Iain Rutherford: In, out, shake it all about… the options for class action law

Published on 13/08/2012 00:00

Class actions have been a hot topic in recent months due to a number of high-profile actual and threatened class actions south of the border in which a number of prospective litigants have suffered effectively identical damage from the same party.

Class actions do not exist in Scotland, leaving individuals here at a disadvantage compared to people in similar circumstances in England and Wales who can join together their actions to share costs and save court time.

There have been fresh calls for a Scottish class actions procedure to be created, 
but no unanimity on what 
form it should take.

Two key reports have previously considered the options; the Scottish Law Commission (SLC) Report on Multi-Party Actions in 1996 and the Scottish Civil Courts (or Gill) Review in 2009.

Both the SLC Report and 
the Gill Review recommended the introduction of a class action procedure, with the Gill Review noting that at least 75 per cent of respondents were 
in favour.

In addition, the Labour Party in February opened a 
UK-wide discussion 
on this issue.

I understand that the proposals currently under discussion in the review are based around a Portuguese model where parties are included in the action unless they specifically opt out.

The critical question regarding class actions is whether Scotland adopts an opt-in or opt-out model.

With opt-in, a potential class of litigants is identified and members who fall into this class may choose to join the action.

With opt-out, any person who falls within the identified class will be bound by the judgment unless they actively choose to opt out.

Both approaches are in 
use in different jurisdictions, with Portugal being the standalone European example of opt-out.

Given its limited adoption in Europe, it is perhaps surprising that this is the preferred option in the Labour review.

In its report, the SLC recommended an opt-in approach: “a person should not be required to disassociate himself or herself from a litigation which he has done nothing or little to promote,” being their reasoning.

An opt-out approach is 
more controversial, though some support for this 
approach can be found 
in the Gill Review, which concluded that opting out 
could be appropriate in 
certain circumstances where 
a large number of consumers are affected.

In these cases, the value 
of the claim to each 
individual consumer may be such that it would not be economically viable to separately pursue each claim.

Is this enough, though, 
to justify introducing an 
opt-out procedure?

Opt-out means that the potential defender(s) do not know the size or extent of the claim against them.

Not only might this lead to unfairness, it also means that settlement is less likely.

It may be that the only real beneficiaries of such disincentives to early settlement would be lawyers.

A linked concern with class actions is that they become a vehicle for abuse, with unscrupulous lawyers bringing speculative and opportunist claims. With this in mind, 
the Gill Review was persuaded that a merits test should be introduced along with any class actions procedure.

In the discussion 
on this point Portugal was 
again considered.

There, the court will conduct a preliminary hearing to assess whether the action is well founded, giving the potential defender(s) an opportunity 
to seek early dismissal of an 
ill-founded claim.

It would be advisable for a similar merits test to be included in Scotland to limit, 
so far as is possible, the potential for abuse.

If Scotland is to have any form of class action procedure, we have to be alive to the difficulties that such procedures can create and the need to introduce appropriate safeguards. I favour the opt-in approach on the basis it is a better fit with existing legal structures, procedures and practice – as well as being fairer to all parties involved.

• Iain Rutherford is an associate in the dispute resolution & litigation team of Brodies LLP