The increasing popularity of group litigation – and the risk for corporates
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Group litigation is on the rise, spurred on by the global nature of business and the introduction in some jurisdictions of legislation friendly to, for example, class action lawsuits. In-House Perspective considers what’s driving the trend and its implications for corporate risk, and, by extension, for in-house counsel.
The growing popularity of group claims – long the preserve of jurisdictions such as Australia and the US – is set to become increasingly evident. More countries around the world are making it easier for plaintiffs, both consumers and companies, to pursue damages in court against organisations whose actions have caused them harm.
Many lawyers expect the appetite for cases to increase, spurred on by an inability of courts, regulators and enforcement agencies to bring corporates to book for what are often considered low-level, but widely impactful, harms. There’s a growing interest too in pursuing cases in connection with environmental, social and governance (ESG) issues and data breaches.
The fact that more lawyers are taking the opportunity to work on alternative fee arrangements – not just the standard billable hour – coupled with the increasing availability of litigation finance and insurance solutions to cover the downside risks, also plays its part in ensuring that more countries provide the level of access to justice that others have enjoyed for decades.
An increasing interest
Interest in allowing collective redress is already growing in regions that have previously shied away from enabling a more litigious culture. Europe, for example, looks likely to see more interest in group legal actions following the introduction in 2020 of the EU Representative Actions Directive, legislation specifically designed to increase the number of consumer class actions.
In the UK, lawyers say that there are several reasons why group action litigation is growing in popularity. Firstly, there is an increasing availability of opt-out procedures in England, which automatically aggregate those affected unless they withdraw their name. Secondly, new technology is enabling certain opt-in claims that would previously have been too administratively expensive to be issued and managed at low cost. Thirdly, the increase of claimant law firms and third-party litigation funders within the market enables such claims to get off the ground. And finally, in a number of major cases, the UK courts have shown a willingness to break down barriers to large claims.
To date only ‘opt-in’ group actions – such as the tabloid press phone hacking litigation, the VW ‘Dieselgate’ scandal and that concerning the victims of the British Airways data breach – have readily progressed to date. ‘Opt-out’ actions brought by a single representative on behalf of the affected class, as in the US, are still a relatively new beast.
But in the Merricks v Mastercard ruling for example, in a case concerning credit card charges from December 2020, the Supreme Court made it easier for group actions to go ahead when it said that a ‘low threshold’ should be applied in determining whether antitrust class actions should be certified and proceed to a full trial. Lawyers say that this decision has the potential to enable a £14bn class action to be heard. Mastercard has stated it's 'confident that over the coming months a review of key facts will further significantly reduce the size and viability of the claim.'
The perspective from Latin America
Parts of Latin America are also opening up to the idea of enabling citizens to join group litigation cases. Gláucia Coelho, Vice-Chair of the IBA Class Actions Committee and a partner at Brazilian law firm Machado Meyer, says that ‘class actions in Brazil have become an important tool in shaping the behaviour of private and public bodies because they can have a significant financial, reputational and image impact for a company.’
In Brazil, she says, the class actions’ system aims to bring collective redress in a wide range of cases, from enforcing consumer rights to protecting the environment. Plaintiffs are exempt from payment for court fees and are not liable to pay the defendant’s attorney’s fees if they lose – except in cases of bad-faith litigation – which makes bringing an action attractive and affordable. However, under the country’s Consumer Protection Code, the burden of proof is on the consumer.
There are two main types of action: ‘popular actions’ and ‘public civil actions’. A popular action’s scope is quite limited since the illegal act under discussion must be performed with the participation of a public agent – meaning circumstances involving governmental bodies – and can only be filed by Brazilians entitled to vote.
Public civil actions, meanwhile, are broader in scope and can discuss any collective interest related to the protection of public property, the environment and consumers. They can be filed before state or federal courts, and depending on the parties involved, by federal or state bodies, public companies, the public prosecutor’s office, the public defender’s office and civil associations.
Coelho says that ‘the main concern about public civil actions is the challenge of measuring, at the beginning of the lawsuit, the extent of damage that an unfavourable decision might bring to the defendant. Also, the plaintiff can request for an injunction relief when filing a public civil action by which it may freeze assets of defendants, as a precautionary measure to guarantee the redress of the damages under discussion.’
Fuel for the fire
Some experts believe that the rise in popularity of class actions and civil litigation is being fuelled by the global nature of business, as the same products and services are sold in multiple countries. This in turn means that global plaintiff law firms are prepared to file in as many jurisdictions as possible for the same or a similar complaint.
