Legal Update: The ins and outs of opting out

The move is intended to make the UK courts a more attractive venue for private competition litigation. However, if claims management companies exploit it as an opportunity to make money, insurers and their policyholders will be confronted with yet another process benefitting those representing the claimants rather than the claimants themselves.

In recent years, claims involving large cohorts of claimants have operated both informally and formally. Recent reviews conducted by the Insurance Fraud Taskforce and Carol Brady have highlighted widespread concerns over the behaviours of CMCs.

These concerns extend to the possibility of unscrupulous organisations pursuing claims without the claimant's knowledge. Recently, within the Ministry of Justice portal for handling low-value personal injury claims, the so-called ‘400 club' was identified with evidence of some motor claims being pursued without the claimant's knowledge.

To date, in formal group litigation, claimants have had to opt in to have their case included. They had to apply to get on the group register before a set deadline, the cut-off date. Claims have covered a wide range of subject matter, including personal injury and payment protection insurance. And they have been successful against several financial services firms, including insurers.

The government has expressed concern at the way claims are brought on behalf of groups.

In Consumers Association v JJB Sports, the Which? claim failed spectacularly. In this 2007 case about price fixing of replica football kits, claimants needed to opt in. Less than 0.1% of potential claimants actually signed up and each received less than £20 compensation. The legal costs dramatically outweighed damages. This led Which? to comment that it was not possible to bring future claims under the current regime.

And so the government introduced the new provisions in the Consumer Rights Act, which came into force on 1 October 2015. It enables actions to be brought on an opt-out collective action basis, meaning competition law claims can be brought on behalf of a clearly defined cohort of claimants, save those who take the positive decision to opt out. Does this open the floodgates?

On balance, there is probably no immediate risk of a significant increase in claims. The new process applies only to competition claims and safeguards have been built in: the usual costs rules will apply and it will not be possible to bring a claim using a damages-based agreement.

However, given the ability of some in the market to adapt to changes and make the most of them, it may be wise to keep an eye on how the situation develops. There had been plans to restrict who could act as representatives in these actions, excluding law firms and litigation funders. But those plans were ultimately shelved and litigation funders are showing an interest in the opportunities that the new process may offer.

It will undoubtedly take time to assess the merits of the new Act. While the intentions of the reform were meritorious, careful monitoring will be important to ensure that unintended consequences do not follow.

Paul Edwards
Head of costs at Hill Dickinson