Litigation annual review 2002: Class Actions

The calm before the storm?

Procedural mechanisms to aggregate individual claims can seem superficially very attractive to politicians and consumers as a means of increasing access to justice. This issue is being actively considered by the European Commission and various European governments at present, particularly as the Commission and politicians seek to bring forward policies which will be attractive to consumers. This is against the background that some governments are sensitive to being accused of limiting access to justice by restricting public funding for legal aid, and for its part the Commission wishes to encourage citizens to use goods and services throughout the internal market -and to gain credit for championing consumers in this way, when most consumers regard "Europe" as being at best distant. Multi-party mechanisms are also attractive to plaintiff lawyers under any system of remuneration, since they represent volume business, economies of scale, opportunities for publicity and sizeable litigation that may proceed for some time.

Class actions are a bane of corporate life in USA. When coupled with the ability of plaintiff lawyers to claim vast compensation through the contingency fee system, it is no surprise that many have criticised the class action mechanism. Corporations doing business in America are frequently targeted with class actions for product liability, toxic torts and investor protection claims. These are frequently lawyer-led, and require enormous resources of in-house and external counsel and considerable budgets for their defence and disposal.

Australia also introduced a Federal class action rule in 1992 which incorporates the very damaging "opt out" mechanism: individuals who may theoretically be represented by those running the class claim have to opt out of the class, but can often be unaware of the existence of the litigation, since advertising about its existence may be an ineffective method of communication.

The fear now is that class actions will be introduced into Europe without proper understanding of their dangers and without proper controls.

For various reasons, particularly defects in the legal aid system, England and Wales, followed by Ireland, were virtually the only European jurisdictions that have so far experienced major multi-claimant actions, mainly restricted to product liability claims against pharmaceutical companies. These cases were reported in a new textbook. However, it is noteworthy that the vast majority of individual claims brought in the succession of cases over the past 15 years resulted in failure. The broad procedural mechanisms developed in those cases have now been incorporated in rule 19. III of the Civil Procedure Rules 1998 on multi-party actions. This rule, which requires claimants to "opt in", essentially merely encapsulates a mechanism under which multiple claims may be subject to the modern principles of case management by a single judge. The English rule does not have some of the problems of US Federal Rule 23, such as certification criteria and the automatic con-sequence that a decision in one case will bind all others within the group. In contrast, proposals have been discussed in Sweden which would include a number of the adverse US consequences.

However, the UK government is shortly to introduce a proposal for a further mechanism (and industry has pertinently asked whether the government has produced any evidence that such a mechanism is in fact needed, to which there has been virtually no reply). The proposal is to introduce a "representative claim" mechanism, under which an individual or consumer organisation could apply for the court's approval to start proceedings on the basis of representing others with similar causes of action. The major objection to such a mechanism is that it contains wholly inadequate controls on the bringing of time-wasting, spurious,

speculative and costly litigation.

A similar representative mechanism was introduced in Spain on 1 January 2001 (although they refer to this as a "class action" mechanism).

Industry should continue to be very concerned about developments in this area and solid lobbying is required in Brussels and with all national governments in order to ensure that the message gets through that uncontrolled class action mechanisms are playing with fire.

The other articles contained in the Litigation Review 2002 may be found on by clicking on ‘your latest information’ on our website www.law-now.com. Alternatively, to access a PDF of the complete review please click here.

For further information on this article please contact the author Christopher Hodges by telephone on +44(0)20 7367 2738 or by e-mail at [email protected].

For further information on this review in general, please contact Tim Hardy on +44 (0) 20 7367 2533 or by e-mail at [email protected].