The Class Actions Law Review: United Kingdom - Scotland
Introduction to the class actions framework
While many Commonwealth jurisdictions provide a legal mechanism for the facilitation of group litigation, such a mechanism has remained notably absent in Scotland. The debate concerning whether a procedure of this kind should be introduced in Scotland has persisted for decades. In 1979, the Scottish Consumer Council (SCC) established a working group to review the existing methods under which consumers could enforce their rights. The SCC's final report was published in 1982, concluding that the means of the Scottish courts to entertain matters of 'group interest' were restrained, and advocating for the availability of class action procedure in Scotland. A report drawing similar conclusions was published in 1996 by the Scottish Law Commission (SLC). The SLC concluded that a single action could deal with a number of possible claimants or pursuers with a core of common issues, and that the advantages of a single instance of litigation outweigh the disadvantages.
Despite this continued discussion, and seeming approval for class actions in both academia and practice, it was not until 2018 that the Scottish Parliament tackled the issue head-on. The Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018 (the 2018 Act) received royal assent on 5 June 2018. The 2018 Act, for the first time in Scotland, makes provision for class action litigation. However, with the more detailed rules needed to implement the 2018 Act still a work in progress, there remains uncertainty surrounding how the 2018 Act will operate in practice.
The year in review
i Existing procedures
Traditionally, the Scottish courts have utilised existing tools of procedure to grapple with multiple claims that, in essence, are premised on the same or similar rights and obligations. A pragmatic approach is taken and courts will often sist (a stay in Scottish procedure) all but one claim, and allow that one matter to run to a debate (a legal argument without evidence) or proof (a civil trial on the evidence in Scotland) as a 'test case'. The remaining cases will then be continued, pending the final outcome of the test case. For example, there are over 500 cases presently before Scotland's supreme civil court, the Court of Session, seeking damages for personal injuries caused by allegedly defective vaginal mesh products. On 1 June 2018, and following a five-day debate, Lord Boyd handed down his decision in AH v. Greater Glasgow Health Board, which constitutes a combined judgment of four of the 18 'lead actions' in these vaginal mesh claims. In the introduction to his decision, his Lordship explained that all but 18 of the 500 cases had been sisted (i.e., suspended), pending the outcome of these proceedings. At the request of the pursuers, Lord Boyd granted a proof before answer (a mixed trial of law and evidence) in all the cases, subject to time bar.
The primary deficiency of this approach is that, strictly speaking, these cases are still entirely distinct: there is no means by which a group of individual cases can be consolidated into a single court action in which a single, binding determination will be made for all the cases. While the court can issue directions to procedurally manage such groups of cases collectively, each case must be determined individually. The outcome of the test case therefore has no automatic bearing on the remaining cases, subject to the doctrine of precedent. As different claimants may rely on different documentation and different witnesses, this approach poses a risk to decisional harmony. Moreover, by having to advance each case separately, there remain issues as to cost and duplication of papers; problems that underpin the rationale for class action procedure.
ii The 2018 Act
In light of these shortcomings, the 2018 Act came into force on 30 January 2019. The 2018 Act's genesis dates back to 1 June 2017, when the then Cabinet Secretary for Justice, Michael Matheson MSP, introduced the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill (the Bill) before the Scottish Parliament. The Bill was intended to deal with various matters of civil procedure in Scotland, including success fee arrangements, expenses (costs) in civil litigation, and the regulation of claims management companies. A further, and novel, concept for Scotland was the proposal to introduce multiparty procedure.
The Scottish Parliament's Stage 1 Report to the Bill explored the possible forms that the new procedure, termed 'group proceedings', might take. For example, the Report identified three broad categories of group proceedings, described respectively as class actions, organisation actions, and public interest actions. Class actions are brought by a named pursuer who acts as a representative of the class of individuals with the same legal issue, with the representative seeking redress for themselves and on behalf of the class as a whole. Organisation actions are brought by organisations, such as consumer or environmental groups, on behalf of their members or the general public. Public interest actions are advanced by public officials on behalf of the public at large, or a specific group of the public. The new procedure, which could encompass all of these forms, is termed 'group proceedings' under the 2018 Act.
