High Court rejects US-style class actions

Apr 2009 | Client publication/article

On Wednesday 8 April 2009, in handing down judgment on an application, Sir Andrew Morritt, the Chancellor of the High Court, rebuffed an attempt to introduce US-style class action litigation into the English Courts.

The application was made at an early stage in the proceedings by British Airways plc (BA), for whom Slaughter and May acted, to strikeout the so-called "representative" element of a claim brought against BA by two flower-importers1. The claimants had sought to bring the action as representatives of all direct and indirect purchasers of airfreight services which were affected by an alleged cartel in the airfreight services sector. BA has yet to file its defence in the matter.

This is an important judgment for competition litigation, and for class actions in the UK more generally, and represents a clear rejection by the High Court of attempts to import such US-style litigation into the English Courts.

POINTS TO NOTE

  • The claimants attempted to adopt a little-used provision of the Civil Procedure Rules (CPR Part 19.6), which allows for an action to be brought by one or more claimants as representative(s) of others where all the parties represented have the same interest in the claim
  • A representative action under CPR, Part 19.6 differs from the procedures for Group Litigation Orders (GLO) (CPR, Part 19.11 et seq) in that it does not require each claimant to issue proceedings and then 'opt-in' as with the GLO. Instead, the represented parties are considered bound by the judgment in the representative action without having to issue proceedings in their own name. In this sense it is akin to the US class actions in which parties are expected to 'opt-out' of the class action litigation to avoid being bound by the outcome
  • The court found in favour of BA with the Chancellor wholly unconvinced by the attempt to use the representative action as proposed in this case. In particular, he noted that the sheer scope of the purported class prevented any meaningful assessment of who the potential parties were. In the Chancellor’s words, "It is not convenient or conducive to justice that actions should be pursued on behalf of persons who cannot be identified before judgment in the action and perhaps not even then"
  • On 15 April 2009, the claimants applied for permission to appeal the Chancellor’s judgment. A decision is awaited

COMMENT

The claim was issued against BA in September 2008 by two importers of cut flowers, who were represented by Hausfeld & Co LLP (Hausfeld, formerly Cohen Milstein Hausfeld & Toll LLP). The founding partner, Michael Hausfeld, is a renowned class action lawyer in the US, and this claim represented a clear attempt to introduce a quasi US-style class action procedure into the UK courts. The claimants were not just seeking damages in respect of losses they claim to have suffered as a result of the alleged cartel, but also to act as representatives of all "direct and indirect purchasers of air freight services the prices for which were inflated by the agreements or concerted practices".

The case is also significant in the use by Hausfeld of an innovative litigation funding structure allied with a Conditional Fee Agreement (termed the ''Cartel Key'') such that, unlike previous attempted "class actions" (such as the Railtrack shareholders claim against the Government in which the shareholders funded the action collectively), the members of the class are put in the same position as class action plaintiffs in the US, namely bearing no financial risk at all, win or lose. It follows that had the Court permitted this representative action procedure to be used for this sort of class action, it might well have heralded the start of a flood of similar claims against UK corporates in the High Court.

The area of litigation in the competition arena is currently enjoying significant attention with increased activity at the OFT and European Commission and recent studies into the effectiveness of current procedures for collective redress by the Civil Justice Council and the OFT. With the emergence of funding initiatives to support collective actions, this looks likely to remain an area of increased activity for the foreseeable future.

Whilst this case demonstrates the English Courts’ reluctance to stretch the provisions of CPR, Part 19.6 to accommodate class actions, it is unlikely to mark the end of attempts to introduce this style of litigation into the UK. However, in the absence of a change of policy (driven by Parliament rather than the Courts), US-style class actions such as this should have no place in the UK.

 

Footnote:

1. Emerald Supplies Ltd & Southern Glasshouse Produce Ltd v British Airways Plc (Chancery Division)

Contacts

Richard Swallow (partner)


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