Consumer Rights Act – No Big Deal for Consumers

The Consumer Rights Act, which came into effect today, 1 October, is unlikely to herald a deluge of class actions despite the implementation of an ‘opt-out’ system for collective litigation that will enable as-yet unidentified individuals to be included in competition law cases.

The Act reverses the current system which requires all claimants in a collective action to expressly ‘opt-in.’ The rationale in the past had been to avoid unmeritorious litigation and US-style class actions but more recent thinking has come down in favour of making it easier for private individuals and businesses to take enforcement action.

However, the new legislation is not a bonanza for consumers looking to hold businesses to account – it only applies to infringements of EU or UK competition law and to claims brought on or after 1 October 2015.

The Competition Appeal Tribunal (CAT) will now have jurisdiction to hear cases in all competition infringement actions not, as now, just those subsequent to a previous decision by the relevant competition authority – so-called ‘follow-on’ actions.

In order to safeguard against frivolous and vexatious litigation, the CAT will have to certify that the collective action meets a number of criteria before allowing the claim to go ahead. These include:

  • The adequacy of the representative bringing the action – the CAT will only authorise a person to act as a representative if it is ‘just and reasonable’ to do so.
  • The collective claims raise the same, similar or related issues of fact or laws.
  • The standard costs rules will apply such that the losing party is required to pay the successful party’s costs.
  • Exemplary damages cannot be awarded and damages-based agreements, where the acting law firm receives a percentage of the damages if the claim is successful, are unenforceable.
  • The opt-out procedure does not extend to foreign claimants who will still need to expressly opt-in.

The new system will primarily apply to price-rigging claims such as the illegal cartel operated by Virgin Atlantic and British Airways some ten years ago in which the airlines colluded to fix air passenger fuel surcharge prices and the current freight cartel action involving BA and eleven other airlines.

It won’t apply to the vast majority of main consumer claims, says David Greene, senior partner at Edwin Coe and expert in Competition Law. “It is unlikely to benefit the very people it was brought in to assist because it only applies to anti-trust actions.”

Mr Greene says that funding is also a big issue because in the opt-out system it is impossible to know the number of potential and actual claimants. He said this could deter third party funders.

Louis Young of third-party funder Augusta Ventures disagrees. “Costs can often dwarf the size of damages especially if they aren’t managed properly. With an opt-out system adverse costs risks are minimal because you only run one claim. This is certainly not a deal-breaker,” he said.

Businesses are understandably nervous about their increased level of potential exposure under the new regime which allows the CAT to assess damages on an aggregated group basis rather than limit an award to the amount of damages claimed by each opted-in claimant and quantified on an individual basis.

This means that the damages paid by defendants could often represent more than that which is actually claimed by members of the claimant group. If this happens, the unclaimed portion doesn’t revert to the defendant – instead the new system enables the CAT to allocate any unclaimed portion of the damages to a prescribed charity or to pay these to the representative in respect of costs incurred.

Whilst the Consumer Rights Act is unlikely to make an enormous difference to competition claims, it will give consumers and small businesses more options in competition infringement cases. If the new system is successful it could have a knock-on effect with product liability cases being the next in line for opt-out collective actions.  The recent VW scandal could well mark the first big test of this new regime.

1 October 2015

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