Group proceedings: some lessons from Down Under

Brodies recently teamed up with leading Australian law firm, MinterEllison, for a comparative look at class actions (known in Scotland as group proceedings) in each jurisdiction.

After the USA, the Australian class-action market is the second-largest in the world.  Class action legislation has been in place in Australia since the early nineties and it can therefore serve as a useful barometer of what might be coming Scotland's way, where group proceedings have only been possible for a couple of years.

In many ways the session was an exercise in horizon-scanning, which is an important part of any business's planning.  It is all about preparation and trying, so far as possible, to anticipate or avoid any group claims in order to mitigate business, regulatory, and reputation risk, and to limit overall exposure to damages and legal costs.

Litigation funding

It is clear that litigation funding is likely to play an enormous role in the growth of group proceedings in Scotland.  According to data collated by law firm RPC, the UK's litigation funding market has almost doubled in size in the last three years.

Class action type disputes are naturally attractive to litigation funders: they can be involved from the very start of the claim lifecycle and the financial reward can be enormous.

In fact, litigation finance originated in Australia in 1996.  It started life as an exception to the prohibition on champerty.  Champerty referred to the unlawful financing and control of litigation by an unconnected third party.  Although the exception was initially limited to raising finance for insolvency practitioners, it expanded and developed in the decade that followed and, in 2006, the High Court of Australia (Australia's most senior court) found that litigation funding was not contrary to public policy.

Since then there has been an explosion in the class-action market in Australia with many representative actions being funded by litigation funders.

Champerty has never been part of the law of Scotland (in contrast to England and Wales), but the Scottish courts have always had the power to impose liability for legal costs on the 'controlling mind' behind a litigation, where it is clear that it is someone other than the party to the proceedings.  This is known as the dominus litis regime.

It is generally agreed that the inception of litigation funding in Australia was driven by the prohibition against lawyers charging contingency/success fees.  Litigation finance filled a gap in the market by interposing a third person between the lawyer and the client who was not subject to that prohibition.  That prohibition remains in most of Australia (although it was noted by our colleagues at Minter Ellison that the State of Victoria has recently introduced a regime for contingency type fee arrangements in relation to class actions)

On the other hand, since 2020, success or contingency fees have been permitted in Scotland.  It is probably no surprise that they were introduced in the same Act as the new group proceedings regime: the aptly named the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018.

Notwithstanding that such fee arrangements are now permitted in Scotland (in contrast to most of Australia, where litigation finance continues to fill a market gap), it is anticipated that litigation funding will be a key driver in the development of class action type litigation in Scotland.  We expect to see actions being brought across a wide spectrum of sectors.  However, drawing on our Australian friends' experience, we expect to see the highest volume of group actions in relation to shareholder and investor disputes; financial products and pensions; consumer/product liability; personal injury; and environmental damage/climate change.

You can watch the seminar here.