Group proceedings come to Scotland

00:00:05 David Lee, Host

Hello and welcome to ‘Podcasts by Brodies’. My name is David Lee and in this series we're discussing the opportunities, trends and challenges that Brodies experts experience when working in areas of law with an international dimension.

Brodies' lawyers are globally connected experts in their fields. They advise clients across all key sectors, from real estate to education, energy, food and drink, life sciences and even personal and family matters, to name just a few. Today we're discussing the subject of group proceedings.

Although relatively new to Scotland, it's likely listeners will have heard of similar litigation in other jurisdictions before now. In England and Wales, it's known as group litigation and as class action in the United States, with Erin Brockovich being among the most famous examples from popular culture.

I'm joined today by litigation experts Craig Watt, a partner with Brodies and Andrew Fox, a partner with multinational legal firm Sidley Austin.

Welcome to you both, and if I can start with you Craig to set the scene. Basically, what do we mean by group proceedings in this context?

00:01:19 Craig Watt, Partner

Well, it's probably the most exciting development in Scottish court procedure, certainly during my working life.

As you say, it's known as many things in different jurisdictions; class actions, representative actions, group litigation, whatever you want to call it.

It's a court procedure which allows groups of individuals to come together to progress a litigation, so they join together as a group or a class to pursue their claims jointly.

Now, it may sound like an old cliche, but there is strength in numbers through the economies of scale, time, effort, you know and sharing the burden. And it's attractive to the courts too, because they don't get inundated with large volumes of claims each being progressed you know individually against the same defender or defender on the same issues, so it's a win win for all parties to that particular angle.

00:02:13 David Lee, Host

OK, and Andrew as we said in the introduction there, some people might know group proceedings by other names like class action for example, what is the difference in terminology across the jurisdictions and are there any specific differences?

00:02:29 Andrew Fox, Partner - Sidley Austin

Being lawyers, there are always lots of different names for lots of different terms or types of litigation, and often that can obscure as much as it reveals. Certainly from an English law perspective - which is the law that I practise notwithstanding my accent nowadays - there are actually some quite subtle differences in the terminology. So they are all kind of a species I suppose, multiparty litigation.

But really, when talking about group litigation that tends to bring in mind more the group litigation order procedure that exists under CPR [Court Procedure Rules] part 19 - the CPR being the English Civil Procedure rules - and that is an opt in mechanism, but typically resolves issues of common fact or law, but often leaves quantum of damages as a separate issue that has to be determined on a claim by claim basis, which can make them potentially quite unattractive.

Other terminologies talk about other processes. So again in an English context you hear talk about a 'representative action,' that tends to be a reference to a specific rule. Again in part 19 of the CPR that governs the procedure where there is a same interest in a case or an item of litigation.

And typically, class action or language around class actions is reserved for the separate procedure that there exists under the Competition Tribunal mechanism for multiparty action because there is a gating or threshold issue, a question of the Tribunal having to certify a particular class.

So subtleties in different terminology, usually reflecting the different avenues or procedural mechanisms that there are, each with their different procedural formulae or niceties. Generally, all falling under the umbrella of 'multi-party litigation.' But it's important to know specifically which type of procedure you are talking about, because the outcomes and the road maps to a trial, and who can participate, can be quite different amongst them.

00:05:05 David Lee, Host

OK, thanks Andrew, and whatever we do call them, why is this kind of mass litigation significant in a legal context? And can you give us some examples of kind of cases that have been successful of mass litigation?

00:05:22 Andrew Fox, Partner - Sidley Austin

They're significant in the legal context, or its significance, I suppose, depends on the perspective from which you're looking at that question.

So, from the perspective of consumers or wronged consumers, they are an important mechanism to hold the providers of goods and services to account on a large scale and on an efficient scale, and to leverage the expertise of legal professionals and advisors to get justice for consumers, where justice is required to be provided.

Its significance, to certainly the legal community down here where I practise in London, is rising by the year and there has been a multitude of new claimant side firms opening up shop in the last few years, really conducting their practice on an issue-by-issue basis, that's either a consumer issue or an environmental issue or a financial services issue. So, what you've seen over the last 10 or 15 years is a shift in emphasis, where previously perhaps litigation was driven first as a result of an obvious breach of contract and then the court process follows, or an obvious tortious interference in some manner, and then lawyers pick up the litigation after the event.

