REUTERS | Lucy Nicholson

Litigation’s premature gold rush: are opt-out representative actions the new norm?

On 24 January 1848, James W. Marshall discovered gold at Sutter’s Mill in Coloma, California. In the months that followed, California’s population ballooned from roughly 15,000 to 300,000 as migrants from the rest of United States (US) and abroad moved there in the hope of starting anew, working hard and making great wealth. In the English litigation scene, some are perceiving the Court of Appeal’s judgment on 2 October 2019 in Lloyd v Google to be akin to Marshall’s discovery. The opt-out style of class actions in the US has finally been allowed in England, they assert. (By way of reminder, class actions in the U.S. are typically “opt-out” regimes, meaning that they are binding on all persons who are described or defined as being members of that class, and you need only one person to represent the entire class. A person must consciously opt-out of the litigation to be able to pursue the claim on an individual basis.)

The English legal system has traditionally resisted all attempts to allow opt-out regimes (save for the recent development in the Competition Appeal Tribunal (CAT)) and has instead favoured “opt-in” regimes, meaning that judgments are binding only on claimants who actively sign up to the litigation. It is for this reason that some have termed the recent Court of Appeal judgment as a “watershed”, and a “good day for claimant lawyers”.

With the economy stagnating as a result of the lockdown measures imposed as a result of COVID-19, the optimism stemming from the judgment is palpable as lawyers and claimants alike are seeking new ways to make money quickly. Litigation funders are being presented with endless opportunities for these new class actions, known as “representative actions” in England. But is the optimism well warranted?

While many litigators would welcome this change, I fear that it may be premature to engage in any new opt-out representative actions at the moment.

The lay of the land

The legislative framework underpinning representative actions is contained in the Civil Procedure Rules under CPR 19.6, which provides that a claim can begin or continue by or against one or more other persons who have “the same interest” as those being represented. Any judgment or order is then binding on all persons represented in that claim. By way of comparison, this succinct rule compares with almost six pages of legislation from the US under Rule 23 of the Federal Rules of Civil Procedure, which underpins the class action system.

Nothing in CPR 19.6 suggests that an opt-out regime is permissible. This contrasts with the CAT’s Guide to Proceedings which specifically refers to opt-out proceedings. Why, then, do some believe that opt-out proceedings are now possible?

Previous attempts at finding gold

Ten years ago, Emerald Supplies Limited (Emerald), an importer of flowers based in Yorkshire, commenced proceedings against British Airways in the English courts. Emerald claimed that it had suffered loss as a result of an alleged cartel in the air cargo market, of which British Airways was alleged to have been a member. Notably, Emerald argued that it was a representative of all direct and indirect claimants worldwide that had suffered loss as a result of the cartel. In doing so, it attempted to create an opt-out style action.

In Emerald Supplies Ltd v British Airways plc, the Court of Appeal confirmed that the key factor in representative actions is to identity “the same interest” in the relevant group. The court construed the test narrowly and decided, among many points, that at all stages of the proceedings, and not just at the date of judgment, it must be possible to say of any particular person whether they qualify for membership of the represented class of persons by virtue of having “the same interest”. On that basis, the court ruled that Emerald and those it purported to represent did not all have “the same interest” because it was not possible to determine whether a person was a member of the represented class until the entire case was heard and judgment handed down.

If you don’t succeed, try, try again

Such a restrictive approach continued to be adopted by the court. In mid-2017, Richard Lloyd alleged that Google breached data privacy legislation by collecting, collating and selling iPhone users’ internet browsing data without their consent. Lloyd claimed damages of £750 per person whose data privacy rights had allegedly been infringed. In essence, he argued that an equal tariff should be awarded for the mere infringement of the claimants’ data protection rights and for the loss of control over their data.

The High Court ruled that members of Lloyd’s representative class did not share “the same interest” because the nature and extent of the breach, and the impact it had on individual class members, would have varied greatly depending on their personal circumstances. In fact, some may not have suffered any damage at all.

Further, the court ruled that identifying and verifying claimants was problematic. Warby J stated that class definitions had to be “conceptually sound and workable” and held that this was not satisfied in the current circumstances. It was unclear how individuals could be expected reliably to remember whether they satisfied the conditions of falling within the class definition. This presented two risks:

  • A person might come forward honestly to claim compensation which was not in fact due.
  • There might be abuse.

Finally, in a damning indictment of opt-out representative actions, Warby J stated:

“It would not be unfair to describe this as officious litigation, embarked upon on behalf of individuals who have not authorised it, and have shown no interest in seeking any remedy for, or even complaining about, the alleged breaches.”

