06 October 2015 - Post by:Jason Shaw
There has been a lot of talk recently about the introduction of U.S.-style class actions into the UK. The discussion stems from the class action regime introduced by the Consumer Rights Act 2015 (the CRA). However, the CRA only applies to collective proceedings in the Competition Appeal Tribunal for breaches of competition law – it doesn’t have a wider reach than that. While the CRA may not herald the introduction of a general U.S.-style approach to class actions, class actions remain an important issue for trustees and it is quite likely that trustees have considered, or will in the future need to consider, whether or not to participate in a class action.
The majority of class actions that will affect UK pension funds are U.S. securities class actions. The U.S. system is very conducive to class action litigation for a multitude of reasons. One of the primary reasons is that it operates an opt-out system, so a claimant is automatically deemed to be a member of a class if they have ‘the same interest’ in the claim – thus making the formation of large classes of claimants that much easier. Another reason is that the U.S. does not operate a ‘loser pays’ system like the UK and, given that most U.S. firms will run the class action on a ‘no win, no fee’ basis, it means that claimants will essentially be able to bring a class action with little or no risk and little or no upfront cost.
The situation is very different in the UK where the English courts operate a ‘loser pays’ system and the availability of a no win, no fee type arrangement is heavily restricted. The primary method of achieving collective redress in the UK is either through a Group Litigation Order or a representation order – both of which can be difficult to obtain. The UK also operates an opt-in system, so building and participating in a class is not as straightforward as it would be in the U.S. So why bring a class action in the UK? The answer is that since the case of Morrison v National Australia Bank, the ability of UK entities to participate in U.S. class actions has been restricted. In the past, it was possible for a UK investor to bring a claim against a non-U.S. company in relation to securities transactions on a foreign exchange. Now, a UK investor can only participate in a U.S. securities class action if the transaction in the securities happened on a U.S. exchange – so if a UK pension fund bought the shares on the London Stock Exchange, they would not be able to join the class action in respect of those shares. The consequence of this is that there has been, and will continue to be, an increased focus on class actions outside the U.S. As such, it would not be surprising if a class action regime similar to that of the CRA were introduced more widely in the UK and elsewhere in Europe.
Our new guide provides an overview of the issues for UK pension schemes considering taking part in U.S. class actions – click here to find out more.
Jason Shaw is a senior associate at Allen & Overy LLP.