The proliferation of online consumer advocates or chat groups where knowledge about defective products or services is shared far more publicly and in real time is also ‘fanning the flames’, says Robert Johnston, Chair of the IBA Class Actions Committee and a partner at Australian law firm Johnson Winter & Slattery.
However, while he believes this phenomenon is ‘no surprise’ and is likely to grow in areas ranging from manufacturing faults in vehicles and negligence in pharmaceutical goods to data breaches and companies’ inaction on climate change, he adds that differences exist in terms of how such schemes work, their take up rates and how successfully they operate in practice. ‘In reality the same problems with the same products and services provided across the world by the same global corporations are still dealt with at law on a “village by village” basis in local courts, with local lawyers and against the background of different local laws and regulations.’
Although there are good sovereignty reasons why domestic laws and regulations are different in each jurisdiction, says Johnston, ‘what we are seeing is governments, regulators and lawyers seeking to address the very costly, time consuming and inefficient process involved of having to prove the same fault or wrongdoing with the same products and services provided by the same global supplier over and over again in each jurisdiction.’
As a result, he says, some global corporations seek to leverage the differences by fighting each case not so much on the substantive issues, but rather around the smaller differences of particular laws and regulations in particular countries. ‘However, for many, the preferred approach would be to deal with any issue around defects or faults on a total “wrap-up” or “once and for all” basis as years and years of ongoing litigation about the same product or service is terribly expensive, time-consuming and distracting from the corporation’s main business – selling new products and services,’ he says.
‘What keeps most general counsel of global corporations awake at night is wondering where the next particular “fire” may first ignite over a potentially defective product or service – in which country, by which regulator or by which plaintiff law firm,’ says Johnston. ‘The first issue will be which local law firm to brief to defend the matter and then – more critically – how quickly will that “fire” spread to other jurisdictions around the world.’
“What keeps most general counsel […] awake at night is wondering where the next particular ‘fire’ may first ignite over a potentially defective product or service
Robert Johnston, Chair, IBA Class Actions Committee
Johnston adds that these issues of concern are becoming more frequent and more problematic, as globalisation works in the sense that regulators from different countries are now co-operating much more and sharing information with each other.
He highlights legislative steps in the EU to make it possible to recognise a finding of liability in one national court in another without having to re-litigate the same liability issue. Johnston hopes that such extraterritoriality develops further.
‘As we have seen in Amsterdam, the Dutch court of appeal has said it has jurisdiction to deal with cases against global companies where claimants may have purchased products outside their country or purchased shares on foreign exchanges, which means they have had limited connection with that jurisdiction,’ says Johnston. ‘This may mean in some cases an end to the “village by village” defence approach as claimants seek to have all global claims dealt with in one court. That would be a seismic shift.’
He also believes there may be a push from some internal bodies for cross-border, multi-jurisdictional class actions to be settled in one country. ‘There will be more pressure from the likes of the World Trade Organisation and other global bodies to put in place similar laws or arrangements,’ says Johnston. ‘Those bodies will in effect say that if you want a ticket to play in the global trade and commerce space, you will have to deal with defects and problems on a global basis and not fight or require issues about a defective product or service to be re-litigated time and time again in each and every country in which you trade.’
Considerations for in-house counsel
Lawyers say the rise in popularity of group litigation is coupled with increased risk for corporates, and that in-house counsel will be called upon to play a significant role in steering their organisation’s response to any claim.
Becca Hogan, a partner at UK law firm Signature Litigation, says as group claims enable large numbers of claimants to pursue their individual claims collectively, the quantum of such claims are typically very significant. ‘Prospective claimants – and their third-party funders – will have little interest in pursuing a claim where the defendants are not good for the money’, meaning that achieving an out of court settlement quickly can be paramount.
Andrew Nugent Smith, Managing Director of law firm Keller Lenkner UK, says ‘being on the wrong end of group action litigation creates significant business risk.’
Putting aside the legal liabilities, Nugent Smith says that defending these actions can be time consuming, expensive and reputationally damaging. ‘The new wave of law firms set up to bring these cases, plus the ability to use technology to identify, aggregate and manage large groups of claimants, has led to an increase in cases. These are far from spurious claims. They are claims based on unlawful conduct that may have previously gone unpursued given the practicalities of bringing those cases. Claimant law firms are now getting to grips with those practicalities.’
