Legal Village

A slippery slope to an unwelcome destination

Posted 23/05/2007 by Ted Greeno

The class action – that most American of legal phenomena – seems to be the hot topic of the moment. Not a week goes by without numerous column inches devoted to contemplation of whether it is, or is not, coming to Europe. The general consensus seems to be: it is and it isn't...

What is certain, however, is that class action lawyers are coming to Europe. First was announced the launch of a London office for US class action plaintiff firm Cohen Milstein. Not far behind, Skadden is launching a class action defence practice in London to defend clients from a perceived onslaught of group actions across Europe. And this week lawyers from North America and Europe are gathering in Rome for an IBA conference billed ‘Class actions at a crossroads: Europe’s choice between its own and the American model’

That title sums it up. Clearly the scope for group actions is set to increase in Europe. I'll name but two initiatives. First, the announcement in March that the European Commission is considering action on ‘collective redress’ mechanisms for breach of consumer protection rules. Second, the publication in April of an OFT discussion paper on facilitating private actions for breach of competition law in the UK, including proposals to allow representative bodies to bring actions on behalf of those who have suffered loss. I could go on with the list.

So class actions, of a sort, are coming. But will they be as known and loved by the US plaintiffs’ bar… and loathed by the major corporations against which they are invariably targeted? That, as they say, is the million-dollar question. There are undoubtedly significant hurdles in the way of the American model taking hold: more limited incentives to claimants’ lawyers in the absence of US-style contingency fees; the compensatory principle of damages, which means the high levels of punitive damages known in the US are practically unheard of here; and the costs-shifting rule, which significantly increases the risks for claimants.

But are these barriers being eroded? There is a real possibility that the UK, at least, will move toward American-style contingency fees. With conditional fee agreements now permitted, and a recognition in the recent OFT discussion paper that the maximum uplift of 100% may not be a sufficient incentive for lawyers to take on certain types of cases, it may be that allowing lawyers to share the spoils of litigation is but a slippery slope away. In relation to damages, the European Commission’s Green Paper on antitrust claims back in December 2005 proposed the introduction of double damages for certain types of cartel claim. And as for the costs-shifting rule, a greater use of costs-capping orders may reduce the impact of this issue.

The great challenge in the UK, as elsewhere, is to provide procedures that give access to justice for those of ordinary means without falling prey to the excesses of so-called ‘compensation culture’. This means ensuring that claims will not be hijacked for the benefit of lawyers and that companies will not be exposed to what amounts to legal blackmail, where they are forced into settling unmeritorious claims by the huge costs they will otherwise face and which they will have no hope of recovering.

Perhaps the key is ensuring that any model of class action adopted is strictly ‘opt-in’, so it remains within defined limits and, at least to some extent, in the control of the litigants. Adopting an American style ‘opt-out’ model would, it seems to me, put the lawyer firmly in the driving seat.

The recent OFT discussion paper floats the possibility of allowing representative actions to be brought on behalf of “consumers at large” rather than individual, named consumers. At least in that scenario it would be an independent body at the wheel, with no financial interest in the outcome of the litigation, rather than a lawyer who stands to benefit from a healthy contingency fee. But it nonetheless seems a worrying step.

Before we take it, we should consider carefully whether it is leading somewhere we do not want to go.