What you're now seeing is the reverse of that. So teams of lawyers actively scouring the press and actively scouring large corporations and their practises to spot issues where consumers or the users of products or investors could have claims. Then taking those claims to those potential claimants and leveraging the mechanisms that we're talking about to primarily generate some legal business, of course, but then secondarily seek to achieve justice from those who have good claims. That is a relatively new and emerging enterprise and way of getting justice in England.

00:07:54 David Lee, Host

OK, and can you give us some examples, Andrew of group proceedings, group litigation that has been successful.

00:08:03 Andrew Fox, Partner - Sidley Austin

Sure, there are a few notable ones and obviously there are some very large cases, particularly in the tech sector still underway at the moment.

In terms of successful outcomes, obviously the main success is extracting financial settlement from defendants, but also success can be measured by reaching that settlement or a satisfactory outcome sooner rather than later.

So, prior to trial, so this is just kind of level setting the question, but when you talk about success that can mean, as much money as you can possibly extract from a defendant, no matter how long it takes, or - particularly in the case of large scale personal injury claims or issues of that sort - it might be actually reaching a settlement or a value that is acceptable enough in as short a time frame as possible, because there are people affected whose health has been affected by issues or products, or pollution. And they just want to feel like they've had a successful outcome and it's not dragged on. So I think that's quite important when measuring success.

But you know a couple of outcomes which have been successful for the groups, spring to mind.

The first, is the RBS rights issue proceedings from, was it five or six years ago, perhaps longer now, where investors in RBS reached a settlement with the bank. I believe that was to do with inaccuracies in circulars to do with their acquisition of ABN Amro which resulted in shares not being at the value that they should have been and compensation flowed and RBS ultimately settled. Interestingly that then gave rise to quite a few follow-on actions where various classes and their lawyers and their funders fell out about the allocation of those proceeds, so it kind of spun a second level of litigation. So was that was a successful outcome or not? I mean obviously it was successful, but you know success bred more arguing and then there was a kind of second layer of success or at least settlement.

Another more recent example is the Volkswagen emissions scandal, where, again before trial or before a judgement on quantum, Volkswagen settled with consumers at a relatively early stage having lost a couple of preliminary issues. Chief of which was a gating issue to do with whether or not the defeat devices or the cheat devices that had been installed in cars were properly so-called cheat devices or just devices which were meant to jump start your car and have it performing a little bit better on a cold morning. They lost that preliminary issue and so the writing was kind of on the wall, and that really is one of the elements that drove the settlement in that case. But again for purchasers of those affected vehicles, and let's not forget their lawyers and funders, that was a successful outcome.

00:11:51 David Lee, Host

Great, thanks very much and Craig back to you - why was Scotland a bit later to the party in terms of group proceedings and how basically does the system operate in Scotland?

00:12:08 Craig Watt, Partner

As you say other jurisdictions have had this in place for some time.

Where Andrew operates in England and the United States and also Australia and it's fair to say there's been some pressure upon the Scottish civil justice system to offer the ability to allow groups of pursuers to proceed jointly. It's come from many different quarters, I suppose, as far back as 1996, the Scottish Law Commission produced a paper proposing the introduction of multiparty actions.

The Scottish Consumer Council in 2003 made a call for the introduction of class actions in Scotland, but it wasn't really until the Scottish Civil Courts Review of 2009 proposed some fairly radical reforms - including the increase in the privative limit of the Court of Session to £100,000 - that we really moved forward into the space of considering realistically introducing multiparty actions. The review was dealing with a number of things, not least the perceived lack of reform in Scottish court procedure.

It was said that you know, someone from Victorian times moving forward in a time machine would have been able to pick up the thread of a litigation in today's court system, or certainly the court system in 2009 - for example, wigs and gowns and Latin maxims and pink ribbon around Counsel's papers.

But in the context of group proceedings, the review recommended a multi-party procedure whereby groups of claims would be dealt with within a single action.

