Partner Becca Hogan examines the under-utilised collective redress tool

By Becca Hogan

Partner Becca Hogan examines collective redress and the under-utilised tool that could help UK claimants, especially with Brexit and COVID-19 litigation, in Law360.

Becca’s article was published in Law360, 18 June 2021, and can be found here.

Collective redress is increasingly being called upon as an effective way of achieving a remedy for large groups of claimants. The three main procedural routes available when considering collective redress are: (i) a Group Litigation Order (effectively an “opt-in” group action), (ii) a representative action under CPR 19.6 or 19.7 (effectively an “opt-out” group action), and (iii) under section 47A of the Consumer Rights Act 2015 which provides for both “opt-out” and “opt-in” group actions for breaches of competition law.

However, there is a fourth lesser-known route to collective redress which has been available since 2015, and yet has only been used for the first time in 2020 in the COVID Business Interruption case [2021] UKSC 1 (the “COVID Claim”). This is the Financial Markets Test Case Procedure, initially introduced as a pilot scheme in 2015 and promoted to become a permanent Practice Direction under CPR Part 63A, with effect from 1 October 2020.

The Financial Markets List was introduced with the objective of positioning English Law and the UK as a preeminent forum for dispute resolution and to “ensure a business-relevant law”. As to the Test Case procedure, this was intended “to support the work of the Financial List to uphold London’s position as a global leader in efficient, specialist, and high quality financial dispute resolution.” Notwithstanding the intentions behind the Test Case Procedure, in the six years it has been available it has only been used once. The reasons for that are possibly due to lack of awareness of this option, but more likely it is due to the stringent eligibility criteria, which requires the following:

  • The claim must raise issues of general importance in relation to which immediately relevant authoritative English law guidance is needed.
  • It may be determined without the need for a present cause of action between the parties to the proceedings.
  • A qualifying claimant – i.e. someone who is or was actively in business in the relevant market may, by mutual agreement, issue proceedings against another person who is or was actively in business in the relevant market, provided that other person has opposing interests as to how the law of England and Wales issue(s) raised by the qualifying claim should be resolved.

Whether or not a case meets these criteria will be decided at the first case management conference or interim application. One issue with the Test Case procedure is that, as is illustrated by the criteria above, suitable cases will involve an issue of general importance to the market which requires immediate resolution. Accordingly, it is envisaged that legal precedent will be established on wide reaching matters in circumstances where it would not be desirable or possible to have all interested parties fully represented before the court. To deal with this issue, the rules provide that the Court will consider whether arguments of all those with opposing interests in relation to the issues in question will be properly put before the court by those represented. For these purposes, in appropriate cases a relevant trade professional or regulatory body or association, or a third party affected by the determination of the issues, may be joined as a party. In the COVID Claim, the FCA took on the role of appropriate regulatory body. In doing so the FCA acted as representative to vast numbers of interested parties – in the first instance judgment, the FCA estimated that around 370,000 policyholders could potentially be affected by the test case.

Despite being the first of its kind, the determination of the COVID Claim under the test case procedure appears to have worked incredibly well. For a claim of this magnitude to go from the starting blocks to the handing down of a Supreme Court judgment in just over seven months is an incredible feat, and really illustrates the pre-eminence of the English legal system. As the Supreme Court put it “[i]t is hoped that this determination will facilitate prompt settlement of many of the claims and achieve very considerable savings in the time and cost of resolving individual claims.”

Now that the test case procedure has been “tested”, it seems likely that it will be called upon again. Use of the procedure will, however, need to be carefully managed. As noted, the outcome of the COVID Claim had the potential to affect hundreds of thousands of policyholders who were not parties to the claim. Whilst the procedure may be open to abuse by deciding issues in relation to parties not actually before the court, we can be confident that the English court will be alive to this issue and will ensure that the justice is properly served. A precursor to the test case procedure can be seen in the case of Rolls-Royce plc v Unite the Union [2009] EWCA Civ 387 which related to collective arrangements regarding the length of service in the matrix of selection criteria for redundancy. In that case, although there was no lis between the parties, the Court determined that it had the power to hear the claim, which was a matter of public importance involving the interpretation of The Equal Treatment Directive and was likely to affect a large number of people. In making that decision, it was clear that the Court had in mind the desire to avoid confusion on the interpretation of the Directive which, if not clarified, had the potential to generate significant satellite litigation. The test case procedure therefore enshrines a procedural route that was already available to the Court and gives a clearer route to access it.

In that context, there is a separate issue regarding how such claims might be funded in circumstances where the general rule will be that there shall be no order as to costs. One can see that third party funders might be called upon to fund the representation of parties who might not otherwise be able to ensure that their interests are properly represented. However, with no prospect of recovering funding costs, that is not such an attractive option. Conversely, funders might be attracted to the prospect of investing in a test case on the basis that any resulting judgment may be used to generate a wider settlement/judgment and it could effectively be used to generate “follow-on” claims. In that scenario, it would only be necessary to establish causation and quantum, which is a considerably more attractive claim to fund. Accordingly, it might be possible to use this procedure as a gateway to a much larger claim, and with the added benefit of no risk of adverse costs.

To summarise, whilst it is disappointing that the test case procedure has only been used once to date, it is hoped that it will be called on more going forward to help resolve issues of significant importance to the market, including post-Brexit, and possibly further COVID cases.

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