LSLA | LSLA Response - November 2006

LONDON SOLICITORS LITIGATION ASSOCIATION

Response to the DTI consultation "Representative Actions in Consumer Protection Legislation" dated 12 July 2006

1. Introduction

The London Solicitors Litigation Association (LSLA) is over 50 years old and represents the interests of a wide range of litigators in London handling a broad range of civil and commercial litigation. Through about 800 solicitor members and strong links with a wide number of professional bodies, it represents nearly all civil litigation practices in London. The LSLA operates through a Committee of 24 members which include members of the Civil Justice Council, Civil Procedure Rules Committee, Law Society Civil Litigation Committee, the Commercial Court Users Committee, the Supreme Court Lists Group and local Law Societies. The Association has a long track record of responding to consultation papers and has drawn on a wide range of views in responding to the current consultation paper.

2. Overview

Whilst recognising the importance of ensuring there exist appropriate mechanisms for all, including consumers, to gain cost effective access to all manner of redress including the court we question how strong a case is made out for the introduction of representative actions in the consultation document .

Indeed there is some contradiction in the paper itself on the point. At page 23 it is said at paragraph 8 that "consumers seem to have good experience of seeking redress".

70% of a 2004 survey commissioned by the DTI who had pursued claims for redress were apparently satisfied with the outcome. Only 5% of those responding chose not to pursue claims for redress. In relation to those, the most common reasons given were (a) that it is too much hassle, and (b) that the claim was too small to worry about.

This research does not support the following statement by the Minister of State in the Foreword: "We know many consumers feel unable to bring a court case on their own, while those who do may consider the size of their losses are outweighed by the potentially high legal costs".

Nor does the research support the second paragraph in the Executive Summary: "In 2004 we consulted on the possibility of introducing representative actions as part of a raft of proposals set out in our consumer strategy. Consumers are reluctant to bring court cases on their own; either because they perceive the process as too difficult, or the potential costs outweigh their losses."

The Paper recognises that there is a real risk of businesses being exposed to spurious or vexatious claims, a risk of a compensation culture being unwittingly created, and a risk of businesses incurring "huge legal bills to defend their good name."

In addition, the Paper recognises in Annex B that there will be "a new area of business for the profession" (paragraph 22), "new court procedures" (paragraph 24), "considerable public sector costs" (paragraph 28), "10 to 20 cases suitable for representative actions each year … in Birmingham alone" (paragraph 27), "significant legal costs … it is not possible to gauge how much these cases will cost because of the innovative nature of representative actions" (paragraph 28).

In addition, paragraph 33, when contemplating representative actions even on the part of named consumers, states "(a) implementing this option could entail unintended consequences by exposing businesses to inappropriate or spurious claims for damages. If this were to happen, honest businesses could face costs, based on defending the case and more seriously through damage to their reputation".

The proposals in this paper are reflected in existing legislation for breaches of the Competition Act 1998; s 47B, allowing approved consumer bodies to bring actions on behalf of consumers. This section has not been a success. If it is used it is likely only to be in circumstances when liability is not in dispute because the OFT or CAT have already established liability under the Act.

If contrary to the survey evidence there is perceived to be a need to introduce representative actions then there must be safeguards to ensure the actions are serious, of substance and allow cost effective access to the court process by consumers whilst offering businesses the protection from spurious allegations. The answers given below proceed on the basis that representative actions are introduced.

There are mixed views within the Association on the answers to these questions, reflecting properly the fact that it looks at the position both from the point of view of potential claimants and defendants. Where there is apparent consensus is that an insufficient case has been made out for the introduction of representative actions at all. If these actions were introduced, it would be a change of such fundamental importance to the English civil process as to require detailed and convincing research to justify it.

Should representative action cases be for consumers at large, or named consumers?

Q1 Do you agree that representative action cases should be confined to named consumers? If not, why not?

Yes. At some point in a litigation process the claimants must be identified. In an opt out scheme such as the American model, that identification occurs towards the end of the procedure following success on liability. In the European model identification occurs up front. We would urge caution at this stage in the development of the ideas in the paper. In particular if claims may be brought on behalf of a “class” rather than named claimants this would introduce the American model of class actions and the potential problems that are associated with them.

The consultation paper suggests that representative action cases would overcome the difficulties for individual claimants that make it unlikely that they will otherwise pursue damages claims individually. We question, however, whether the proposals address that issue properly. The damages for individuals are likely to be very small which would not make proceedings by an individual worthwhile. Even if the claim were brought by a representative body, there would have to be a very significant number of claimants opting into the process to make it worthwhile. This is difficult for a representative body to organise since each potential consumer would have to be contacted and given appropriate explanation.

As mentioned in the introduction Section 47B of the Competition Act 1998 has been a failure in ensuring the protection of consumers. The only specified body under the Act is Which? It has brought no actions under the Section. Even if it does liability will not be in issue. One of the remaining difficulties under the section is the uncertain costs issues that arise. The operation of the section does not indicate that representative actions of the nature mentioned in the paper are going to answer the perceived problems for consumers seeking redress.

Measures to avoid inappropriate or spurious cases:

Should representative actions only be brought by designated bodies?

Q2 Are the criteria of reputation, ability to handle the case and consumer focus sensible factors when considering whether a body should be designated to bring a representative action?

These seem sensible criteria to establish the fitness of a designated body to bring a representative action.

Q3 Should we consider any other factors? If so, what are they and why should they be considered?