The 2018 Act provides that group proceedings can take the form of either an opt-in or opt-out procedure. The former is a procedure where a group of pursuers expressly consent to be a part of, and therefore opt in to, the proceedings. An opt-out procedure, on the other hand, operates by defining a class of individuals who are automatically bound by any judgment or settlement unless they elect to opt out of the class. Only those who actively opted out of the proceedings would be entitled to raise their own separate claim.
The potential introduction of opt-out class actions is the most radical feature of the 2018 Act.
i The 2018 Act
The 2018 Act sets out a framework for group proceedings in Scotland. Section 21 of the 2018 Act confers power on the Court of Session to make more detailed provision about group proceedings by way of what is called an Act of Sederunt. These more detailed procedural rules, intended to supplement the 2018 Act, are currently being drafted by the Scottish Civil Justice Council (SCJC), the rule-drafting body of the Court of Session. While the SCJC has a degree of discretion over the final form that the rules will take, they must fall within the parameters set down by the 2018 Act. As the rules have not yet been promulgated, it is only possible to provide an outline of the procedure at this stage.
The 2018 Act provides that group proceedings will only be available in the Court of Session. The lower courts, such as local sheriff courts, will not be competent to hear group proceedings.
Group proceedings in Scotland will be initiated by a person known as a 'representative party', who will bring the proceedings on behalf of a wider class, described in the legislation as a 'group'. There may only be one representative party to the proceedings. A group, for these purposes, comprises two or more 'persons' who each have a separate claim in the subject matter of the group proceedings. The framework created by the 2018 Act allows for both the representative and the represented persons to be either natural or legal persons (e.g., corporations). Significantly, this means that the framework is not restricted to consumer claims and so could also be used, for example, on behalf of small and medium-sized enterprises.
There is no requirement for the representative to be a class member, but if the representative is not a class member, the claim may only advance with the Court's authorisation. The 2018 Act does not provide any guidance on how the Court should exercise its discretion on this point.
Permission must be granted by the Court before group proceedings can be progressed. Thus, the mechanism will have a 'certification' stage. The 2018 Act provides that permission is only to be granted if the Court considers that all the claims raise issues, whether of fact or law, that are the same, similar or related to each other; and if the Court is satisfied that the representative party has made all reasonable efforts to identify and notify all potential members of the group about the proceedings. These are cumulative requirements. Further, the Court will only be permitted to give permission in accordance with the procedural rules to be developed by the SCJC.
The structure of the 2018 Act mechanism has some similarities with the Collective Proceedings Order (CPO) group proceedings regime introduced for competition claims by the Competition Act 1998 (CA), as amended by Schedule 8 to the Consumer Rights Act 2015. The CA regime applies three tests at the CPO (certification) hearing: (1) that the claims 'raise the same, similar or related issues of fact or law', which is the commonality test; (2) that the claims 'are suitable to be brought in collective proceedings', which is the suitability test; and (3) that the proposed representative will be authorised 'only if . . . it is just and reasonable for that person to act as a representative in those proceedings', which is the representative test. The tests set out in the CA are expanded upon by the Competition Appeal Tribunal Rules and the Competition Appeal Tribunal Guide to Proceedings.
The 2018 Act sets out a commonality test but does not have text equivalent to a suitability test nor a representative test. That said, the 2018 Act requirement for the representative to have made 'all reasonable efforts' to contact potential group members is not present in the CA regime. It is possible that the detailed rules to be promulgated by the Court of the Session will set out a suitability test or a representative test, or both of these.
To the extent that the detailed rules promulgate suitability or representative tests, there will be argument over whether judgments that interpret the CA CPO regime will be persuasive or binding when the Scottish courts interpret the 2018 Act. It is important to remember that the CA CPO regime is a UK-wide regime, and not solely an English device.
