Opt-out collective actions will become a reality in England and Wales later this year after the Consumer Rights Act received Royal Assent last week.
But the government has proposed introducing a presumption that law firms and third-party litigation funders should not be able to front such cases.
Expected to come into force on 1 October 2015, the Act facilitates private enforcement of competition law by introducing a competition-specific opt-out regime in the Competition Appeal Tribunal that allows cases to be brought by a defined group of people with similar claims either as follow-on or standalone actions.
The tribunal has to certify opt-out actions and can order them to be opt-in. It will also have to subject them to a preliminary merits test, while there will be a ‘fast-track’ procedure for simpler cases. The tribunal will have to approve any settlements.
To counter fears that the regime will import the excesses of US litigation, the tribunal will not be able to award exemplary damages – although it can award damages without quantifying the loss of each individual claimant – and actions cannot be brought under damages-based agreements.
Where not all of the damages awarded are claimed, the extra funds will go charity, generally the Access to Justice Foundation, or the tribunal can order that they go towards the group representative’s legal costs and expenses.
Last month the Department for Business, Innovation and Skills issued a consultation on changes to the CAT’s procedures – following a review led by former Court of Appeal judge Sir John Mummery – and this includes changes to be made to implement the Act.
In line with the government’s stated policy throughout the consultation process for the Act, it asked whether there should be presumption that law firms, special purpose vehicles and third-party funders should not be able to bring cases.
The consultation explained: “Government believes that only those who have a genuine interest in the case, such as genuinely representative bodies (for example, trade associations or consumer organisations) or those who have themselves suffered loss should be allowed to bring cases.
“Government policy is therefore that claims should not be brought by law firms, third-party funders or special purpose vehicles. How to achieve this aim has been subject of debate in both Parliament and with stakeholders. In order to achieve a balance between claimants and defendants, Government is minded to introduce presumption into the rules that organisations, that offer legal services, special purpose vehicles and third-party funders should not be able to bring cases
“It is intended that such a presumption would act to bar non-genuinely representative bodies from bringing cases, but would permit the CAT to decide that a consumer organisation or a trade body that offers legal advice would be suitable to bring a case.
“The same is also true of special purpose vehicles: an organisation created with the sole purpose of bringing a case. However, there may be cases with multiple claimants who decide to create a separate entity for bringing the case to make case management easier. Again, the CAT should therefore have the ability to override the presumption.”