Publications

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The United Kingdom’s Parliament recently introduced the Financial Services Bill, which includes a provision for collective actions in the financial services sector. If this Bill passes, it will introduce the first opt-out collective action procedure in England and Wales and could have a major impact on banks and other financial institutions operating in those countries.¹

The Debate Preceding the Financial Services Bill

The group-litigation procedures utilized by courts in England and Wales have been in legal and legislative debate for several years. Those speaking for claimants contend that the current procedures are not adequate to provide effective means of redress where multiple claimants incur similar injuries from the same or similar facts. Partly as a result of these debates, in November 2007, the Office of Fair Trading – a governmental entity similar to the Federal Trade Commission – made several recommendations to Parliament including a procedure for representative actions brought on behalf of consumers and businesses on an opt-out basis.

In addition, the European Commission published, in April 2008, a White Paper on Damages Actions for Breach of EC Antitrust Rules and, in November 2008, a Green Paper on Consumer Collective Redress setting forth options for collective redress in competition and consumer cases, respectively, which include collective actions utilizing an opt-out procedure.

Finally, in December 2008, the Civil Justice Council (the CJC) – a public body that advises the Lord Chancellor on civil justice and civil procedure in England and Wales – published a report recommending the introduction of a procedure for collective actions, applicable to all areas of civil law, that would enable courts to adjudicate such actions on either an opt-in or opt-out basis. The CJC also recommended the use of an “aggregated damages” procedure in opt-out collective actions that would allow courts to assess class-wide damages without requiring proof of loss by each individual claimant. Parliament responded to this report, in July 2009, with a proposal to reform civil procedures, on a sector-by-sector basis, to permit collective actions.

Important Features of the Financial Services Bill

The Bill is the first step in this sector-by-sector reform. It reflects Parliament’s recognition that consumer complaints against members of the financial services sector have significantly increased. The key features of the Bill are:

Authorization for collective actions. As in the United States, a collective action may proceed only if authorized by a court through a “collective proceedings order.” Also, similar to procedures utilized in the United States, the Bill provides that courts must appoint a representative of the putative claimants and determine that the claims arise from the same, similar, or related issues of fact or law before issuing a collective-proceedings order. The representative may be one of the claimants or another party, such as a consumer lobby group or a regulator, and need not otherwise have any interest in the proceedings. Unlike the procedures used in the United States, the Bill does not require that courts conclude that a collective action is the best method of resolving the underlying claim, but this is a provision that could be added through regulations or rules of court.

The Bill also requires that, before issuing a collective-proceedings order, courts must make a jurisdictional finding that the claimants are prosecuting “financial services claims.” This finding turns on the nature of services provided by the party against whom the claim is alleged.²

Opt-in or opt-out. The Bill provides that courts will decide in each case whether the proceedings will be conducted on an opt-in or opt-out basis. By contrast, in the United States, whether an opt-in or opt-out procedure is utilized is set by the applicable federal or state rule or statue, with the majority of cases being opt-out.

Retrospective affect. As proposed, the Bill’s procedures will be available for claims commenced before the new law is passed.

Damages. The Bill does not include any rules regarding the calculation of damages, but provides H.M. Treasury with the power to make regulations regarding damages, including the power

• to allow courts to award aggregated damages based on common proof;
• to set out how the representative should distribute damages to claimants; and
• to determine how to distribute any amounts remaining following distribution to claimants, including the use of cy pres schemes that provide for distribution of such amounts to charitable or other suitable organizations.

Cost shifting. In the United Kingdom, the prevailing party is typically awarded his or her attorneys’ fees and costs. The Bill does not alter the rules governing costs, but it does include a provision for the adoption of rules of court that specifically suggests that the claimants’ counsel may be paid from the pool of damages received by the claimants.

The Bill also does not contain a provision for security for costs; however, this may also be covered in rules of court. Presumably, the courts’ power to award security for costs will be preserved because it is widely seen as a method of deterring frivolous claims.

Additional regulations. The Bill leaves a number of other matters open, to be addressed by regulations or rules of court, including

• methods representatives must use to notify putative claimants;
• how settlements may be effectuated, including any requirement for court approval of the settlement; and
• how any counterclaims can be brought.

Additional Effects of Passage of the Financial Services Bill

Given Parliament’s goal of a sector-by-sector adoption of collective action procedures, it seems likely that the Bill will be passed into law. Whether it will be amended in any significant way, however, remains to be seen. If passed, the law will represent a sea change in financial services litigation in England and Wales. It will also likely result in new rules and procedures similar to those in place in the United States. For example, for the first time United Kingdom courts will be tasked with interpreting the pre-requisites for collective actions (i.e., determining how similar claimants’ facts and legal claims must be for the collective-action procedure to be appropriate) and how to assess damages on a class-wide basis.

If successful, the Bill will likely be a model for collective-action procedures applicable to other sectors, including employment, trade regulation and environmental and mass tort claims.