But it wasn't until 2018 that the Scottish Government introduced the Civil Litigation Expenses and Group Proceedings Scotland Act 2018 that it was given a statutory framework. And then there was a gap in time before rules were brought into force that gave effect to that statutory proceeding and they were introduced and brought into force at the end of July in 2020. So somewhat COVID impacted.

As to why it's taken so long, I suppose there was a degree of changes that were required to the overall framework in Scotland to Scottish civil justice framework, not least the operation of the Court of Session - which had been cluttered by fairly low value claims because it fitted with other firms business models - but also ensuring wider access to justice, coupled with that and crucially with it, was the issue of funding litigation.

There had been a waning of civil legal aid, which was how a lot of firms funded litigation going back many decades ago, but that was waning. Also the reduction in the ability of trade unions, for example, to fund litigation. So, there was an issue to be dealt with there, which was perhaps more pressing than the desire to move forward into the introduction of multi-party actions. But we have now seen those changes and I think that someone moving from Victorian times now might find it a little more alien to operate in the Court of Session, but perhaps not too much.

00:15:28 David Lee, Host

And how do group proceedings operate Craig? What are the fundamentals of the system that you know finally arrived kicking and screaming after many years as you've said?

00:15:39 Craig Watt, Partner

As Andrew was mentioning there, much of it is derived from the work done by the pursuers’ agents who are collating the claim. So they have to go out and actually advertise to try and collate a group, and they'll do that through the press, the radio. We’ll all have heard it on the radio and on various spheres, but also, crucially, social media. That's being used now more frequently to try and collate people to join a group, and the solicitors who are actively trying to collate the group then bundle those individuals into a group register - and the group register is very important because that's effectively the list of everyone who's going to be within the group - and the court needs to see that.

The next step then is for someone to be appointed to act as the group representative.

And one of the cases we've seen going before the Scottish courts, there was an attempt by the pursuers’ solicitors to appoint themselves to act as the representative party and that was thrown out by the courts. I think that probably wearing one too many hats in that particular situation.

In another of the cases the representative party is one of the pursuers, but in the other two actions which have been permitted to go forward is a group proceeding the representative party in each of those is a senior counsel or King's Counsel who's no longer practicing, so that seems to be the way matters are progressing.

Once you've got a group collated and once you've got someone appointed or prospectively appointed to act as the representative party, then you need to think about funding. That seems to be something that's attracting a lot of attention from litigation funders given the size of these potential groups and the potential size of recovery -it's attractive to these litigation funders.

But it's a crucial part of the process because the courts want to know who's going to meet the adverse costs or expenses orders that might arise if your groups claim are unsuccessful and that's a part of the consideration that the court makes at the application stage. Now, there's going to be two applications considered by the court, one is for the appointment of the representative party and the other is to allow the matter to progress by way of group procedure.

In relation to the appointment of the representative party, the court is going to consider the relevant expertise and special abilities of the individual who sought to be appointed, their interest in the proceedings and any potential benefit they'll obtain - just trying and ensure that they're not going to be favouring themselves over the others. Then also their ability to demonstrate sufficient competence to litigate the claims properly and crucially, including the financial resources to meet any cost awards.

So that's what the court is considering in relation to the representative party. In relation to whether to proceed by way of group proceedings, that's been a bit of an open door, to be frank, in relation to the applications that have gone before the Scottish courts to date. If there's enough individual pursuers within the group, the courts will be faced with considering whether they want them to go forward as a group or to be inundated with these types of claims on an individual basis.

So, the court is going to consider both of these applications and if they're granted, then the matter will move forward using the traditional commercial court timetabling and processing.

00:19:27 David Lee, Host

OK and Andrew where Scotland has landed, how different is that to what's happening in England and potentially in the US as well? Are there any fundamental differences between the system that Scotland's adopted?

00:19:43 Andrew Fox, Partner - Sidley Austin

The interesting thing about the Scottish approach is - Craig might correct me if I'm wrong - but the Competition Tribunal is a UK wide tribunal. So, proceedings that could be brought or claims that are being advanced on a breach of competition law hook are claims that can be brought on a pan UK basis.

