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Class Actions: A Global Update

18 January 2011

Once thought of as only a US phenomenon, class action procedural regimes are now spreading rapidly around the world.

Allen & Overy's Class Actions Group is at the forefront of these developments and has recently contributed a chapter to Litigating Securities Class Actions (published by LexisNexis) that summarises developments in this area across Europe.

2010 saw a wide range of significant global developments in the field of class actions, and this trend shows every sign of continuing. This has been limited in the UK by the abandonment of a class action regime from the Finance Act 2010, and the Court of Appeal decision in November 2010 in Emerald Supplies Ltd v British Airways Plc [2010] EWCA Civ 1284 confirming that the courts will not create something akin to a class action system by liberal interpretation of the Civil Procedure Rules.

In Europe, the introduction of further class action regimes has led to a growth of claims, and also to a growing jurisprudence on international enforcement of US class action judgments and settlements. Class actions in Italy in particular have grown rapidly since their introduction in January 2010. In the US the highlight has been the cutback of the US courts' jurisdiction to hear foreign investor cases through the Supreme Court decision in Morrison v NAB, although the relief felt by financial institutions at this decision is tempered by legislative attempts to reverse the effect. The Dutch law on settlement of global class actions is proving a popular international alternative to US class action litigation, and the courts there are developing significant jurisprudence in this area. Financial services and antitrust are the biggest growth areas for class action claims.


The key decision in 2010 was the Morrison v National Australia Bank Supreme Court decision in June. This came as a welcome relief to financial institutions, to the extent that it ruled US courts would not have jurisdiction to handle so called "F-Cubed" investor class action claims. F-cubed cases are those where a foreign investor buys shares in a foreign company on a foreign stock exchange. The fact that the US courts had been willing to entertain securities claims in such circumstances caused widespread international concern, so much so that the UK, France and Australia all submitted amicus briefs to the US Supreme Court in the Morrison case. However, the value of this decision has been eroded by the passing of the Dodd-Frank Act just three weeks later, which allows the SEC and DOJ to bring F-Cubed securities cases, and a consultation is underway as to whether legislation should be introduced in effect to reinstate F-Cubed jurisdiction on the US courts for other claimants. The view is that this is relatively unlikely to happen.


At the same time as Morrison, the courts over the border in Canada were developing their own F-Cubed regime. In Marvin Neil Silver -v- Imax Corporation, US investors, resident in the US, had bought shares in IMAX on a US stock exchange and were able to bring claims before the Ontario courts, albeit on the basis that 10% of the claimant class were Canadian investors.


Developments in the UK have been less dramatic. Proposals in the Finance Bill 2010 to allow a wide ranging class action regime, both on an opt-out and opt-in basis, for financial services claims, were dropped from the legislation in the rush before the general election. This was thought to be because of strong objection from legal and business groups to the form of the proposed legislation, rather than for any party-political reason. It is not yet known whether the new government will attempt to reintroduce these provisions. The Court of Appeal decision in Emerald Supplies Ltd v British Airways Plc [2010] EWCA Civ 1284 has for now closed the door to hopes that the courts would interpret the English Court rules on representative actions flexibly to allow a form of class action to be created without the need for legislation. The Scottish judiciary and government have recently approved the implementation of a class action system in Scotland. If this comes into force, it will provide significant additional pressure on England and Wales to introduce such a regime, given the relative ease of forum shopping between England and Wales and Scotland.


In particular in the Netherlands, the global class actions settlement regime has proved effective and is growing in international popularity. The Dutch courts have also moved closer to allowing F-Cubed cases for class action settlements by assuming jurisdiction to declare an international settlement binding in the case of Converium in which none of the defendants and only a few of the claimants were Netherlands resident. This confirms that the Dutch courts are willing to act as an alternative forum to declare international class settlements binding, even in the absence of an evident relationship with Dutch interests.


Class action regimes were introduced in Italy and Poland during 2010. A significant number of claims have already been filed in Italy. One worrying development is that the Italian Supreme Court has adopted something akin to the US 'fraud on the market' theory. This usually allows investors to bring a claim on the basis of a misleading prospectus statement or announcement by a company, even if they never read it, and the Italian court has now introduced a presumption of reliance by investors. Under English law, in contrast, an investor usually has to prove reliance on the misleading statement and loss caused.


The proposed introduction of a full 'US-style' class action regime in Belgium seems to have stalled, becoming gridlocked within the government. Nevertheless, parties and courts are finding flexibility in existing rules of procedure to bring in effect class action claims for financial services cases, although not yet for antitrust or product liability cases.


A typical scenario is where a European based corporation brings an independent action to recover substantial damages from a US defendant, whereas under the US class action settlement or judgment it would only receive a minimal amount. The US based defendant argues that the US judgment is binding on the European corporation. This is an issue over which there can be significant public policy uncertainty. Some European jurisdictions have a public policy reservation to litigation which is on a "opt-out" basis, since in that situation a defendant is exposed to liability and damages to a potentially vast worldwide class of claimants, many of whom never come forward and are not known. The French Government's amicus brief in the Morrison case stated that the French courts would refuse to enforce such a US class action judgment on the basis that it offended public policy. This is in contrast to the courts of The Netherlands, which have approved a US class action settlement on an opt-out basis without any public policy objection (Royal Ahold NV, 23 June 2010).

Hong Kong

Finally, elsewhere in the world, the Law Reform Commission in Hong Kong has produced a consultation paper recommending the introduction of a comprehensive class action regime. The outcome of the public consultation is awaited.