UK Group Actions Bulletin – Summer 2024

August 6, 2024

Despite the lack of a US-style "opt-out" class action regime in England and Wales (other than for competition law breaches), we are seeing an unprecedented increase in collective actions by claimants against corporate defendants, made possible in some cases through the availability of third-party funding. The increasingly large claims are testing the English courts' ability to effectively manage cases through existing procedural mechanisms and are prompting the courts to further clarify and develop those mechanisms over time. For example, the importance of the courts' ability to "bifurcate" i.e. to prioritise certain issues and hold over others for later hearings if required, and how that can be used to facilitate the resolution of group claims, is highlighted in certain recent decisions.

In line with these challenges, the first edition of the Dentons UK group actions bulletin discusses:

• the current hot topic in non-competition group actions, being the courts' use of bifurcation to enable a more flexible use of the representative action procedure, and the strategic considerations that determine when this will (and will not) be appropriate;

• key procedural updates from the first half of 2024, namely (i) the Court of Appeal's recent clarification of when claimants can bring their claims on a single claim form and (ii) in respect of the funding market, how the general election has impacted attempts to address the Supreme Court's decision in PACCAR;¹ and

• important cases and regulatory developments which are worth monitoring in the second half of 2024.

Part 1: Hot topic - Bifurcation

The class divide: "bifurcation" or the tricky question of where to draw the battle lines?

The Civil Procedure Rules contain a range of mechanics to support effective management of (non-competition) group claims. For example, where more than one person has the same interest in a claim, proceedings can be brought by one or more persons holding that "same interest" as representative of the group (CPR 19.8). These representative proceedings are the closest the CPR gets to US style "opt-out" class actions as, unless otherwise ordered, judgment in representative proceedings is binding on all members of the represented group - whether the members have any involvement in the claim, or even any knowledge of it.

Historically, the representative action mechanism has been little used and so, other than a widely held view that the courts take a cautious approach to allowing representative actions, there is limited guidance from prior cases on what fits within the representative procedure and what does not. With increasing demand for easy access to collective redress, the scope of the provisions is being tested.

Case illustration 1: Commission Recovery Ltd v. Marks & Clerk LLP - the Court of Appeal considers the "same interest" test in opt-out representative actions

Earlier this year in Commission Recovery Ltd v. Marks & Clerk LLP and another,² a claim concerning secretion commissions, the Court of Appeal considered the "same interest" test and the appropriateness of bifurcation. The High Court rejected the defendants' strike-out application contesting the claimant's use of the representative action procedure and allowed the claim to proceed, notwithstanding that the represented parties' positions differed (but were not in conflict) on certain elements of the claim.³ The approach of the High Court was confirmed by the Court of Appeal,⁴ in the first appellate decision addressing the representative action procedure since that of the Supreme Court in Lloyd v. Google LLC⁵ in 2021.

The Court of Appeal in Marks & Clerk carefully applied the principles laid out by the Supreme Court in Google. It confirmed that to satisfy the requirement for the "same interest" in a claim, it was not necessary for all issues to be able to be resolvable on a representative basis. Provided there was no conflict of interest between claimants (meaning pursuing the claims of some would not prejudice the claims of others), issues on which claimants shared the "same interest" could be resolved on a class basis, with issues requiring an individual assessment being carved off for separate determination. The split of class issues did not need to be drawn between liability and quantum (the most obvious division and one identified by the Supreme Court in Lloyd) but could appropriately be made between liability issues. On the facts, it was permissible for certain narrow issues to proceed on a representative basis (i.e. that the contract was on the defendants' standard terms and a commission was paid), with other elements (such as certain liability defences relyin

Comment

The decision of the Court of Appeal in Marks & Clerk illustrates the emerging tactical battleground on class actions in the English courts, being the question of how issues can be divided between those in common and those on which individual claims depend, a battle line which needs to be carefully drawn to avoid prioritisation of common issues tipping the scales too far in favour of one party over the other, before the court has been able to consider all the necessary elements of the claim.

Case illustration 2: Wirral County Council v. Indivior PLC/Reckitt Benckiser Group PLC - no representative action in claim for misleading investor information

However, in Wirral County Council v. Indivior, a case decided before Marks & Clerk (but which has been appealed and is due to be heard in December 2024), the court refused to allow the claims to proceed on a representative basis having considered the claimants' proposed approach to bifurcation.

