Braced for impact: GCs on the threat of group actions and collective redress

In April, Legal Business spoke to dozens of disputes counsel in private practice to ascertain the salient trends in contentious law. Near-universally, at the forefront of minds was an imminent and drastic increase in the volume of class actions and other group claims. Now, the in-house community has added its own wave of concerned voices.

A perfect storm of legal changes and market conditions have brought us to this point. In the UK for example, the seeds were planted in 2015 with the introduction of the Consumer Rights Act, which allowed UK consumers to seek collective redress on competition cases in a US-style class action system. Since then several class action claims have formed, among the most notable being the mammoth truck cartel case, in which thousands of individual and corporate claimants are pursuing damages from several of Europe’s biggest truck manufacturers over price collusion spanning multiple years.

And then at the end of 2020, the Supreme Court provided a landmark judgment in the Merricks v Mastercard case. Worth around £14bn, the case brought by consumer rights activist Walter Merricks sought to reclaim funds for Mastercard customers who were overcharged on transaction fees between 1992 and 2008. The Supreme Court found in favour of the claimants, certifying collective competition actions in general and paving the way for a full hearing at the Competition Appeals Tribunal (CAT).

In an equally important ruling, funders and lawyers alike eagerly awaited the Supreme Court’s judgment in the pivotal Lloyd v Google case, which assessed whether an opt-out representative group action can proceed against Google on a breach of privacy laws. The judgment, which was handed down in November, unanimously backed Google, but provided useful guidance on how better to structure a similar group claim in future. The door to data group actions remains very much open despite the decision.

It is unsurprising therefore that in-house lawyers have unanimously predicted an uptick in claims. When asked about the likelihood of group claims increasing globally in the next five years, 71% of respondents answered ‘very likely’, with the remainder answering ‘quite likely’. On the same question but for Europe specifically, again all respondents deemed an increase as likely, with 57% stating it was ‘very likely’.

One respondent said: ‘In the UK, while Lloyd v Google is a bloody nose for funders, there is no doubt that given the amount of money that appears to be out there to fund actions the trend will continue. The fact that class actions bring within them higher quantum and therefore a bigger profit for funders will mean that getting such a litigation off the ground will be the prize.’

As for the UK, 86% of those surveyed said an increase in group action was either ‘very likely’ or ‘quite likely’, compared to 14% who answered ‘not very likely’. Naming just a few of the cases already in the pipeline, it is understandable why a rise in UK claims is seen as a safe bet. Woodsford Litigation Funding is backing a £100m claim on behalf of rail passengers against multiple London train operators who were allegedly overcharged. It is claimed that the operators deliberately obscured Travelcard users from ‘boundary fares’ that would have made their journeys cheaper when travelling beyond their allocated travel zones.

‘The fact that class actions bring within them higher quantum and therefore a bigger profit for funders will mean that getting such a litigation off the ground will be the prize.’

There is also a huge foreign exchange (FX) cartel case, in which any UK individual or business that entered into a relevant FX trade between 2007 and 2013 will be seeking damages on an opt-out basis from five UK banks fined over €1bn by the European Commission for manipulation. This claim is backed by Therium, and is led by litigation boutique Scott+Scott’s UK arm. A judgment on whether this claim can be certified is due to be released by the CAT in the near future.

Elsewhere, Mishcon de Reya launched a £600m group action on behalf of over two million customers allegedly overcharged for landline services, in a Harbour-funded claim against BT. Meanwhile Hausfeld is leading on a claim against Facebook on behalf of around a million customers whose personal data was allegedly mishandled, funded by Balance Legal Capital.

The next survey question focused on the UK’s recent exit from the European Union, and whether this seismic political shift would have an impact on the rate of expected group litigation in the UK. Fifty seven percent of respondents felt that the UK’s exit from the EU was ‘not very likely’ to lead to a decrease in group action. Twenty nine percent felt it was either ‘quite likely’ or ‘very likely’ to lead to a decrease, with the remainder answering ‘not at all’.

Respondents therefore have largely predicted Brexit to have a minimal effect in terms of reducing UK corporate group claim liability, and given recent case law it is easy to understand why. In July 2021, the Court of Appeal reopened a $7bn lawsuit by 200,000 claimants against Anglo-Australian mining giant BHP, reviving a case over a dam rupture behind Brazil’s worst environmental disaster.

Despite the actual alleged harm taking place due to BHP’s subsidiary in a foreign jurisdiction, the Court revived the case, thus testing whether multinationals can be held liable for the conduct of overseas subsidiaries. If this line of argument is upheld by the Supreme Court, the UK’s membership of the EU would become a moot point when considering the likelihood of group action.

On the related question of: ‘To what extent do you expect to see an increase in the number of entities qualified to bring cases in multiple EU member states?’, 79% of those surveyed answered either ‘very likely’ or ‘quite likely’.