‘Group action litigation is rising in popularity and there is no shortage of corporate wrongdoing, as well as an increase in judicial sympathy for collective redress,’ says Nugent Smith. He notes that in regard to litigation funding, he’s not aware of a group action case in the UK that has been progressed without the benefit of funding and that courts seem to accept it’s a necessary part of the system.
“Group action litigation is rising in popularity and there is no shortage of corporate wrongdoing
Andrew Nugent Smith, Managing Director, Keller Lenkner UK
Yet in-house counsel also need to be aware that group claims also present opportunities for corporates. According to Andrew Wanambwa, a partner at law firm Lewis Silkin, in certain industries, for example, it will be important for in-house lawyers to be aware of potential group claims and to join them if that is considered to be in their clients’ best interests. For instance, fund managers may be criticised by their clients for not joining claims which would give their clients the opportunity to recover financial loss where an investment in a particular entity has gone bad.
‘In the past many companies shied away from pursuing their claims because of the risk and cost of litigation,’ says Wanambwa. ‘By joining with a group and obtaining suitable litigation funding, in-house counsel can now (in the right cases) de-risk the pursuit of their claims and relieve themselves of the ongoing burden of paying legal fees.’
‘In other words, the possibility of joining well-funded group litigation means that in-house counsel can now start to think of their claims as potential sources of profit rather than a drain on the company’s resources,’ he says.
“The possibility of joining well-funded group litigation means that in-house counsel can now start to think of their claims as potential sources of profit
Andrew Wanambwa, Partner, Lewis Silkin
Others believe that the threat of litigation may be an opportunity for companies to review and overhaul their internal controls, compliance attitudes and approaches to corporate governance. ‘Litigation funding ensures that companies won’t be able to outspend the claimants,’ says Andrew Hill, a partner at law firm Fox Williams.
As a result, in-house counsel ‘should start thinking about class action risk before your company faces one. Think about your business and the types of risks it might face. By identifying risks early, hopefully in-house counsel can use the increasing threat of class actions for good, encouraging their company to take transparency and disclosure seriously, and ultimately helping to improve good corporate governance, thereby helping the company to avoid facing class actions.’
In terms of practical advice regarding how companies’ legal teams should help coordinate their organisation’s response, Emily Cox, Head of Media Disputes at UK-based litigation law firm Stewarts, says that in-house counsel should ‘analyse the cause of any action’ and ‘take it seriously’.
She suggests they ask themselves a series of key questions to determine what steps they should take. ‘Firstly, is this a try on or does it have real legs? Confirmation of this may lie in the choice of law firm, counsel and funder involved. Secondly, is there a regulatory decision or deferred prosecution agreement from which this flows which may make it harder to fight save as to quantum? Consider what kind of precedent this will set if the company wishes to settle early on. And thirdly, is there a comparable claim afoot in another jurisdiction?’
Jane Wessel, a partner at law firm Arnold & Porter, recommends that in-house counsel should assess the likely scope of liability as early as possible and consider potential challenges to the suitability of the claim for collective proceedings – including any changes to definitions – to prepare for the class certification hearing, which will determine whether the claim should proceed on an opt-in or opt-out basis.
She adds that if in-house counsel act for one of a number of defendants, they should establish a joint defence group at an early stage to ensure that all of the defendants take consistent approaches to the litigation to avoid the possibility of the claimants being able to divide and conquer.
“Group claims often become marathons, and therefore require great stamina and patience to fight
Becca Hogan, Partner, Signature Litigation
Hogan at Signature Law says companies should engage PR experts and lawyers who have experience of dealing with class actions at an early stage to try to minimise the impact of any eventual claim. She adds it’s important for in-house counsel to consider the anticipated internal resource that will be required otherwise. ‘Group claims often become marathons, and therefore require great stamina and patience to fight,’ she says. ‘It may be possible to achieve a quick settlement, as happened with the BA data breach claim, but most group claims go on for a number of years and may only settle at the steps of the court,’ she says.
There’s also ‘no magic bullet’ when it comes to resolving group claims quicky, adds Hogan. ‘Whether a settlement can be achieved will depend on the risk appetite of the organisation being sued, but also emotional factors may be at play from the claimants’ side and the desire to see justice done, which can make it difficult to achieve a quick resolution’, she says. ‘If early settlement can be achieved, then that may benefit both parties who will be saved the costs and management time of many years of litigation.’