Global class actions briefing - Scottish emerging market

On 31 July 2020, class actions (known as “group proceedings”) were permitted to be raised in the Scottish courts for the first time. The rules allow two or more people with the same, similar, or related claims to pursue court proceedings in a single action. In practice, however, class actions often comprise hundreds (or more) claims.

The introduction of class actions is a significant change in the landscape of civil litigation in Scotland, and presents a large risk to businesses operating in Scotland. Due to the nature and size of such disputes, if not managed effectively, they can lead to expensive and long lasting litigation which can affect profitability, share prices, financial reporting and cause reputational harm.

DLA Piper has the largest Global Class Actions Group in the world, with extensive experience of helping clients to anticipate, address and resolve class actions. The breadth of our experience places us in a unique position to identify trends, engage with regulators and court systems across the world, and offer solutions to clients in cases that are increasingly crossing jurisdictions. We provide clients with a team of experienced lawyers who work across sectors and jurisdictions to advise on claims wherever claims arise.

In preparation for the new rules coming into force in Scotland, DLA Piper will be issuing a series of 3 articles which will address:

• The forthcoming rules in Scotland and how businesses can prepare (a synopsis of this article was published in The Scotsman on 27 July 2020);
• How class actions are run and challenges arising; and
• Forecast for key sectors at high risk and impact of the new rules

This is the first article of the series.

The introduction of class actions in Scotland

In recent years, there has been a progressive move towards ensuring greater access to civil justice in Scotland. The process began with Lord Gill’s review of the Civil Courts in Scotland in 2009, followed by Sheriff Principal Taylor’s Review of Expenses and Funding of Civil Litigation in Scotland in 2013.

A notable change arising from the Taylor Review was the introduction of damages based agreements (DBAs) at the end of April 2020, which allows solicitors to engage in success fee arrangements with their clients in Scotland for the first time.

The concept of class actions is an important part of this progressive movement, and it was enacted into law in June 2018 in the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018. The Act provided a broad framework for group proceedings; with the enabling provisions to be devised following consultation by the Scottish Civil Justice Council. The relevant court rules have now been published and entered into force on 31 July 2020.

These developments follow trends observed in England and overseas (in particular, Australia and North America) in recent years, where third party funding and collective redress procedures have led to claims are being filed with increasing frequency across the globe.

A change can be observed in the nature and scope of claims being raised. Increasingly, claims (and companies’ exposure) is an issue that spans many jurisdictions. Whilst this could be attributed to the rise of global operations, social media has also enabled people to access and share information; contributing towards the spread of claims. It is also clear that claims are a business and a valuable asset. Third party funding commoditised claims, and class actions are one of the most attractive categories of disputes for funders (both domestic and overseas). All of these components create a perfect storm for litigation.

Class actions are a new mechanism to bring claims and, with this, it will never have been easier (or most cost-effective) to seek redress, and at little (or no) risk. This presents new challenges to companies and public sector organisations operating in Scotland, and it is important for companies to be alert and have robust procedures in place to mitigate against the potential risks.

The Scottish rules

Class actions are potentially relevant to all businesses (and public sector organisations) operating in Scotland. The rules, which entered into force on 31 July, provide the framework for claims being raised. When considering the potential impact and exposure of class actions in Scotland, the following key provisions from the rules should be noted:

1. Permission must be granted by the Court to raise group proceedings. The default position appears to permit group proceedings to be raised, with the rules prescribing circumstances in which permission can be refused by the Court. Such factors include failure to take all reasonable efforts to identify and notify all potential members of the group; and failure to demonstrate a prima facie case and / or that the proceedings have any real prospect of success. The test is therefore not onerous, and would be assessed on the civil balance of probabilities. However, a defender (defendant) must be notified of an application and can lodge objections.


2. Permission must also be sought by the person who seeks to act as the representative party in bringing the group proceedings. This could be a solicitor or member of the group. There can only be one representative party, and the first party to be approved by the Court will act on behalf of the group. Once again, a defender has an opportunity to object.


3. The rules provide for “opt-in procedure”. Whilst this requires express consent from a party to be included within a group claim, in practice this could just require submission of a short form online. It could, nonetheless, place some limit on the potential scope of class actions in Scotland. For example, avoiding proceedings being raised, on a blanket basis, on behalf of all customers whose personal data was compromised. A move towards “opt-out” procedure is still being considered.


4. Whilst the Court can consider financial resources to meet any expenses awards when determining an application to be a representative party, the rules state that details of funding arrangements do not have to be disclosed. Therefore, the nature and level of remuneration of a solicitor (or individual) raising proceedings will not be considered. It is also not clear how costs will be addressed within a group, and how this will impact on the overall exposure of a defender to costs awards. It may be anticipated that insurers may increase premiums to mitigate the potential for greater numbers of claims being raised.

The approach of the Courts to these issues will be seen in the coming weeks and months.

Class actions - forecast

The size and breadth of experience of our Global Class Actions Group places us in a unique position to identify trends in claims across the world. In recent months, in England class actions have been particularly prominent concerning data and cyber security, product liability and consumer goods, financial services claims, and regulatory matters. Increasingly, these matters have become a global issue for companies; with similar claims being raised in multiple jurisdictions.

It is likely that claims will follow a similar pattern in Scotland. Given Scotland’s lead in the financial and business services and consumer supply sectors, those operating in these sectors could be particularly vulnerable to class actions. Further, in the wake of COVID-19 it is likely that there will also be a variety of claims arising, for example, employment claims relating to the availability of PPE; care home deaths; and supply chain claims.

How companies can prepare

Companies should act now and put appropriate procedures in place to mitigate against the risk of increased claims being raised. Such steps may include:

1. For day-to-day operations, ensure that there are robust procedures and clear testing regimes in place. Through due diligence on suppliers should also be carried out. This will reduce the likelihood of an incident arising which could give rise to a claim.


2. Implement a procedure for reporting and addressing issues when they occur, and maintain good relations with local regulators.


3. Carry out a cross-border risk assessment, which identifies the key risks posed and jurisdictions where claims could be raised. This will help to foresee potential claims. Social media can be a very valuable tool to monitor issues being voiced by customers and identify potential risks.


4. Have a litigation strategy so that the necessary steps are in place in the event that a claim is served. This should identify cases that are high risk (e.g. due to the nature, value or volume of claims), and have a process for internal escalation. Increasingly, this should be a global strategy, and have a process for cross-border working on the claims.


5. Ensure that insurance is in place which is sufficient to cover the nature and value of potential claims.

Comment

It is anticipated that the advent of group proceedings in Scotland will lead to an increase in the volume of claims being raised. Without the necessity to raise individual claims, it has never been easier (or more cost-effective) for a party to seek redress. Whilst the requirement for claimants to “op-in” to proceedings presents some restriction, businesses operating in Scotland should take note of the likelihood of an increase in their exposure to claims. Particular areas that may be vulnerable to class actions involve data and cyber security, product liability and consumer goods, financial services claims, and regulatory matters.

Whilst the new rules are not yet in force, it is anticipated that there are a number of class actions waiting to be raised in Scotland. For example, in recent weeks it has been reported in the news that class actions are to be raised in Scotland relating to vehicle emissions.

For more information or to discuss how DLA Piper’s Class Actions group can help your business please contact us at classactions@dlapiper.com.