Why class actions rules are an opt-out to justice

At present, to join a mass claim in Scotland affected individuals have to sign up or opt-in to a group proceeding. Under the opt-out proposals, currently under review by the Scottish Civil Justice Council, individuals who meet certain criteria would automatically be included in a group claim unless they specifically withdrew.

Countries that have introduced these mechanisms, including United States, Australia, and Canada, have faced a surge in class actions.

While the Scottish government’s aim of increasing access to justice is essential within a functioning country, introducing opt-out class actions is not an effective or efficient way to deliver this ambition.

A new Fraser of Allander Institute (FAI) report “The Economic Impact of Mass Litigation in Scotland”, has further highlighted the potentially significant consequences for our nation’s economy if opt-out class action lawsuits were introduced here.

The report seeks to update 2013 estimates of the economic impact of the UK-wide Competitional Appeals Tribunals (CAT), which has operated an opt-out regime for competitive law since 2015. It finds that, given the volume of cases, the nature of cases, defendant costs and redress payments, the CAT cost to business sits at an estimated £3.2 billion, far exceeding the UK government’s original estimate of £30.8 million, produced before this reform was introduced. The Scottish share of the economic impact of the CAT is estimated to be over £230m.

These costs account for competition-related claims, which make up roughly half of the value of group proceedings across the UK, meaning the impact on business from an opt-out regime for all group proceedings is likely to be significantly higher. The FAI report also identifies a total Scottish litigation-cost estimate of around £2.8bn should we enable mass litigation to be conducted on an opt-out basis.

Putting aside the economic concerns, evidence from countries with opt-out class actions mechanisms show they are not effective in delivering access to justice for consumers.

Following a settlement and damages award, class members must then actively participate in the distribution phase to receive any sums which, analysing evidence from the US, are extremely low.

In 2019, a comprehensive study published by the Federal Trade Commission found that the median distribution rates in consumer class actions were just nine per cent.

Such poor outcomes also appear likely here. The UK CAT has so far had just one case which has reached the distribution phase where one of the defendants agreed to pay a settlement figure of up to £25m. Class members involved in these proceedings received around £216K of that sum, amounting to just 0.8 per cent of the overall award, with a lawyers and litigation funder companies securing sums that were many multiples higher than those paid to the affected consumers. This is not access to justice.

Not only are such outcomes detrimental to the reputation of the courts and our legal profession, they also undermine trust in our institutions.

With so little of the settlement sums going to class members, we need to ask whether these mechanisms would meaningfully help consumers here in Scotland.

The introduction of the proposed Scottish opt-out regime must therefore be reconsidered. Reform of existing opt-in class actions measures in Scotland and better resourcing of industry regulators would seem a far better option to strike the balance between promoting our economic and societal interests while also ensuring access to justice.

Kenny Henderson is a partner and dispute resolution specialist at law firm CMS