Class actions have garnered significant media coverage in recent years with some of the world's biggest companies finding themselves embroiled in high value litigations around the world, with often hundreds or even thousands of claimants involved.
From accusations that Google took advantage of market dominance by shutting out competition on mobile search engines, to Mastercard being accused of unlawful conduct resulting in higher prices for consumers, and Apple taken to court for allegedly selling iPhones with defective batteries, high profile claims worth hundreds and even billions of pounds have often hit the headlines. Perhaps most famously, the Hollywood film Erin Brockovich brought the idea of class actions to audiences around the world.
In Scotland the ability to raise class actions (or group proceedings as they are known here) was only introduced in 2020. However, with the number of class actions rising rapidly around the world, what does this relatively new legal instrument mean for Scotland's energy sector?
What are class actions and who can bring them?
Class actions are claims where two or more parties collectively raise a claim in a single action. Those parties could be individuals or businesses but must have suffered a loss in the same or, at least, a similar way, caused by the business or individual they are raising the claim against. They are usually raised against large businesses, with claimants seeking financial payments for alleged wrongdoing.
In recent years, class actions have been raised covering a wide variety of matters including, amongst other things, actions raised by consumers for product defects or misleading advertising, environmental claims, competition law claims and securities litigations, with the latter seeing a particular increase in recent months.
Class actions can either be brought by 'opt-in' procedure or 'opt-out' procedure, depending on the country in which the claim is being made.
What is the difference between 'opt-in' and 'opt-out' procedure?
For class actions brought under 'opt-out' procedure, all individuals and businesses who meet the relevant criteria to fit into that 'class' are automatically entitled to compensation if the claim is successful. They do not require to actively 'sign up' to the class action but can 'opt out' of receiving compensation. 'Opt-out' class actions are available in a number of countries such as the US, and in the UK for 'competition' claims.
In Scotland, actions can currently only be brought by way of 'opt-in' procedure which requires claimants to actively 'sign up' to be part of the claim. However, recent minutes from a March 2024 meeting of the Scottish Civil Justice Council suggest that further thought may be given to introducing 'opt-out' procedure in Scotland, with talk of a potential working group to discuss its introduction.
What impact would introducing 'opt out' procedure to Scotland have on Scotland's energy sector?
Simply put, the more claimants included in a class action, there is a likelihood the overall payout will be higher if successful. It is easy to see why, without the need to actively sign up, it is likely that 'opt out' procedure will result in larger claimant groups.
Moreover, obtaining funding for class actions is easier the higher the potential end payout. Bringing multiple claims as part of a class action allows for economies of scale, where each individual claim is often too small to be economically viable to pursue. As such, there is a risk that the introduction of 'opt-out' procedure in Scotland could entice litigation funders and law firms to raise more class actions which would otherwise be difficult to pursue due to low engagement.
Accordingly, were 'opt out' procedure to be introduced into the Scottish legal framework, it is likely that we will see more funders moving into the Scottish market, who might look to coral claims on behalf of a larger class of claimants, who might not otherwise have either prosecuted their claims individually or even to have opted in to Group Proceedings as currently provided for. Those funders and those acting on their behalf would use the powerful 'opt out' procedure. They may well have Scotland's energy sector in their sights.
As energy companies are hitting the headlines with record profits, press reports suggest that some plaintiff law firms are already gathering groups of small businesses (SMEs) together in preparation for potential class actions against energy companies arising out of what is alleged to be "secret commissions" paid to brokers for introducing SME's to energy companies. They may also have a keen eye on potential class actions on behalf of energy consumers, for example, where they believe they have been overcharged or where they believe their contracts have been breached as a result of service interruption. One could also envisage the 'opt out' procedure being used where downstream operations result in environmental issues.
Multi-million-pound claims remain a real risk for many businesses in Scotland under an 'opt in' procedure. Whilst the multi-billion-dollar pay-outs that have been seen in the US may seem a world away, they would become closer with the introduction of an 'opt out' procedure in Scotland.
It is likely to be some time before any changes to the rules will be seen. In the meantime, we expect the momentum of group proceedings in Scotland continue to grow.
First published in OGV Energy.
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