Power of the group

Class actions, or group proceedings as they are officially known, have arrived in Scotland. Enabled by part 4 of the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018, detailed rules in the Act of Sederunt (Rules of the Court of Session 1994 Amendment) (Group Proceedings) 2020 came into force on 31 July.

Recommended by Lord Gill’s review of the civil courts – rather than, as with most of the rest of the Act, the Taylor report – the aim of group proceedings is to provide for claims that would not otherwise be economic to bring to court, due to their low value individually compared with the costs of litigating.

Opt-in: given the nod

Two basic types of class actions exist: opt-in, under which claimants must elect to join the proceedings, and those who do not are able to raise their own actions; and opt-out, which determine the rights of all members of the class except those who expressly choose otherwise. While the Act envisages both types, initially the rules – new chapter 26A of the Court of Session Rules – only provide for opt-in.

Robert Milligan QC, a member of the Scottish Civil Justice Council working group which developed the rules, told the Journal that the group was tasked with producing straightforward rules encompassing only the essential procedural elements required to enable group proceedings to operate effectively.

“We made a commitment to produce the new rules quickly so that potential litigants could benefit from the new procedures as soon as possible,” he said. “We looked at the practical and procedural aspects relating to implementation of each of the different regimes and decided to begin with an opt-in system, as more stakeholders would be familiar with it.”

This would allow the court to gain experience in dealing with what is anticipated to be the more straightforward type of group procedure cases. “The benefit of this experience can be taken forward when considering the development of an opt-out regime in future. The rules should be seen as the start of the process, rather than the end to it, and it is very possible that an opt-out procedure will be introduced in due course.”

He added that in addition to lessening the financial burden for individual claimants, “For defenders, an advantage of the opt-in procedure is that it gives knowledge about the size and scale of the action, and the legal costs of one action should be significantly less than the combined costs of many separate actions.”

Essential differences

The popular image of a class action may involve a group of consumers with a common complaint against a supplier, but any number of people from two upwards, who each have a separate claim, can constitute a class under the Act. How then will group proceedings differ from an action with several individual pursuers?

“In group proceedings a representative party brings the action on behalf of all members of the group,” Milligan explains. “The rules introduce a new form of summons, a new procedure for the appointment of a representative party and for obtaining permission of the court to bring the group proceedings. The rules provide a mechanism enabling a group member to opt-in to the case (or withdraw from it), and for the preparation and maintenance of a group register by the representative party.”

In addition, one of the main objectives is to identify and resolve common issues at an early stage. “The working group considered that an essential feature would be the incorporation of broad case management powers to facilitate judicial discretion to manage cases with flexibility in the individual circumstances of the case. The new rules therefore draw on elements of existing Court of Session case management models to achieve this aim and include provisions for fixing a preliminary hearing, case management hearings, debates and pre-proof hearings as appropriate.”

Milligan accepted that the procedure might be suitable for, say, a personal injury action where several family members claim damages for the death of a relative, or a number of individuals alleging defective surgical implants or the like – if the claims “raise issues which are the same as, similar or related to each other”.

The permission stage

If actions need the court’s permission, how will that be determined? Here the Act requires the court to be satisfied as to the similarity (in fact and law) of the issues raised; and that the representative party “has made all reasonable efforts” to identify and notify all potential members of the group. The rules further provide for refusal (for which reasons must be given) where the representative party has not demonstrated that:

• there is a prima facie case;
• that it is a more efficient administration of justice for the claims to be brought as group proceedings rather than separate proceedings; or
• that the proposed proceedings have any real prospects of success.

Milligan further highlighted that when granting permission, the Lord Ordinary must make an order (to be advertised within seven days), which among other matters:

• states the name and designation of the representative party;
• defines the group and the issues;
• requires the representative party to lodge a group register;
• specifies how a person can become a group member and a timescale for doing so; and
• specifies how a person can withdraw
  their claim.

The granting or refusing of permission can be reclaimed without requiring leave.

A Lord Ordinary must also be satisfied as to the suitability of the proposed representative. Factors for consideration include their special expertise and abilities, their own interest in the proceedings, demonstration that they would act fairly and adequately in the interests of the group as a whole, and that they have no conflicting interests; and demonstration of their competence to litigate the claims, “including financial resources to meet any expenses awarded”.

Anticipated claims

Access to justice issues apparently led to the SCJC expediting its work on the rules. Milligan told how the working group were aware of the multi-party consumer litigations raised against Volkswagen Group in other jurisdictions in relation to the widely publicised emissions scandal.

“Similar consumer litigation may be brought in Scotland under the new regime. Because of concerns about prescription in those proceedings, there was a degree of urgency in implementing the new rules. That at least partly explains why an opt-in model was used.”

What is not part of the rules at this stage is public law matters such as environmental claims. “The working group’s initial focus was to develop court rules for ordinary actions raised by summons, which it considered would form the bulk of the group proceedings actions coming before the court,” Milligan confirms. “This approach should improve access to justice for a great many potential litigants, and save parties money as well as saving court time. The SCJC intends to consider whether the rules can be modified to incorporate judicial review cases at a later stage.”

Who pays?

An important question is how the rules on expenses will work. In this respect the rules are less than specific – by design, according to Milligan.