Wirral (in its capacity as pension fund administrator) brought claims against the defendant pharmaceutical companies under s.90, s.90A and Schedule 10A of the Financial Services and Markets Act 2000 (FSMA). These provisions provide for liability to investors for misleading statements or omissions in published information. It is alleged the defendant companies participated in a fraudulent marketing scheme relating to a drug called Suboxone, which led to a US federal indictment and a material fall in the market value of the defendant companies.

Wirral issued the claims as representative proceedings under CPR 19.8 on behalf of a class of investors. Whilst the proceedings might have been structured on an "opt-out" basis, the class for this claim was restricted to those who had also signed up to a specific funding arrangement, and so became "opt-in". The defendants applied to strike out the representative proceedings. At the same time as the representative proceedings were issued, non-representative claims brought on behalf of multiple named claimants had also been issued but were stayed pending the outcome of the strike-out application.

Wirral had sought to structure the representative proceedings such that:

• issues not dependent on facts particular to any individual investor, being common issues solely relating to the defendants' liability (such as whether information published by the defendants was untrue or misleading and whether relevant management knew of such omissions) would be determined on a representative basis and binding as between the defendants and the represented class; but
• elements of the claim which required individual investor evidence and decisions, such as causation, reliance and damages, would be carved off for later determination.

The defendants objected to the proposed approach, which placed all the burden as to proof and costs on them and none on the claimants, and ultimately succeeded in their application.

In reaching his decision to strike out the representative proceedings, the judge was clear as to the importance of active case management in group actions to ensure efficient and proportionate litigation, as well as providing access to justice, and that a bifurcated process could be used "particularly where there would be no other way that the proceedings could be brought by or on behalf of such a large number of claimants whose claims are likely to be too small to bring individually". However, the judge was equally clear that bifurcation should not provide a means by which claimants can avoid having to participate in litigation in the way they would have to if bringing a multi-party action. The judge was also concerned that the claimants' approach in Wirral was to take the common liability issues in isolation, in effect treating them as a standalone claim, with no apparent plan for proceedings which would need to follow resolution of those issues.

The judge found that the approach of the claimants in Wirral fell on the wrong side of the line and had the effect of "depriving the Court of its power to case manage such claims" including in relation to any splitting of issues, as the approach in this proposed representative action had already determined the shape of the litigation. There was also no evidence that if the representative proceedings were not permitted, retail investors would not otherwise be able to bring claims if they wished to do so.

Comment

The decision in Wirral has proved divisive and the approach of the Court of Appeal will be of considerable interest. On the one hand, whilst the law (FSMA s.90, 90A etc.) and procedural mechanics (CPR 19.8) for securities class actions or so-called "stock drop" litigation have been in place in this jurisdiction for more than 20 years, only one s.90A FSMA case has reached trial and that was not a securities action. ⁷This statistic would suggest the barriers to such cases are too high. In Wirral, the claimants sought to encourage a policy-based decision drawing on this theme, adducing evidence on behalf of US investors that they were deterred from bringing securities claims in England and Wales due to the level of participation required and quasi-expert evidence on the success of securities class actions in Australia in delivering compensation to shareholders. On the other hand, it is essential to ensure that at the outset of any claim there is, procedurally at least, a level playing field. A system which allows claimants to place all the early burden on defendants, without risk or participation, surely tips the scales too far.

Part 2: Key procedural insights

Question answered on use of a single claim form for multi-party claims

At its simplest, group claims can be brought by way of a single claim form. With the court fee for issuing a claim form being up to £10,000, claimants with similar claims can make significant savings this way, rather than each issuing separate claims. This is possible under CPR 7.3 where the claims "can be conveniently disposed of in the same proceedings". However, it has not been clear what the test of convenient disposal meant.

This question recently came before the Court of Appeal in Morris and others v. Williams & Co Solicitors (A Firm),⁸ which concerned a professional negligence claim against a solicitors' firm brought by more than 100 claimants using a single claim form. The Court of Appeal clarified that the sole test is one of convenience, which will ultimately depend on the facts of each case. In reaching this decision, the Court of Appeal found that the extrapolation of the rule into three sub-tests in a prior case (Abbott v. Ministry of Defence)⁹ which included a test of there being common issues, the determination of which would make real progress towards final determination of each of the claims, was wrong in law.