Unsurprisingly, 86% of respondents stated they were either ‘very likely’ or ‘quite likely’ to instruct counsel with previous class action or group litigation experience if faced with such a claim. If anything, the difficulty is picking a suitable adviser from an over-saturated market where there are no shortage of firms wishing to position themselves as leaders in this space.

In the 2021 Disputes Yearbook, Stewarts litigation partner Kate Pollock issued a strong warning to those would-be firms: ‘There are very few firms in the market with the necessary expertise to bring those class action claims. You have to consider the suitability of class representatives and the structure of the claim. We don’t want a stream of unstructured claims and funders getting dissuaded from funding these types of claims.’

The survey then turned its attention to the sectors that are most likely to be subjected to a class action or group litigation claim. Given its historically litigious nature, a predictable 93% of the surveyed in-house lawyers said that the financial services sector was ‘quite likely’ or ‘very likely’ to be at risk. The financial services sector has been under intense scrutiny since the 2008 financial crisis, where a slew of banks have been investigated under LIBOR and FX manipulation as well as fraud crackdowns.

Respondents have largely predicted Brexit to have a minimal effect in terms of reducing UK corporate group claim liability.

In addition to the FX case backed by Therium mentioned previously, there is currently a class action forming on behalf of over 800 small businesses against the Clydesdale and Yorkshire Banking Group, which is now known as Virgin Money, as well as its former owner National Australia Bank. The case relates to tailored business loans (TBLs) sold to the businesses between 2001 and 2012. The claimants allege that the banks charged break fees unfairly when firms sought to end fixed-rate loans prematurely.

And it is hard not to be wary of financial services group claims when looking back on the long-running shareholder action against Lloyds Banking Group. The case saw around 5,800 shareholders act against Lloyds and five of its former directors in relation to its buyout of Halifax Bank of Scotland (HBOS) in 2008. The High Court ruled in favour of Lloyds in 2019, but the case serves as a warning of the magnitude of claims that can be brought.

There was a hard drop-off for the next sector considered, with only 47% of in-house lawyers considering the travel and tourism industry ‘quite likely’ or ‘very likely’ to be at risk. In fact, 47% of respondents answered ‘not very likely’. Considering the immense disruption the travel and tourism sector experienced as a result of the pandemic, this is a somewhat surprising result.

In Australia, claimant firm Slater and Gordon’s class action team has a dedicated website for consumers wishing to seek redress from travel providers who have offered customers a voucher instead of a refund for cancelled holidays. The firm says: ‘We believe that major travel providers may have breached their legal obligations by putting in place travel voucher schemes rather than providing their customers with a cash refund.’

At the outset of the pandemic, in April 2020, there were more than a dozen class actions being prepared against American travel companies including: StubHub, United Airlines, Volaris and Costa Cruises. However, the 47% of respondents may have been considering that the worst of the pandemic is likely over when looking ahead to the next few years.

There was a landslide result when considering the same question for the energy sector, with every respondent saying that it was either ‘quite likely’ or ‘very likely’ to be at risk. This is almost certainly a reflection of the rising Environmental Social Governance (ESG) agenda throughout the legal profession, with many firms now offering an outward-facing ESG practice.

Under this banner falls the likes of ‘climate change litigation’, which would include the previously mentioned BHP case as an example. And in France, a February 2021 case described as ‘the trial of the century’ offered a warning as to the likely future direction of travel. The Paris administrative court ruled in favour of four NGOs who sued the French government for ‘climate inaction’, ordering the state to pay a symbolic €1 to each of the four claimants.

Underlining this threat, 71% of those surveyed predicted that an ESG issue was a probable trigger for a class action or group litigation. And in a related response, 43% rated ‘shareholder activism’ as a potential trigger for a group action, a reflection of the possibility of shareholders holding companies to account for climate inaction.

On this factor, one respondent said: ‘Shareholder class actions in reaction to corporate misconduct, are on the rise. Corporates should pay attention to this trend so as to take the required step. The required step needed in the given situation will save the pressure on business particularly because there is a huge sum of settlement involved, also, the litigation process which is capital intensive could be avoided.’

It was also a unanimous result when looking at the tech and telecommunications sector, with 100% of those surveyed predicting it was either ‘quite likely’ or ‘very likely’ to face group claims. This result, in tandem with the 85% of respondents asserting that a data breach was a likely flashpoint that could lead to a mass claim, shows that fear of data class actions did not die with the Lloyd v Google judgment.

The important question when studying these statistics is: what can corporates do to protect themselves against the rising tides in the first place? Answers ranged from the simple: ‘Have robust compliance regimes to ensure no wrongdoing in the first place’, to the more in-depth: ‘The only real way to avoid being involved in a class action is to ensure that the cause of action does not occur in the first place. Once you are under threat then you really want to look like an unattractive proposition by showing processes and procedures are robust and audited meaning you are more likely to have a strong defence.’

One respondent concludes with a stark statement: ‘Society is coming for business. Businesses need the protection of the law and the courts to survive in today’s political climate.’ LB

tom.baker@legalease.co.uk

Which areas are most likely to give rise to a class action and/or group litigation?