What is a “class action lawsuit”?

July 28, 2021

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3 min read

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Origins

Sometimes, an individual can be wronged by another party, but they do not have the means to bring a successful claim. This typically applies to consumers or workers who are powerless compared to the large companies who have mis-sold or mistreated them. Could you afford to rival the legal resources and expertise available to a global corporation?

However, when lots of individuals have all suffered similar losses resulting from the same breach by a party, class actions offer a more feasible route to a remedy. If they succeed, class actions can provide justice to thousands at once while holding large companies accountable for breaches they would otherwise have gotten away with. Though class actions have a more established history in countries such as the United States, we are starting to see signs of a comparable class action structure emerging in the UK. It is therefore becoming increasingly important to understand how class actions work, how they differ from more regular litigation and why there are differences between the British and the American systems.

Overview

With class action lawsuits, a legal proceeding is made on behalf of all those affected by the same civil wrong (that is, the class), who are represented jointly in one big claim (i.e. the action). The costs of bringing the claim can be split across the whole group, reducing the overall cost per claimant. Combining the individuals within the class also enables them to draw upon a greater pool of resources that can match the Defendant’s. Any compensation or settlement paid by the Defendant would be divided among the class in a successful action.

One notable characteristic of a class action is that a member of the class must “opt out” if they do not want to be represented. With class actions in the US, the plaintiffs do not have to cover any costs themselves either; the defendants must, win or lose, cover all costs. By contrast, the UK does not have quite the same legal system. At present, those within the affected class are required to “opt in” to a group litigation claim. Which group the individual opts in to becomes significant since many different firms may compete to have an individual opt in to their claimant group. Firms would then combine through a Group Litigation Order (known as a GLO) and bring a unified case against the Defendant. Each group must then be able to fund the case themselves and, if unsuccessful, be prepared to cover the Defendants’ legal fees.

However, the legal landscape in the UK is shifting to accommodate class actions as well as these group litigations. Under the Consumer Rights Act (CRA) 2015, the potential for an opt-out claim has become possible. This would see collective redress lawsuits in the UK move closer to an American style system. Guidance over how this would work was recently provided in the Merricks v Mastercard Supreme Court decision. This clarified what standard opt-out claims, such as Merricks’ claim against Mastercard on behalf of a class of 46 million consumers, must meet in order to be heard in the Competition Appeal Tribunal.

Nonetheless, there are few aspects that will require further clarification by the courts in the future. For instance, the power for collective redress under the CRA would only apply to breaches of competition law. Whether the opt-out model would extend to other areas of law could require another case to test the Mastercard decision, or even extra government legislation to empower the courts. It could also lead to more debate over whether the opt-in or opt-out model should be applied to a collective claim, and what requirements would need to be satisfied in each instance.

Verdict

Overall, it seems the UK system has not yet developed enough to accommodate all types of collective redress lawsuits. Lingering uncertainty over how class actions would work in practice compared to GLOs and what approach would be applied has so far discouraged lawyers bringing these lawsuits. But, legislation and decisions continue to favour individuals from the gross wrongdoings of large bodies, underpinned by the approval of a mass claim under the CRA in the Mastercard case. It could take just a few more key decisions in the courts to set the precedent needed that would encourage many more similar class actions to go ahead…

Report written by Seb Stacey

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