The Court of Appeal did, however, note that the predecessor to CPR 7.3 had included a requirement of "some common question of law or fact" which is not within the current provision. The court suggested the CPR rule drafters might want to revisit whether the rule was working as drafted and, in doing so, consider whether there might be benefit in including a requirement for common questions of law or fact to be identified. We may therefore return to a test which is a bit closer to the one in Abbott in due course.

In a decision published last week, a court tasked with determining whether claims for personal injury against the Ministry of Defence should continue on a single claim form¹⁰ commented that the test of convenience (as clarified by Morris) can and should include consideration of what is convenient for the courts. Where the convenience of disposing of claims in a single set of proceedings is likely to be short-lived and it is apparent from the outset that the claims will all require individual determination at some later stage, the practical difficulties that this gives rise to might support the conclusion that the test of convenience is not met.

In the meantime, claimants wishing to bring claims on closely related matters can lessen their costs burden by using a single claim form and it will likely take a brave defendant to object, unless claims are obviously not conveniently addressed together in the longer term.

Roadblock on funding issues

One of the fundamental building blocks for group actions is the availability of funding. It has been a bumpy ride for funders since the Supreme Court found in PACCAR¹¹last summer that litigation funding agreements (LFAs) providing for third-party funders to be paid a percentage of damages recovered amount to damages-based agreements (DBAs). This meant that such funding arrangements, which were common: (a) fell within a statutory prohibition and were unenforceable in opt-out collective proceedings before the Competition Appeal Tribunal (CAT); and (b) were only enforceable in other contexts if they complied with the statutory requirements for DBAs, which many, it seems, did not.

A draft bill which sought to reverse the effect of PACCAR by carving out LFAs from the statutory definition of DBAs was introduced on 19 March, but was not passed in the pre-election wash-up. The King's Speech at the State Opening of Parliament on 17 July 2024 made no reference to the bill, and so it remains unclear whether the bill might be revived (or similar legislation proposed).

Part 3: What else is in store in 2024?

The second half of 2024 has less in store than expected following settlement in early June of the multi-party securities claim against Serco Group, which was listed for trial over the summer. The settlement is to the disappointment of securities litigation observers, as it was to be the first time that key questions of law concerning an issuer's liability under s.90A FSMA were to come before the court in a securities context.

However, there are still big things on the horizon, the biggest being the first trial in the Brazilian dam case, Municipio de Mariana and others v. BHP Group (UK) Ltd and another. As a reminder, this is a claim brought by some 700,000 claimants for environmental damage resulting from the collapse of a dam in Brazil. The claim is the largest-ever opt-in claim to be heard in the English courts, with a 14-week trial of threshold liability issues scheduled to commence in October 2024.

In the meantime, the Civil Justice Council (CJC) is progressing its review of the third-party funding industry which was first announced by the UK government in April 2024 and an interim report is expected to be published this summer. The terms of reference make clear that the review will consider a number of issues including whether the current self-regulated approach to the funding market is fit for purpose and whether funders' returns should be capped. While it remains to be seen what proposals the CJC will put forward, the prospect of stricter regulation on the litigation funding market will be closely watched by parties, funders and legal representatives.

1. R (on the application of PACCAR Inc. and others) v. Competition Appeal Tribunal and others [2023] UKSC 28.↩
2. [2024] EWCA Civ 9.↩
3. [2023] EWHC 398 (Comm).↩
4. While the defendants applied to the Supreme Court for permission to appeal the decision, this was refused on 21 March 2024 on the ground that the appeal raised no arguable question of law.↩
5. [2021] UKSC 50.↩
6. [2023] EWHC 3114 (Comm).↩
7. The Autonomy/Hewlett Packard litigation which was a post-M&A dispute. ↩
8. [2024] EWCA Civ 376.↩
9. [2023]EWHC 1475 (KB).↩
10. Adams and others v Ministry of Defence [2024] EWHC 1966 (KB).↩
11. R (on the application of PACCAR Inc. and others) v. Competition Appeal Tribunal and others [2023] UKSC 28.↩