Business groups call for consultation on new class action legislation

Business groups call for consultation on new class action legislation

Kenny Henderson

A group of business and legal bodies representing Scotland, Europe and the US have urged caution towards the introduction of US-style ‘opt-out’ class action lawsuits in Scottish courts.

The Scottish Chambers of Commerce; European Justice Forum; BritishAmerican Business; and the US Chamber Institute of Legal Reform have jointly written to the Scottish Civil Justice Council (SCJC) and Scottish Government raising concerns about the potential economic impact of adopting ‘opt-out’ legislation and have called for further consultation on the matter.

A long-established feature of US litigation, ‘opt-out’ class actions include all individuals impacted by group claim unless they specifically opt out of it. ‘Opt out’ proceedings can radically increase the exposure for any company or organisation facing a lawsuit.

‘Opt-in’ class action lawsuits, where claimants must choose to join the proceedings, were introduced in Scotland last summer with the enabling legislation, the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act, creating a framework to allow ‘opt-out’ group actions in future.

The parties writing to the SCJC/Scottish Government today are now calling for a cautious approach to avoid the introduction of new rules creating a ‘litigation culture’ in Scotland which could damage the economy and ‘enrich litigation funders and law firms’ at the expense of businesses and other organisations.

They’ve also warned that ill-considered ‘opt-out’ class action legislation could dramatically increase the volume of litigation and affect the distribution of damages, citing a recent study from the US Federal Trade Commission which reported just nine per cent of claims from these lawsuits going to consumers.

Writing on behalf of their respective members, the four signatories have requested the SCJC to run a full public consultation prior to introducing any ‘opt-out’ mechanism to ensure the supporting legislation is ‘properly balanced’ and would not encourage ‘unmeritorious claims’.

Kenny Henderson, partner and litigation specialist at CMS, said: “This joint letter reflects some of the significant concerns about the prospect of introducing ‘opt-out’ class action lawsuits. If these are approved for use within Scotland’s courts it will considerably amplify the potential threat to businesses and other organisations which can arise from the likes of data breach, product liability, and employee claims.

“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 by 5,000 pursuers. This potential liability would rise to around £400m involving an estimated 100,000 pursuers if this case were operating with an ‘opt-out’ mechanism and starting with 100% participation.

“While the Scottish Civil Justice Council 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 does, however, make it likely that an opt-out mechanism will be brought into force at some point, making today’s joint request for a wider public consultation a reasonable and sensible course of action.”

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