Banking & Finance Academy – Class actions in the UK financial services sector

Group proceedings, as they are known in Scotland, are broadly similar to class actions seen in other jurisdictions, whereby a group of claimants, with the same or similar claims against the same defender, can pursue their claims as a single action.

In jurisdictions with more established class action regimes, there are numerous examples of these affecting the financial services sector, so, can we expect to see the same in Scotland?

Group proceedings in Scotland

Group proceedings have existed in Scotland since 2020, so they are still relatively new, and no cases have reached a proof (trial) yet. There are around a dozen group proceedings currently live in Scotland, with more expected each year.

A group of claims can only proceed as a group proceeding if the court is satisfied that they raise issues of fact or law which are the same as, or similar to, each other, such that it would be proper for them to be brought as a single claim.

Group Litigation Orders (GLOs) in England and Wales

In England and Wales, GLOs have existed as a means for multiple claimants to raise a single action since May 2000. This is a more developed and established regime than Scotland's group procedure. However, GLOs also remain something of a novelty – particularly in comparison to the USA's mature group litigation culture – with only 124 GLOs having been made to date (less than five per year).

Several recent high-profile GLOs, such as the GLO granted in 2019 in respect of a claim against British Airways arising from a breach of their IT systems in which personal data was accessed, have brought them into focus and captured the public interest. This has incentivised specialist claimant firms to actively seek out potential claims. This momentum is expected to continue, resulting in an increased number of GLOs being granted.

Similarly to Scottish group proceedings, GLOs will only be granted if the court is satisfied that the claims raise common or related issues of fact or law.

Collective proceedings in the Competition Appeal Tribunal (CAT)

The CAT, which operates UK-wide, has a separate collective proceedings regime for competition law actions, where two or more claims for breach of competition law are based on the same, similar or related issues of fact or law.

Class actions in the financial services sector

A common feature of the three class action regimes set out above is that, in order for claims to be brought as a single group action, they must raise issues of fact or law which are the same as, or similar to, each other.

The way in which many financial services institutions tend to operate, i.e. dealing with a large volume of customers on standard contractual terms and treating them in the same way, leaves them particularly vulnerable to class actions. If a financial services institution is alleged to have breached a contract or a duty in relation to a particular customer which would give rise to a claim, it is likely that there are many more customers with claims that are the same or similar.

We consider that financial services institutions should be particularly alive to the risk of the following types of claims being brought as class actions against them:

• Securities litigation: This is one of the most common types of class action faced by publicly traded companies in the USA and Australia. It involves shareholders bringing claims against a listed company to seek to recover losses incurred as a result of a drop in share price after public statements made by the company turn out to be untrue or misleading. A recent decision of the High Court of England and Wales in Allianz Funds Multi-Strategy Trust & Ors v Barclays Plc [2024] EWHC 2710 (Ch) poured cold water on the emerging risk of securities litigation being brought against financial services institutions, by making it significantly more difficult for these claims to succeed in the UK than in the USA. There are several similar cases due in court this year which could go a different way, so whilst financial services institutions can take some comfort in the High Court's decision in Barclays, they, and those representing them, should keep an eye on the outcomes of upcoming cases.
• Undisclosed commissions litigation: This typically involves allegations that a broker has received a hidden commission from a lender for referring a borrower to that lender, without disclosing that to the borrower.
• Financial mis-selling or misrepresentation, such as claims for repayment of payment protection insurance (PPI).
• Breach of data protection legislation: As demonstrated by the claim against British Airways mentioned above, this is a risk for any kind of business that deals with individuals and handles their personal data.
• Rates manipulation: For example, there have been claims against banks concerning alleged collusion to manipulate LIBOR.

Practical considerations for businesses

The number of actions brought under the group procedure in Scotland, GLOs in England and Wales, and the collective proceedings regime in the CAT, continues to increase year-on-year, and this shows no signs of abating. We recommend that businesses manage the growing risk of class actions by having regard to the following practical considerations:

• Horizon scanning. Businesses can take some advance warning from issues giving rise to class actions in other jurisdictions. For example, many class actions we have seen in the UK have been preceded by similar cases in the USA. Businesses should also be alert to issues arising out of their own operations that could have the potential to mutate into a class action.
• Procedural forum shopping. Businesses shouldn’t make overly simplistic assumptions about where class actions can and can't be brought. Just because Scotland or England and Wales doesn't appear to be the most appropriate forum in which to bring a class action, perhaps because the damage or the wrongdoing has occurred somewhere else, litigation-savvy claimants and their representatives may still seek to raise class actions in these jurisdictions if it suits their purposes.
• Can the action be prevented from proceeding as a group? Under each of the class action regimes in the UK, there is some requirement for the court to certify that the claims can proceed as a group, on the basis that the issues are sufficiently similar or give rise to common issues. If a business does find itself faced with a class action, the best result is to defeat the claim at that permission stage by persuading the court that the claims are not sufficiently similar, and so it would be inappropriate for them to proceed as a group.

As class actions become an increasingly relevant financial and reputational risk to businesses in all sectors, local legal advice with a global strategy is the best way to stay informed and protected.

Brodies recently delivered a webinar on the topic of class actions in Scotland and England and Wales, including a discussion of class actions in the financial services sector. You can access the recording of the webinar here.