The 2018 Act leaves open to the Court of Session, and therefore to the SCJC, the question of whether an opt-in, opt-out or hybrid regime will be established. The CA CPO regime permits the CAT to grant a CPO application on either an opt-in or an opt-out basis, giving the CAT discretion. At present, the SCJC has given no indication which route is likely to be taken. The 2018 Act limits the scope of the opt-out class to persons domiciled in Scotland, although persons domiciled outside Scotland may proactively opt in to proceedings. Similarly, the scope of the opt-out class under the CA CPO regime is restricted to persons domiciled in the United Kingdom, with those domiciled outside the United Kingdom able to opt in. A mechanism that automatically aggregates class members from outside the territorial scope of the relevant legislature would potentially offend against principles of comity.
ii Changes to fee arrangements
The reforms introduced by the 2018 Act do not stop at the introduction of group proceedings. The 2018 Act brings about significant procedural changes that complement class actions, including radical change to the permissibility of contingent fee arrangements.
On 3 June 2014, Sheriff Principal Taylor published the Taylor Review of Expenses and Funding of Civil Litigation in Scotland (the Taylor Review). The Taylor Review recommended the introduction of various changes to the expenses and funding regime in Scotland, including more detailed provisions about success fee arrangements, the introduction of qualified one-way costs shifting (QOCS), and the notification of third-party funding.
Historically, solicitors in Scotland were prohibited from entering into damages-based agreements (DBAs). DBAs are a subset of success fee arrangements, whereby the solicitor's legal fees are calculated as a percentage of the sum awarded upon successful litigation, rather than by reference to time billed. Traditionally, such arrangements were deemed an agreement for a share of the litigation proceeds (pactum de quota litis) in Scotland, and consequently unenforceable. The reasoning was that lawyers take on a professional role for their clients in relation to a claim, and that they were therefore debarred from combining that function with a pecuniary interest of their own in the amount received.
Section 2 of the 2018 Act, which comes into force on 27 April 2020, will reverse this position by providing that a success fee arrangement is not unenforceable simply because it is an agreement for a share of the litigation. DBAs often proceed on a no-win-no-fee basis, and similarly provide claimants with the opportunity to litigate without being restricted by the financial barriers associated with pursuing court proceedings. It is possible that the two will operate together to bring about a more favourable environment for, and therefore an increase in, class actions (and other claims) in the Scottish courts. Claimants may be more willing to pursue group proceedings if they do not have to fund their own fees unless they are successful; and solicitors may well see the attraction of acting on the basis of a DBA for multiple clients in group proceedings.
Section 8 of the 2018 Act will introduce the new QOCS regime. At the time of writing, this Section is not yet in force, but it is expected to come into force in the course of 2020. Once in force, the QOCS regime may bring about an effect similar to that of DBAs, at least in the context of mass personal injury claims. The general rule on legal expenses in Scotland is that 'expenses follow success'. In other words, a successful litigant, whether pursuing or defending, will be entitled to recover expenses from the unsuccessful litigant, who bears both his or her own expenses and the opponent's. The risk of a party potentially incurring liability for their opponent's expenses, should the litigation prove unsuccessful, may be seen as constraining that party's access to justice.
Section 8 of the 2018 Act prohibits the Court of Session from making an award of expenses against an unsuccessful pursuer, essentially removing this hurdle. The new QOCS regime will be restricted to personal injury actions and contain its own procedural safeguards to ensure that vexatious litigants are not afforded protection of this kind. Section 8(1)(b) of the 2018 Act provides that QOCS will only apply where the pursuer conducts the proceedings in an appropriate manner, which they are considered to have done unless their lawyer makes fraudulent representations, acts fraudulently, behaves in a manner that is manifestly unreasonable or otherwise conducts the proceedings in a manner that the Court considers amounts to an abuse of process. The 2018 Act will therefore impose a high threshold before the protection under the QOCS regime can be taken away from a pursuer. In all other circumstances, pursuers will be taken as having conducted the proceedings appropriately and will therefore be entitled to the exemption under Section 8(1)(b). Again, that is likely to make the environment more favourable for class actions in personal injuries matters, including clinical negligence claims, subject to the pursuers being able to establish a class at the permission stage.
