Will class action regime result in compensation for deserving plaintiffs?

The UK Government is signalling possible changes to the UK’s national competition law regime.  It has just introduced a raft of reform proposals aimed at facilitating collective damages actions and enabling victims to pursue compensation for their losses.

The reason for these extensive changes is that, outside the USA, private damages actions are arguably the least-used and least effective lever to encourage competition law compliance.  There are many reasons for this but two disincentives to private actions are that:

• the cost of legal action for an individual consumer or small business is significant relative to the value of loss suffered; and
• calculating the loss suffered by any one claimant is complex, e.g., if inflated prices are passed on by customers down the line it means claimants at different levels of the supply chain will suffer varying degrees of loss, which are difficult to quantify.

The UK Government has decided to tackle this with a three-pronged approach:

1. the Competition Appeal Tribunal’s role will be expanded and it will become the main body dealing with UK competition actions;
2. alternative dispute resolution will be promoted to facilitate settlements and reduce the number of cases that go before the CAT or the courts; and
3. an opt-out class action regime will be introduced to encourage claimants to seeks redress.

The third of these ‘prongs’, opt-out class actions, has garnered the greatest interest and the most comment.  During the consultation process many submissions expressed concern that an opt-out regime would bring forth the many-headed monster of a ‘US litigation culture’ in the UK.  As a result, the government has introduced a number of safeguards to reduce the risks of abuse:

• ‘Opt-out’ actions will only be available to UK-based claimants.
• Any potential class action will be subject to a certification process in which the CAT will assess the adequacy of the representative for the class and will also determine whether a collective action is the best way of bringing the case.
• Exemplary damages will not be permitted – unlike the US where the threat of treble damages encourages companies to settle even spurious claims.
• The ‘loser pays’ principle will continue to apply in the case of competition damages cases and contingency fee schemes will be prohibited.

Only time will tell whether these changes actually achieve their goal of enabling compensation for deserving claimants.  In Australia, with our opt-out class actions regimes, it cannot be said that the floodgates have opened since their introduction (see our 2011 Class Action report) and it seems unlikely this will happen in the UK either, particularly with the safeguards that have been proposed.  However, one possible outcome of these changes may be that the threat of litigation causes parties to turn to the ADR regime to settle claims.

These changes indicate a real willingness on the part of the UK Government to engage with stakeholders and pursue a vigorous reform agenda in the area of competition law.  At home, there has been increased interest in facilitation of private actions and the Treasury Department has consulted with the Law Council of Australia and the ACCC about the need for reform.  Particularly as this is an election year, the Government may look to regimes abroad, like the UK, for inspiration and may consider applying some of these reforms here.

Photo credit: Ben124. / Foter.com / CC BY