Government rejects generic collective action in favour of sector by sector approach

In its response published on 20 July 2009 to the Civil Justice Council's (CJC's) recommendations for the expansion of collective claims (see post), the government has rejected the proposal for a generic right of collective action. The government's position is that such rights should be considered, and where appropriate introduced, in respect of specific sectors rather than for civil claims generally.

Summary

The CJC's December 2008 report "Improving Access to Justice through Collective Actions" made recommendations to government to expand the basis on which collective actions could be brought. The proposals envisaged a new form of generic collective action which would permit claims to be brought on behalf of a class of claimants, subject to court approval. The court would also control whether or not particular claims could be brought on an "opt-out" basis, meaning that all those within the specified class would be bound by the outcome of the case unless they specifically excluded themselves from the class.

Key points from the government's response include the following:

• Collective actions are seen as a last resort, with regulatory options (such as giving regulators power to order the payment of compensation) to be considered first.
• It will be for government departments responsible for individual sectors to consider whether to introduce a collective action for the relevant sector and, if so, what the features of such procedure should be.
• It will, for example, be for individual departments to decide how representative claimants should be authorised and to determine appropriate suitability criteria.
• The response identifies a number of "hybrid" models between pure opt-in and opt-out claims, eg, all members of a defined class might be bound by a liability judgment (subject to opt-out before it is determined) but then have to bring individual actions to assess damages if successful on liability.
• The response expresses concerns about a full opt-out model, but does not rule it out if appropriate for a particular sector.
• Whether damages should be awarded on an aggregate basis, and whether cy-près distributions should be permitted, are also left to individual sectors.
• There would be a strict certification procedure, which would address such issues as whether the claim has legal merit, whether a collective action is appropriate (having regard to costs vs. benefits and the availability of alternative mechanisms to deal with the dispute), and whether to order security for costs.
• Costs shifting (or the "loser pays" rule) should be maintained to help deter unmeritorious claims.
• Work will start in the second half of 2009, led by a cross-government working group, to develop (i) a framework document to guide policy makers and legislators introducing collective actions in particular areas; and (ii) draft court rules which would allow for a variety of sector-specific forms of collective action to operate.

Implications

• The government's decision to defer to individual sectors the question of whether collective actions should be introduced, and in what form, means that it remains unclear whether there will be any new collective action procedures and, if so, for which types of claim. The CJC had identified anti-competitive conduct, employment and unfair terms in consumer contracts as examples of where opt-out collective actions would provide better access to justice and judicial efficiency.
• Critical issues such as whether claims are to be brought on an opt-in or opt-out basis, and whether damages can be awarded on an aggregate basis, are to be left to individual government departments to determine.
• The emphasis on adversarial litigation being used only as a last resort may mean that any new collective action procedures are quite limited.
• If a new collective action regime is introduced for any sectors, it seems likely that competition law claims will be among the first given that proposals in this area are relatively far advanced and may in any event be necessary to implement an EU Directive arising from the Commission White Paper on damages actions for breach of the EC antitrust rules.
• The government has given strong support for retaining costs shifting for collective claims. This will be welcomed by business. In our research on the views of large corporates and institutions relating to class action reform ([see post]), respondents were unanimous that the cost shifting rule must be retained as a protection against weak claims. This contrasts with the approach taken by Lord Justice Jackson in the preliminary report in his year-long costs review, published on 8 May 2009, in which he suggested that the abolition of costs shifting in the context of collective actions "merits serious consideration".
• Any new procedures are likely to be a long way off, given the need for primary legislation and the development of a framework document in advance