claims subject to the GLO will be stayed pending resolution of those test cases) and appointing a Lead Solicitor to have conduct of the claims on behalf of the claimants (or indeed, in some instances, defendants).

Why should claimants seek a GLO, however? There are two main reasons:

  • community of interest among the claimant group means that it is possible for claimants, who would not normally have either the financial ability or access to technical resource to go up against substantial institutions, to band together to bring claims which without the GLO mechanism would either be uneconomic or logistically impossible to bring; and
  • if the claimant group is unsuccessful in relation to some, or indeed all, of the GLO issues, each individual claimant member is liable only for an equal proportion of the common costs (being costs which are not specific to one particular party) incurred in the GLO proceedings. There is no joint liability for costs: a claimant is only liable to pay its discrete share of those common costs and accordingly isn’t exposed to other claimants’ proportions of those costs should they fail to (or be unable to) pay them.

As alluded to above, there has been a very recent development which potentially changes how multi-party claims are brought in this jurisdiction following the enactment of the Consumer Rights Act 2015. That Act has amended the Competition Act 1988 and now provides that where collective proceedings are brought before the Competition Appeal Tribunal (CAT) and the CAT makes a collective proceedings order, those proceedings can be declared by the CAT to be either “opt in” or “opt out” proceedings (namely requiring a conscious decision to join into the proceedings or requiring a conscious decision to exclude your claim from those proceedings). There is, therefore, for the first time in our jurisdiction the concept of a class action if the CAT makes an “opt out” collective proceedings order.

Whether or not this change to how competition cases are conducted will have a material impact on how multi-party actions are brought in this jurisdiction is something to keep under careful observation, but it is unlikely to result in a dramatic change in the short term. As at today’s date, there are only 17 GLOs recorded at the Ministry of Justice as being in effect. It seems we have some way to go until the English legal landscape looks like that of our colleagues across the Atlantic.

Steven Mash, Partner, Fladgate LLP (smash@fladgate.com)

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