The message from the court was clear: pursuing opt-out style representative actions would be seen as veiled opportunism by lawyers and other third parties.

Striking gold

Lloyd appealed the High Court’s ruling. In a surprise move, the Court of Appeal held in October 2019 that Warby J had defined the phrase “the same interest” too narrowly, and that he had misinterpreted the damage that each claimant sustained. Instead of accepting his reasoning that each claimant sustained different damages by virtue of Google’s actions, the Court of Appeal ruled that the purported damage to each claimant was the loss of control of data by Google without consent (with no individual claimant seeking to rely on any personal circumstances or individual losses). This was a common loss originating from the same alleged wrong, occurring under the same circumstances and within the same time period.

Further, the court did not agree with Warby J’s characterisation of the struggles involved in identifying claimants. Google itself would be able to identify who was and who was not in the class, and it was not solely incumbent on the claimants to undertake this exercise.

On that basis, the court accepted that while the use of a representative action for such a claim would be “usual and innovative”, it was permissible.

Is it time to buy a ticket to California?

As a result of the recent economic slowdown, many people are turning to litigation to find justice and seek compensation. To the foreign eye, US-style class actions are characterised by eye-watering awards, quick settlements and relatively simple pleadings (all depicted in Steven Soderbergh’s 2000 film starring Julia Roberts, Erin Brockovich). Of course, this is a very reductive description of the US class actions system and demonstrates the naivety with which some approach class actions.

Since the Court of Appeal’s judgment in Lloyd v Google, funders are being inundated with similar offers for opt-out representative actions which seek unprecedented damages and yield unbelievable returns. Of course, litigation funders are only too eager to capitalise on lucrative opportunities in the market, but is this really the time to rush to partake in this new gold rush?

Hold your horses

While Lloyd v Google appears to support opt-out representative actions predicated on the loss of control of data without consent, some have argued that such actions are now permissible for claims relating to any form of data breach. There is general consensus that personal data must be protected. In Europe, this is codified in Article 8 of the Charter of Fundamental Rights of the European Union as a fundamental right. The judiciary is therefore tasked with protecting that right, meaning that access to a remedy must exist. In the past, this has been easier said than done.

In Wm Morrisons Supermarkets Plc v Various claimants, the claimants pursued a group litigation order (a GLO) against Morrisons vicariously for the acts of a disgruntled employee who leaked payroll data of about 100,000 members of staff. (For more on GLOs and how they differ from representative actions and other forms of group litigation, see my previous blog.) Only approximately 5,000 claimants took part in that case; the remaining 95,000 were therefore denied the ability to seek justice. Of course, some of them may have consciously decided not to take part in the litigation, but there is a good chance that most of them were unaware of the litigation.

It is arguable, therefore, that GLOs do not necessarily provide access to a remedy when there are tens of thousands (if not millions) of potential claimants. Instead, representative actions may be the only way to safeguard justice. Indeed, some now believe that all representative actions can be structured as an opt-out regime as long as the lowest common denominator to damages is applied. At this rate, almost every company in the UK will soon face such an action.

In light of the wide-sweeping changes that Lloyd v Google presents, it is not surprising that on 11 March 2020, the Supreme Court granted Google permission to appeal against the Court of Appeal’s decision. The appeal is not expected to be heard by the Supreme Court until late 2020/early 2021 at the earliest.

While the court is unwilling to be swayed by policy arguments and it sees no reason why floodgate-type arguments should be rejected, it is also reluctant to make new laws. In circumstances where Parliament has not expressly considered it appropriate to make opt-out group claims (outside of the CAT) available, it is arguable that such a far reaching change should be crystallised in a legislative change as opposed to a judgment made by the judiciary. It is possible that the Supreme Court will overturn the Court of Appeal’s ruling.

It is therefore too early to be rushing to courts now to commence opt-out representative actions. Litigation is expensive and even preparatory work on representative actions can be substantial. Should the Supreme Court rule against Lloyd, this could be detrimental to opt-out representative actions and would be a wasted investment.

We have been patient to reach this juncture; we can wait another year for clarity. Litigation is not a scarce resource that has the potential of drying up or running out. Companies are only increasing the amount of data that they process daily, so it is inevitable that some of them will eventually breach data protection laws (either advertently or inadvertently).

As a litigation funder, I stand ready to fund such actions once the Supreme Court provides clarity on opt-out representative actions; I suggest you be patient as well.

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