So I think what we're talking about, the new Scottish - or the relatively new - Scottish regime that Craig is talking about, is a kind of Scottish parallel to the representative action procedure under CPR 19. And they are broadly similar and effective processes as far as I can ascertain.

I think what will be interesting will be the degree to which claimant law firms buddy up on both sides of the border, in respect of particular consumer issues that fall under - or that can't be brought under the CAT regime so then fall under the English CPR 19 regime. So do the lawyers and those who are putting together the classes and the claims - the issue spotters and the individual claimants later - those sorts of teams, are they going to think 'hang on, if there's an issue that's affecting consumers in England or is otherwise a claim that would be brought in England on behalf of claimants, is this a type of issue that could also affect claimants north of the border on the same basis because it's the same tech?' The same tech operates the same way, or everyone's using the same social media platforms in the same way.

Is there scope, for cooperation between claimant firms North and South of the border? I thin in considering that question, you do have to bear in mind the relative difference in size for the claimants as a group. And by that I mean there's an obvious difference in the size of market and the number of claimants that there would be in Scotland as opposed to England and Wales.

But it seems to me that because many of these claims arise out of issues that affect people equally at a personal level, both North and South of the border, there must be scope for coordination between teams of lawyers, North and South of the border both to bring these claims within the respective proceedings that are available in Scotland and England and also to defend them. I'm talking about claims that wouldn't fall under the CAT.

In terms of differences between the various UK jurisdictions and the US, I know from speaking to my colleagues in our class action and both product liability and shareholder litigation practices in the US, because it's a very advanced bar and there are sub specialisms of class action practitioners in the US, that a significant practical difference between the UK and the US is the 'loser pays principle' and the absence of it or the relative absence of it, in the US. Now the effects of that are mitigated to some degree by what Craig's referred to, the rise of after the event adverse costs insurance and the insurance marketplace that has arisen around that.

But that is still a significant feature of class action litigation in the UK that has to be put in place beforehand. In the US it has been and perhaps always will continue to be a bit of an arms race in terms of how much can be outlaid because there isn't that adverse costs risk. So that slightly changes the dynamics and also the calculations around settlement and that sort of thing.

I mean another important difference between the US and the UK and again, I'm relying on my US colleagues for this, is that a lot of US class action claims are brought under the heading of fraud or false advertising or shareholder fraud, and it is a much lower bar in the US to plead fraud than certainly it is in England.

Craig will confirm if it's the same in Scotland, but fraud in England has always been a high bar and whenever we as solicitors in England are advising clients about it, we always say, "you have to have very good grounds to suspect fraud, it's a major allegation to bring because of the nature of the specific tort or torts that involve fraud." In England, there are Bar Council guidelines about what barristers can and can't sign off on pleadings for instance around alleging fraud. In the US, obviously it's a different system, those fetters on bandying around fraud simply do not exist. So, a lot of the claims that you see being brought in the US are based on fraud or variations of fraud or alleged fraud in some way, quite freely in a way that we don't over here.

And then similarly the certification regime under the Competition Appeal Tribunal mechanism was brought in specifically to avoid what at the time, what was felt as an overly permissive, overly litigious US class action style of industry growing. Now, whether or not that will continue to be that kind of check and balance that people anticipated it being will have to be seen, but certainly conceptually there is that certification process that has to be gone through the UK CAT, that doesn't exist as far as I can tell having spoken to my US colleagues at the state or on a federal level. So that again is a major difference between the US and then in the UK.

00:26:46 David Lee, Host

OK thank you, and Craig, listeners might have heard this idea of the opt in opt out system.

What route has Scotland gone down and what's the difference between the two systems? If you could just explain that briefly.

00:27:02 Craig Watt, Partner

In Scotland we've very much only got, with one specific exception, an opt in system. Andrew’s mentioned the CAT, which is obviously UK wide and that has an ability for Scottish individuals or groups to come together and join there on an opt out basis, but in in relation to the rules which have been provided for in Scotland, it's very much opt in. So that means that once a group or a class has been approved by the court, individuals who want to join those within the group or the class, have to actively contact the representative party or the pursuers’ solicitors to be added to the group register, and if not, they're not part of the group.

