Why Scotland should not rush to introduce 'opt-out' class actions - Graeme MacLeod

US-style class action lawsuits against companies and other organisations are now becoming a common feature in courts across all parts of Europe.

If adopted in Scotland, ‘opt-out’ class actions could have potentially punitive financial implications for any company or organsation

In the UK, a statutory mechanism for competition class actions was introduced in 2015, enabling the high-profile Merricks v Mastercard case and a raft of other prominent data protection class actions to be brought. Last December, the EU passed the Representative Actions Directive, requiring EU member states to introduce mechanisms to better facilitate consumer class actions.

Meanwhile in Scotland, the 2018 Civil Litigation (Expenses and Group Proceedings) (Scotland) Act introduced a range of measures including a legislative framework to pave the way for class action proceedings within Scottish courts.

‘Opt-in’ class action mechanisms, where claimants must choose to join the proceedings, were introduced in Scotland last summer through this enabling legislation.

Graeme MacLeod, Partner and litigation specialist at CMS

There is now growing speculation that the Scottish Civil Justice Council (SCJC) will also adopt ‘opt-out’ mechanisms, which automatically include any individual potentially connected with a claim in a class action unless they choose to be excluded. Compared with ‘opt-in’ measures, allowing an ‘opt-out’ approach to proceedings can radically increase the exposure for any company or organisation facing a lawsuit.

The Merricks v Mastercard claim, being pursued in the UK Competition Appeal Tribunal using an opt-out mechanism, is seeking £14bn of damages on behalf of 46.2 million individuals.

In the current ‘opt-in’ lawsuit over emissions tests being pursued in Scottish courts against Volkswagen, it’s been reported that the car manufacturer is facing around £20m in claims from 5,000 individuals. It is thought this potential liability would rise to around £400m, involving an estimated 100,000 individuals, if the case were operating with an ‘opt-out’ mechanism and starting with 100% participation.

The potentially punitive financial impact associated with these measures has now led to a group of business and legal bodies representing interests in Scotland, Europe and the US to urge caution in moving towards the introduction of ‘opt-out’ class actions in Scottish courts.

Last week, four organisations – the Scottish Chambers of Commerce, European Justice Forum, BritishAmerican Business and the US Chamber Institute of Legal Reform – sent a joint letter to the SCJC and Scottish Government raising their concerns over ‘opt-out’ legislation and called for further consultation on the matter.

The four signatories are calling for a cautious approach to avoid the introduction of new rules that could create a ‘litigation culture’ in Scotland that could damage the economy and enrich litigation funders and law firms at the expense of businesses and other organisations.

They have warned that ill-considered ‘opt-out’ class action legislation could dramatically increase the volume of litigation and affect the distribution of damages. To illustrate that specific point they cited a recent study from the US Federal Trade Commission which reported that just nine per cent of recoveries from these type of lawsuits go into the pockets of consumers.

While it’s essential that Scottish courts continue to provide an effective avenue for safeguarding consumer rights, it’s also important to retain a strong sense of proportion. Echoing the sentiments of these four groups petitioning the SCJC on this matter, it’s vital that any moves to introduce an ‘opt-out’ class action mechanism are accompanied by supporting legislation that is properly balanced and would not encourage unmeritorious claims.

As their prominence continues to grow in other neighbouring jurisdictions, the rise of ‘opt-out’ class action lawsuits needs to be closely monitored. If these are approved for use within Scottish courts, beyond the competition law sphere, it will considerably amplify the potential exposure to businesses and other organisations which can arise from the likes of data breach, product liability, and employee claims.

While the SCJC ran a limited consultation prior to bringing the ‘opt-in’ mechanism into force last summer, introducing an ‘opt-out’ regime brings far greater complexity.

The passing of the 2018 Act makes it likely that we will see an ‘opt-out’ mechanism brought into force in Scotland at some point. Given the financial and economic implications of such a move, the call for a wider public consultation is a reasonable and very sensible course of action that should help strike the right balance going forward.

Graeme MacLeod, Partner and litigation specialist at CMS