Scotland – a Future International Hub for Class Actions?

Since the introduction of a new procedure in January 2020, the Netherlands has become an international hub for class actions. Less than four years since launch, more than ten actions have already been decided and more than sixty further actions have been filed. Scotland's comparable new procedure – known as group proceedings – came into force in July 2020 and has not yet resulted in an equivalent proliferation. Can we expect Scotland to become a similarly desirable location in the future for collective redress?

Litigation Funding

The Dutch Settlement of Large-scale Losses or Damage Act (WAMCA) allows representative organisations to bring an action to enforce the interest of a certain group or of the general interest. In practice, these actions are often enabled by professional investors who fund litigation in return for a percentage of any sum recovered. While there are strict rules under WAMCA preventing the representative organisation from making profit, third party litigation funders are not prohibited from doing so. Provided the representative entity has control of the action and the funding conditions do not conflict with the collective interests of the persons on whose behalf the action is brought, third party litigation funding is permitted.

In addition, there has also been a shift in the Dutch court's approach to 'success fees'. Dutch lawyers are prohibited from working entirely or substantially on contingent fees, but the Amsterdam Court of Appeal has held it can consider differing customary fee practices where international law firms are involved. In the leading case, US counsel were allowed to receive a fee amounting to 20% of the settlement amount.

In Scotland, the legislation on funding arrangements has similar advantages for claimants. 'Success fees' are permitted subject to certain conditions. Third party funding is also allowed. For more details on the current rules on funding litigation in Scotland, see our recent blog. These rules mirror an approach which lowers the financial barrier to bringing a claim.

Opt-in vs Opt-out

Under the Dutch rules, once the Court has defined the class of people involved in an action, the claim is brought on behalf of every Dutch class member unless they opt out. International class members can additionally opt in during a defined period of at least one month. This model allows a party to commence an action without having to overcome the significant administrative hurdle of getting a sufficient number of potential class members to opt in. It also increases the attraction of backing an action to litigation funders, who can secure a larger financial reward by bringing claims on behalf of more individuals at the same or lower administrative cost.

In Scotland, while the 2018 Act does allow for the creation of opt-out proceedings, the Rules do not yet provide for opt-out procedure. Instead, group proceedings can currently only be brought under an opt-in procedure as discussed in our recent blog comparing the Scottish and English models. Until the introduction of such a framework, the number of group proceedings may be limited. The administrative hurdle of securing opt-ins from potential class members and the disincentive to third party litigation funders may inhibit a rush to bring group proceedings.

The Future?

Although Scotland's litigation funding rules are favourable, the current lack of an opt-out procedure for group proceedings means Scotland may be unlikely to become a comparable international hub for class actions. With legislation allowing the Court to develop an opt-out procedure, however, this may yet change.

For more information about group proceedings and links to insights into the potential risks for Scottish businesses, visit our class actions webpage.