Opt-out class actions launch in the UK

The Consumer Rights Act is the biggest shake up in consumer rights law in a generation

The Consumer Rights Act is the biggest shake up in consumer rights law in a generation

Since a new opt-out class action regime was introduced last year under the Consumer Rights Act 2015 (CRA), practitioners have been waiting patiently to see when the first claim would be brought.

The first claim has now been launched on behalf of a putative class of pensioners and other UK-based buyers of mobility scooters. It has the potential to reveal the true impact of this new form of collective redress for purchasers both within and outside the UK. It may also reveal the likely shape of such claims, their practical scope and limitations.

A new era

Under the regime introduced by the CRA, it is no longer necessary to bring a collective action on behalf of a group of claimants who have actively “opted-in” to a claim. Instead, in competition cases, a representative action may be brought before the Competition Appeal Tribunal (CAT) on behalf of a class of claimants on an “opt-out” basis.  This means that all members of the class domiciled in the UK are represented, unless they actively choose to opt-out. Claimants domiciled outside of the UK may also choose to opt-in to the action.

In 2014, a mobility scooter manufacturer, Pride Mobility Products, was found guilty of breaching competition rules by the Office of Fair Trading (OFT). Pride Mobility had sought to achieve unlawful resale price maintenance, having privately prohibited online retailers from advertising scooters for sale below their recommended retail price. The National Pensioners Convention (NPC), a pensioners’ welfare association, has now launched a class competition claim valued at up to £7.7 million on behalf of potentially overcharged customers.

Funding and risk management

The new claim sheds light on how such class actions are likely to be funded. In the US, claims are typically brought on a percentage contingency fee basis (e.g., 30 percent of the class’s damages recovery). However, the comparable fee model in the UK (Damages Based Agreements) is expressly disallowed in these types of action meaning that American-style contingency fees are prohibited in UK collective actions. Instead, the NPC’s class action has been brought using a mix of a conditional fee agreement (providing for a fee uplift to the lawyers in the event of a successful outcome) and after-the-event insurance (to protect against the representative’s potential adverse costs exposure).

Such complex fee structures are often assembled with the backing of third party litigation funders, who will provide funding for legal fees and after-the-event insurance, in return for a portion of any damages recovered. An important step will be for the CAT to review the proposed fee structure and decide whether the sums payable to the representative’s lawyers and any third party funders are proportionate. Both potential claimants and defendants (as well as funders), will be watching this case closely for indications of what the Tribunal will consider acceptable for future claims.

Since the class claim is based on the OFT’s infringement decision, the CAT will accept that the defendant is liable for the infringement in question, with the issues in the case likely to turn on questions of causation and quantum. So, while the claimants’ solicitors, insurers and any funders involved will have assumed a degree of commercial risk in bringing this claim, it is a calculated one.

The empathy that this particular claimant class is likely to induce, and the publicity the claim will attract, is also unlikely to have escaped those who are driving it and who have an interest in showcasing this new type of action.

Differences with the US regime

This first action is extremely modest by comparison to the class action claims brought in US antitrust cases. There, the pro-claimant costs rules (attorney’s fees are recoverable by statute on top of the damages award), joint and several liability of each defendant for the entirety of the damages exposure, the lack of contribution, and the availability of trial by jury and treble damages (three times actual damages), all tip the risk/reward analysis heavily in favour of bringing such claims.

Nevertheless, although the NPC’s scooter action is a modest first step, it is one that tests the boundaries of the UK regime and could well blaze a trail for more ambitious, higher value claims in the future.

Next steps

The CRA is designed to encourage informal resolution of representative actions. So, despite the fanfare with which the claim was brought, it is possible that the action could prompt informal, off-the-record ‘without prejudice’ discussions, with no further formal steps taken. Instead, a collective settlement (which itself would have to be mandated by the CAT) could be reached (in the United States, virtually all antitrust class actions are settled or dismissed at an early stage).

The next phase of the proceedings will be for the representative to apply to the CAT for a Collective Proceedings Order, which will permit it to bring the class action. Amongst other things, this would determine the scope of the class of claimants, an issue which could well be hotly contested.

Practitioners and consumer groups alike will therefore be watching closely as this new field opens out before them.

Charles Balmain is a partner at international law firm White & Case.

Praseeda Nair

Praseeda Nair

Praseeda was Editor for GrowthBusiness.co.uk from 2016 to 2018.

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