Interestingly enough, the statutory framework that I mentioned does provide for opt out as well as opt in, but the rules have not been provided for an opt out basis and as such I anticipate that the Scottish courts will see a number of the claims go forward to conclusion on an opt in basis so that they can take the learnings from that before they start to try and again return to open up the bottle to see how it would work on an opt out basis. So I don't anticipate there's going to be many changes to the Scottish group proceedings structure at the moment until that's been tested, and indeed how that will be tested will probably depend upon how attractive the current procedure is to, for example, litigation funders and consumers crucially, to see if it's going to succeed or not?

00:28:59 David Lee, Host

OK, and Craig, we're at early stage at the moment in terms of group proceedings in Scotland, how do you see things from kind of clients’ perspective, those who might actually face group proceedings, what are the kind of challenges they face under the regime we have?

00:29:19 Craig Watt, Partner

Well, I do think it's understandable that some businesses and organisations will be fearful of this new procedure. It's likely to bring with it, for example, a lot of press attention because it's new, it's going to hit the front pages rather than just the business sections of newspapers and news platforms, and that's not often good for business. But, it has the possibility for these cases to go through more efficiently and more cost efficiently for defenders. For example, it's likely to be more cost efficient to deal with one large group proceeding than dealing with many hundreds or thousands or even millions of individual claims. So, for example, when the banks were handling the unauthorised overdraft charges cases many years ago, they were having to defend these cases across sheriff courts the length and breadth of Scotland and across the UK, as opposed to facing them down in one large group proceeding.

Now that's time consuming for them, it draws upon internal resources and it's also expensive, so it could be more cost efficient to deal with it in one go. Having a serious exploration of the legal issues rather than dealing with it in a death by 1000 cuts type way.

I suppose a final challenge for clients facing group procedure is that they may face claims that they might otherwise not have faced. For example, in the data breach cases, individually the claims might not be worth a whole lot of cash. You might be talking about tens or low hundreds of pounds and what are the prospects that they would have prosecuted the claim against the company for such a low or minimal return if they weren't joining a group? So, defenders may be facing cases now that they wouldn't otherwise have faced, that has to be taken into account as well.

00:31:26 David Lee, Host

And if a client does face group proceedings, Craig, what are the early actions they should take?

00:32:32 Craig Watt, Partner

Well, I think that the best advice I could give clients who have exposure in Scotland, and it's peculiar to Scotland, is that they should lodge caveats. Now a caveat’s an early warning system which allows clients who are operating in Scotland, either with headquarters or with a piece of business in Scotland, to be alerted if someone is going to the court to seek orders against them, for example on an interim basis. But peculiarly, it also allows them to get early warning of any intention of parties to proceed by way of group proceedings against them. So, it allows them to get a bum on a seat at any hearing that might be heard that they wouldn't otherwise have been notified about on an ex parte or, you know, a matter being heard in chambers without it having been served upon the defenders.

That's crucial because it gives them early notice of a group who's going to be coming against them. What does that allow them to do? Well, it allows them to start putting their insurers on notice, appointing solicitors, considering investigations that they might want to take to get them to ensure that they've got as robust a defence as possible once the matter becomes live. You know, getting their PR in place that may be internal press officers or getting someone external in because this is going to get attention. But crucially, to allow them to report internally to their boards, let them know the risks, let them know what's coming down the line, you know, they might be reporting procedures they might have to their shareholders or such like, so it just gives them the best opportunity to be forewarned of what's coming down the track.

00:33:18 David Lee, Host

OK, and Andrew, from your experience, what is your advice to clients who do face some kind of group litigation? Craig talked there about them being fearful of facing group litigation, but what are those important steps to take that you've seen in a more mature group litigation context?