Yes. The ability of the designated body to fund claims and meet any adverse costs orders should be considered. The body should be amenable to orders for security for costs.

Q4 Is designation necessary at all? Should any body, or firm, be able to bring a case on behalf of a group of consumers?

Views on this question are not unanimous. Some members consider that designation is crucial; otherwise firms of solicitors may themselves seek to be a representative body with a view to generating business. Others considered that the professional and other duties of the solicitors and counsel involved would be sufficient protection to business and consumers to allow solicitors themselves to bring a case on behalf of a named group of consumers.

Should permission be obtained from a court before bringing a case?

Q5 Is a permission stage necessary to avoid inappropriate case?

Views again are mixed. Some consider that a permission stage is essential if businesses are not to incur significant costs in dealing with claims which are without merit. Some also consider that the threshold should require the designated body to demonstrate reasonable prospects of success.

Others do not believe that a permission stage is necessary to avoid inappropriate cases. There is no such permission stage in relation to Section 47B. They think it likely that if there was a requirement for permission it may substantially add to the costs and give rise to satellite litigation. It is to be noted that the consultation paper refers to an appeal process in the permission stage.

Q6 If anyone, not just designated bodies, can bring a claim should a permission stage be used?

Yes

Q7 If necessary, are there any other factors that should be considered at the permission stage? If so, what are they?

Q8 If necessary, how should the permission stage be implemented in Scotland?

Not applicable

Q9 Even if the permission stage were considered unnecessary to prevent spurious cases, would it have value from a case management point of view?

No, because there would have to be a case management conference in any event following service of the proceedings. Presumably a designated body or solicitors will have followed any appropriate pre-action protocol in terms of warning the other side of the proposed action and entering into any appropriate settlement negotiations.

Types of cases that should be open to representative action:

Defining the scope of “consumer cases”

Q10 How should the scope of representative actions cases for breaches of consumer protection legislation be defined?

· According to the definition of “consumer”? If so, is the definition set out above appropriate? If not, what would be more appropriate?

· According to legislation listed in secondary legislation – subject to revision by Order? If so, which legislation should be included?

· According to broad areas defined in secondary legislation – subject to revision by Order? If so, which areas should be included?

Views on this subject are again mixed. Some believe that option 1 is appropriate. It seems that this type of action would be fitting for supplies made by businesses to consumers. They do not think it appropriate that the scope of consumer cases should be designated by secondary legislation. That is not a transparent process and may lead to illogicalities as between the legislation which is included and that which is not included. They do believe that the broad frame of business/consumer relationships is sufficient to define consumer actions.

Other members prefer option 2. In their view, clarity is more important than flexibility, given the risk of unnecessary damage to business being done by a broad and indefinite class of "consumer cases".

Should small cases have to follow small claims procedures, rather than forming part of a representative action?

Q11 Should cases below the small claims limits have to be dealt with individually as a small claim?

We can foresee that many claims may fall within the small claims limit. We understood the whole purpose of having a representative action was to ensure that these types of claims could be pursued economically and collectively with other such claims. We believe that the court should consider the aggregate of the claims when determining whether or not the claims fall within the three tracks determined by the CPR.

Q12 Do you think that a minimum limit should be set for each case in a representative action?

Handling representative actions cases

Q13 Would it be adequate to amend the primary legislation to allow a representative body to bring a case in England and Wales?

Yes

Q14 Would it be more appropriate to amend primary legislation to allow consumers to assign their rights or action to a designated body? The resulting court case could then be handled using existing court procedures in England and Wales or in Scotland.

We are not sure of the limitations at the moment that stop consumers assigning their rights to anyone and what primary legislation is intended. We believe, however, as above, that it is sufficient to allow a representative body to bring a case along the lines of Section 47B.

Funding representative actions cases and payment of damages

Q15 Do you think that a written agreement of how damages will be distributed in the event of winning a case should be signed at the outset? Should consumers also be able to agree an amount, proportion or percentage of any such award to cover the legal and administrative costs of the representative body?

The consultation paper does not seem to address to any great degree the question of funding of consumer actions. We presume that it is intended that actions will be funded in the first place by the consumer body. As said above, it is important that such a body has the funds not just to fund any litigation but also to meet any adverse costs awards. They may or may not enter into a conditional fee agreement with solicitors and counsel.

The question asks whether consumers should be able to agree an amount, proportion or percentage of any damages to cover legal and administrative costs. On the basis that the claim is successful, a large proportion of legal costs should be recoverable from the losing party. Those legal costs will not be calculated on the basis of a proportion or percentage but simply on the time involved. As far as those costs are concerned, the proportion that is irrecoverable (save the uplift on any CFA) should be paid by the consumer body. In turn presumably the consumer body would want to recover that from the consumer.

The question that is not asked but needs to be addressed is to what extent the consumer body should make a profit out of this process by taking a percentage of the award. England and Wales has seen a growth in the litigation funding market and the payment of a percentage of recoveries has been found not to breach the rules against maintenance and champerty. These funding companies, however, are private profit-making ventures whereas it is assumed that the prime motive of consumer bodies in this process is one of consumer protection rather than the profit to be made.

The moment that the consumer body seeks to make a profit out of any representative action or seeks a share of the damages, the moment a step has been taken down the slippery slope to the US class action culture. As we say, we do not think that the paper has properly considered the funding issues which are important to make this system work.

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