Does the UK need a new mechanism to help facilitate multi-party redress? Neil Rose reports


The very phrase 'US-style class actions' provokes among UK lawyers a Pavlovian response of head-shaking disgust about the excesses of American litigation and muttering about the McDonald's hot coffee case.



The reality may be somewhat different, but understandably those looking to reform the methods by which collective redress is obtained in the UK are nervous about anything that looks like they are recommending the US class action system. The furore such a perception would cause could destroy any chance for reasoned debate.



Earlier this month, the Civil Justice Council (CJC) released research that uncovered 'overwhelming evidence of the need for a further collective redress mechanism' - specifically an opt-out system (see [2008] Gazette, 7 February, 1). Opt-out is a feature of US class actions, and the CJC was clearly nervous about how the recommendation would be viewed. To the extent that opt-out is a feature of US class actions, such cases are US style, but equally they are Canadian and Australian style. What makes US class actions so scary is contingency fees, punitive damages and no 'loser pays' rule, and we are a long way from that.



But Rachael Mulheron, professor of law at Queen Mary, University of London, argues strongly that an opt-out system is needed to supplement the existing opt-in redress mechanisms. Just 64 group litigation orders (GLO) have been made since the first in October 2000. In addition to procedural problems, Prof Mulheron found they generally suffered from low participation rates partly because of the difficulty of identifying all the group members.



The number and range of disputes handled by the GLO regime were also considerably less extensive than those brought under opt-out regimes in Australia and Canada. She cited the difficulty in bringing bank charges litigation as evidence of the need for reform.



Opt-out is favoured by Vincent Smith, who ran the competition enforcement directorate at the Office of Fair Trading before joining the London office of Cohen Milstein Hausfeld & Toll, the first US claimant class action firm to open an office in the UK. He explains: 'The barriers to getting an action off the ground are so great that the GLO is not suitable for consumer and competition actions.' It is better suited to actions involving a smaller number of claimants where there is a common question that needs resolving, he says.



Cohen Milstein recently took a long look at the dairy price-fixing scandal, which it is estimated cost consumers £270 million. The firm concluded that, because of the relatively small amounts lost by each consumer and the upfront costs of putting it together, it was not feasible to run a case. Though it would still have been difficult given the small individual losses, Mr Smith believes an opt-out action could have got off the ground because of the size of the claim.



Having identified a need, the CJC will now look at whether procedural reform should follow, as well as the critical issue of funding. There is a £3 million annual cap on legal aid for major group actions, while the after-the-event insurance market has proven generally (but not entirely) reluctant to back them.



Third-party funding by, for example, hedge funds and investors is also a possibility, and the CJC will consider what extra consumer protections are required beyond those recently agreed for large commercial cases. And although the government has consistently shied away from contingency fees, the CJC argues that they may be required in the event that current funding methods fail.



Of course, solicitors crossed the contingency rubicon when conditional fee agreements (CFAs) were introduced, and Mr Smith thinks that charging by reference to what you win is 'arguably fairer' than charging by reference to what you put in, as is the case with CFAs. Equally, third-party funders usually seek a percentage of the damages recovered, so why can't the lawyers?



Philippe Ruttley, a partner at City firm Clyde & Co, acted for consumer group Which? in settling the first representative action brought at the Competition Appeal Tribunal. It was against JJB Sports, which had already been found to have fixed the prices of certain football shirts, including England shirts. There were an estimated two million affected consumers, and Mr Ruttley said plenty opted in to the action - they cut off the list of named claimants at 400 to make the case controllable.



Though Mr Ruttley recognises that opt-out can make the complaint much larger, and thus easier to get off the ground, 'opt-in makes it more manageable, if more cumbersome'. The case was run on a CFA, but after-the-event insurers balked, even though liability was not an issue.



Mr Ruttley is, in fact, usually a defendant lawyer, and with unhappy experiences of American and Australian litigation, he firmly opposes opt-out on principle: 'Litigation should be conducted by people who mean it... the least they can do is opt-in.'



These issues will not be easily resolved, especially with that 'US-style' shadow looming large. Mr Ruttley is clear about what he thinks of the US system. 'It's legalised mugging,' he says.