00:33:43 Andrew Fox, Partner - Sidley Austin

So, I think at an early stage trying to understand your position on liability is absolutely key, and often that can be quite a technical exercise. If you're a big data defendant, if you're a big tech defendant, if you're an automotive defendant, trying to understand exactly what might have gone on or trying to understand the allegations that are being made against you in the context of either complicated processes, complicated products, complicated manufacturing, over usually a multi-year period can be can be quite challenging. But that has to be done at some point to understand what your position is on liability. I know a lot of these cases are driven by quantum, and I know on the claimant side it's driven by trying to extract a settlement by throwing some big numbers around. But first and foremost, meeting the liability question as early as you can gives you a steer of how strong actually your position would be on a trial of the liability merits, and that then begins to inform and colour how you react to allegations that are being made and the various different types of interlocutory applications that are made in the group proceedings as well.

00:35:10 David Lee, Host

OK, and finally Andrew, before coming back to Craig, you said at the beginning there has been a shift in recent years of going out and looking for potential group litigations and it is becoming more common. Do you expect it to become more common in England and Wales over the over the coming years?

00:35:33 Andrew Fox, Partner - Sidley Austin

Yes, it definitely will and even what you're seeing at the moment is the ingenuity of the claimant bar to try to frame issues as having some kind of competition law element to them or breach of competition regulation or law such that they can be brought on an opt out basis before the CAT, because that increases the dollar value or pound value threat to a defendant, increases the amount at stake and therefore can be used as a tool to settlement.

I think what you're seeing already are some quite - far-fetched is probably the wrong phrase to use, but elaborate or complicated ways of framing what is otherwise a run-of-the-mill environmental issue as somehow abuse of a dominant position. And I think there's some rumour at the moment of there being a claim against the water and sewage companies down here for discharge of sewage into water supplies, and claims in respect of that being hung on an abuse of dominant position peg. So you will continue to see some quite inventive lawyering on the claimant side of the class action landscape.

On the defendant side of the class action landscape, I think large corporations have got to be aware of that, I think most of them already are. Certainly the big tech companies are, the big data companies are, big oil and gas as well. I guess particularly in a time of record profits and ever rising ESG and green agenda concerns, environmental concerns. So I think to come back to your question, will it increase in the future and particularly in England? Absolutely, I think it will and without wanting to speak for Craig, these are pan UK issues, they are pan Europe issues, indeed they're almost global issues. The sorts of issues that are now being used to drive claims in terms of collective action, and I could only see it increasing in Scotland as well, but Craig will be much better qualified than me to speak on that.

00:38:13 David Lee, Host

OK, so to you, Craig, for the final word, we are in early stages in terms of group proceedings in Scotland, do you see a big increase as Andrew's described and you know what next?

00:38:26 Craig Watt, Partner

Well, I join with Andrew in saying that I'm anticipating that there will be an increase in the number of group proceedings coming before the Scottish courts and there's been some studies suggesting that the majority of the British public would join a group actively if they were able to do so. We're seeing an increasing number of group proceedings being raised in Scotland. I think it was slightly COVID interrupted when the rules came into force in the summer of 2020, but there are cases going through the Scottish courts. We already know from some of our clients that they're being contacted about potential group litigation being raised against them. I do think that there's going to be an appetite to raise groups if they can be raised in Scotland. Why do I say that? Well the Scottish commercial courts have shown themselves open to proceeding to get to the roots of the dispute quite quickly.

In Scotland, we don't have the lead in disclosure exercise which is adopted in some other jurisdictions, including England and Wales. So, you can actually get into court and actually start getting to the legal issues very early, which may allow the Scottish tail to wag the dog if you like, in getting these matters moving and substantive hearings perhaps quicker than other jurisdictions.

We are a more limited market, but as Andrew states, a lot of the issues which are ripe for collective proceedings are global, and they'll be just as open to being raised in Scotland as they are in any other jurisdiction. So, watch this space, I don't think we need at the moment opt out proceedings, but they may well come down the track.

00:40:13 David Lee, Host

OK. Thank you very much to Craig and to Andrew for their insights today, and please listen out for more in this Podcast by Brodies series with an international dimension.

You've been listening to ’Podcasts by Brodies’, where some of the country's leading lawyers share their Enlightened Thinking about the issues and developments having an impact on the legal sector and what that means for organisations, businesses and individuals across the UK's economy and wider society. If you'd like to hear more, please subscribe to ‘Podcasts by Brodies’ on all your favourite podcast platforms and for more information and insights, please visit www.brodies.com .