A recent report suggests that the number of class actions (or group proceedings as they are referred to in Scotland) raised against UK companies continues to increase.
Over the last year there has been a 10% increase in the number of class action lawsuits raised around the world against FTSE 100 companies.
The report, produced by Thomson Reuters, details that the UK’s leading companies have faced 170 class actions over the last year, as compared with 155 class actions in the previous year.
Our leading corporates operate in a global marketplace. The FTSE 100 companies operating in the United States will no doubt be familiar with class action culture in many countries around the world. In the last year, 67% of all class action claims raised globally were brought before US Courts. But what do Scottish companies need to know about class actions?
What is a class action or group proceeding?
In July 2020 new rules came into force under the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018, enabling groups of two or more people to raise proceedings together in a single action in the Court of Session. In Scotland this is called group proceedings, in contrast to the American class actions terminology.
What do group proceedings aim to do?
The principal aim is to make it easier to bring claims together that could not economically be brought to court individually due to their low value – thus ensuring their efficient progression through the Scottish Courts.
The principal requirement to join a group is that the members must each have claims that raise issues of fact or law which are the same as, similar, or related to each other.
The rules are framed on an ‘opt in’ basis, as opposed to the US style ‘opt out’ system. Potential class members must elect to join the group, as opposed to being automatically included unless they elect to opt out.
What is the impact for business?
The potential impact for businesses across all sectors is significant. Any organisation providing goods or services to consumers or whose operations may interact with the public will be at risk. Beyond that, even a non-consumer facing business employing more than one member of staff could still be susceptible to group claims raised by its workforce.
In the past, potential pursuers with claims for sums of lower value might have been reluctant to spend money and energy on litigation. Now, those perceived economic barriers are lifted and individuals can group together to share the expense and time in progressing their claims.
What can I do to protect my business?
While the raising of a claim does not necessarily mean a positive result for those bringing the action, the potential reputational repercussions and the costs associated in defending a court action (regardless of its merits) can be debilitating for a business.
There are, however, steps that businesses can and should take now to mitigate their exposure to the risk of group proceedings, these include:
- Engaging lawyers early to agree strategy on the prospects of early procedural challenges to prevent court sanction of the group action proceeding;
- Checking insurance policies to ensure coverage for group proceedings actions;
- Notifying insurers as soon as group proceedings are threatened;
- Considering ‘After the Event’ insurance if no insurance is in place; and
- Hiring a PR representative, given that group proceedings are new and will attract press attention.
For more information contact:
Stephen Goldie, partner and head of litigation, Brodies LLP
0141 245 6226
Craig Watt, partner and solicitor advocate, Brodies LLP
0131 656 0010