Finally, the 2018 Act will require parties receiving financial assistance from a third party in respect of proceedings to notify that fact to the Court. The litigant will be required to disclose both the identity of the third party and the nature of the assistance provided. Typical examples of third-party funding of litigation include insurance cover and legal aid. However, litigation funding increasingly takes the form of an investment, whereby commercial funders assist litigants by covering their legal expenses and take a return in the event that the litigants succeed. Unlike England and Wales, Scotland has never imposed a restriction on third-party funding. However, the English restriction on third-party funding arrangements has gradually been eroded, resulting in England becoming one of the premier jurisdictions for third-party funding, along with Australia and the United States. By contrast, the Scottish market for third-party funding has never quite found fertile ground. However, as has already been mentioned, certain aspects of the 2018 Act may make Scotland a more attractive jurisdiction for third-party funders, most notably its introduction of the possibility of opt-out class actions.
It will ultimately be up to the SCJC to decide which types of claim may be the subject of opt-out proceedings, and for the Court of Session then to exercise its discretion in any given case. However, should opt-out proceedings become a reality, Scotland will become the only jurisdiction in the United Kingdom where, aside from in competition matters, they are available to litigants. The financial rewards that might be available from successful opt-out litigation are bound to attract the interest of litigation funders, not least when Scotland is generally a less expensive jurisdiction in which to litigate than its neighbouring jurisdictions.
The United Kingdom left the European Union on 31 January 2020. The agreed transition period will end on 31 December 2020, unless extended. During that period, the United Kingdom and the EU will seek to negotiate a replacement free trade agreement.
At the time of writing, holders of decrees (judgments) from Scottish court actions retain the almost automatic right to enforce these throughout the EU during the transition period. Thereafter, the national law of each EU Member State will determine the enforceability of a judgment (unless the decree emanates from proceedings where parties contracted for exclusive Scottish jurisdiction, which will remain recognisable under the Hague Convention on Choice of Court Agreements).
Domestic rules vary considerably as to the extent to which the merits of the underlying action can be reopened and as to the procedure to be followed. One factor that many states take into account is reciprocity (i.e., whether the sending state would enforce a judgment of the destination state in similar circumstances). Post-transition period, the position on cross-border enforcement may be less straightforward than the current procedure under the Brussels I Recast Regulation and the Lugano Convention.
More generally, Brexit's impact may be felt in subtler ways: the advent of group proceedings in Scotland owes much of its heritage to developments in the fields of competition, data protection and consumer law, all of which have strong roots in EU law. It remains to be seen how much of that shared heritage will continue to shape the future development of Scots law, post-Brexit.
Outlook and conclusions
As already mentioned, the Court of Session is entitled to design the procedural rules of group proceedings in secondary legislation known as an Act of Sederunt. This responsibility is presently vested in the SCJC, whose first draft of the rules is expected later in 2020. The scope of the rules is only restricted by the substantive provisions of the 2018 Act outlined above, which override any of the existing Rules of the Court of Session. So long as the SCJC stays within the bounds of the 2018 Act's substantive rules, it will be entitled to regulate the procedure however it sees fit. The 2018 Act does, however, provide a non-exhaustive list of the matters the relevant Act of Sederunt may cover, including, among others, the persons who may be authorised to be a representative party, the action to be taken by a representative party, and the means by which members of the class give their consent or notice of non-consent, depending on whether the matter is an opt-in or opt-out class action.
The SCJC will need to decide which claims can, subject to the Court's discretion, be made the subject of group proceedings. One obvious possibility is claims for losses suffered as a consequence of breaches of the Data Protection Act 2018 (DPA). The DPA provides the UK government with the power to make regulations enabling, effectively, opt-in class actions alone. That restriction is, however, only applicable to England and Wales. The position in Scotland will instead be governed by the 2018 Act and the Rules of the Court of Session.
The framework is in place, through the 2018 Act, for Scotland, in the next few years, to move closer to a US-style opt-out class action model. The litigation funding environment has also been made far more receptive. Depending on how the SCJC's draft rules approach matters, the stars may be aligning for class actions in Scotland for 2020 and beyond.
Events that give rise to class actions, such as data breaches and product liability issues, often cross national and international boundaries. If a workable opt-out class action procedural device is implemented in Scotland, this may put pressure on the UK Parliament to introduce a similar mechanism. Consumer and lobbying organisations will point to the perceived unfairness of those who are Scots-domiciled being automatically included in a class, whereas recoveries south of the border will be less complete under opt-in procedural rules.