“The working group concluded that until there is relevant operational experience and data available from Scottish Courts & Tribunals Service, the cost of servicing the new procedure will remain unknown. It will not be possible to agree policy on new fees provision in the absence of that information, and the position is the same regarding potential changes to existing tables of solicitors’ fees. The SCJC therefore intends to programme a future review of these aspects by its Costs & Funding Committee.

“In the meantime, under the opt-in procedure the court will be entitled to determine the liability of each group member for payment of a share of any taxed expenses incurred by the representative party (and may do so before or after the conclusion of the action). In awarding expenses in group proceedings, the court will retain its discretion to apply the general rule that expenses follow success.”

Robert Milligan QC is a member of Compass Chambers and has acted in a number of group litigations

Introduction of the new regime in Scotland reflects a trend across Europe of facilitating group proceedings. For example:

• Competition opt-out claims have been possible in the UK since 2015.
• In October 2019, the English Court of Appeal permitted an opt-out data protection class action on behalf of around 4 million people to proceed against Google, using the “representative action” mechanism.
• In January 2020 the Netherlands introduced a procedure for bringing opt-out class actions for all causes of action.
• At European Union level, the Directive for Collective Consumer Redress is likely to be passed later this year, setting out minimum standards for collective proceedings that each member state must incorporate into their domestic procedural law.

In the US, the trend has been in the opposite direction, with a series of Supreme Court decisions that have applied more stringent tests at the certification stage.

As it happens, Scotland already has an opt-out class action mechanism. As noted in the first bullet point above, it is possible to apply for a collective proceedings order (“CPO”) on an opt-out basis UK-wide, but only for competition claims. The new Scottish regime is not restricted to competition claims, and pursuer firms are likely to focus on areas that have traditionally been fruitful for collective proceedings in other jurisdictions, including product liability, consumer protection, employment and pensions, data breach claims, and shareholder/securities actions.

Introduction of the new regime on 31 July has gained a lot of attention, both within Scotland and beyond. Claims are already under preparation. Pursuer law firms will collaborate with likeminded firms in other jurisdictions, and litigation funders are actively exploring this area. We could well see a steady stream of claims filed under the new regime, but its long term viability depends on how the courts handle this new procedure and how they resolve the important issues that the rules do not directly address.

Determining certification

There are a number of important questions on how the courts will apply the authorisation and permission criteria. For example:

• The applicant must demonstrate it has financial resources to meet any expenses. However, the rules state that “details of funding arrangements do not require to be disclosed”. It is not immediately obvious how the court can properly assess the viability of funding arrangements without access to the relevant documents.
• As to the “permission” criteria:
  • Criterion (a) in s 20(6) of the Act (claims raise similar issues) is a commonality requirement, which is a usual feature of group proceedings mechanisms. The wording is very similar to the commonality test in the UK-wide CPO regime, which requires that claims have the same, similar or related issues of fact or law. Under that regime, the Competition Appeals Tribunal has ruled that a single qualifying common issue can be sufficient: Merricks v MasterCard [2017] CAT 16. The commonality test for US class actions requires that common issues must predominate over individual issues, but it appears that there is no predominance requirement in the Scottish regime.
  • Criterion (b) requires that the representative has made “all reasonable efforts” to identify and notify potential group members. In principle, persons outside Scotland can participate in opt-in claims, so is there an obligation to contact potential group members beyond Scottish borders? This could be an onerous requirement.
• Perhaps the most significant question is on the extent to which the courts will require document production for certification hearings. Preventing a defender from accessing funding documents may prejudice its ability to raise concerns on the applicant’s ability to pay expenses. Absent access to documents, both from the pursuer and the defender, any merits assessment (prima facie case/real prospects of success) is likely to be denuded of value. Broader document disclosure would result in a more robust certification hearing, but would inevitably increase costs.

Parties that fail at the certification hearing will likely appeal, particularly for high value claims. Thus, clearer guidance on the certification standards should develop, albeit this process will take a number of years.

Costs and expenses

Group proceedings can be high value, raise new procedural issues that do not apply in unitary claims, and be vigorously defended. Accordingly, they will be expensive to pursue, and pursuer law firms will work with litigation funders on these projects.

A key battleground will be the extent to which group members are liable for expenses. The court will consider the proposed representative’s financial resources to meet any expenses awarded, but there is ambiguity on whether the representative will be liable for group members’ adverse costs or only for their own.

Who bears the cost risk, and to what extent, will influence participation rates in these claims. Where group members bear cost risk (as under the English group litigation order opt-in regime, where group members are typically severally liable for common costs), participation is disincentivised. Both to address this risk and also to encourage participation, claimant law firms and litigation funders purchase adverse cost insurance (“ATE”). However, cover can be inadequate, as recently demonstrated by Sharp v Blank [2020] EWHC 1870 (Ch), a costs decision of the English High Court following the failed shareholder claim concerning Lloyds’ acquisition of HBOS, where total adverse costs cover is £21.45 million but the defendants are claiming costs in excess of £30 million. If, in contrast, full cost risk is borne by the representative on behalf of the group, putative group members will be less concerned by the adequacy of ATE, resulting in higher participation rates.

Securing the finance required to pursue a dispute will be key to advancing the action. The Law Society of Scotland is continually working with the legal profession to improve price transparency and flexibility. However, as we have seen around the world, we expect that litigation funders will provide attractive funding solutions for group proceedings in Scotland.

Kenny Henderson and Graeme MacLeod, CMS and Frances Sim, Restitution