Lounge with outside view.

Are the US courts eroding collective redress? Why England may be becoming a more attractive place for class actions

07 December 2018. Published by Jonathan Wood, Head of International Arbitration and Max Rossiter, Trainee Solicitor

The United States has long been the home of high value class actions. Even speculative lawsuits can result in quick settlements by cautious defendants who frequently opt for the certainty of a defined agreement over potentially hefty court costs and the threat of punitive damages. Recent developments highlight a change in approach.

A change of approach?

This aspect of the US court system has recently come under threat; in addition to legislative changes, the US federal courts have recently shown willingness to uphold compulsory arbitration clauses and to limit the right to litigate, even in consumer and employment cases. This has effectively locked out individual claimants from group actions. 

Lamps Plus v. Varela, No. 17-988, heard by the Supreme Court in late October 2018, continues this recent trend. Lamps Plus argued that even the right to pursue class arbitration should only be allowed where it is expressly considered in employment contracts, and that a general prohibition against participating in class actions should extend to cover class arbitration as well. Without a hint of irony, they argued that allowing class arbitration where it was not expressly allowed could lead to huge pressure for companies to settle, ignoring the fact that this is exactly the argument made by individuals who are locked out of group litigation and forced to arbitrate. Lamps Plus further argued this could be especially onerous as the company could not appeal any arbitral award.

How does the UK compare?

By contrast, collective redress is on the up in the UK and may prove a more welcoming jurisdiction for claimants. How does the current state of affairs in the United States compare with that parties face in the English courts?

In England, there is a clear framework governing how arbitration and litigation intersect, including what is required to appeal arbitration awards in the English courts (sections 67, 68 and 69 of the Arbitration Act 1996). In the US the two systems are increasingly seen as separate. This could make England more appealing for parties who need the flexibility of both systems.

Arbitration clauses remain far less of a political football (either round or egg shaped) in England then in America. Consequently, both future claimants and defendants have a level of certainty when considering the right jurisdiction for contractual dispute resolution clauses. The US has a much quicker legislative turnover (with the House of Representatives being elected every 2 years) and an overtly political court system; recent political changes have demonstrated how quickly even long standing US policies can change. All of this adds to future uncertainty that is unhelpful for those who are trying to reduce their exposure to risk. In England, litigants can be certain that any changes will be slow and pragmatic and in line with other changes to English legal rules.

As the English courts slowly embrace class actions, the deluge of group litigation and frivolous lawsuits foreseen some years ago still fails to materialise. Further, the parity for claimants and defendants in terms of the English courts' approach could also make it a preferred choice of venue. Companies most likely to be defendants might naturally advocate for a jurisdiction that seemingly limits collective redress;  however, with the increased availability of litigation funding and the new wave of follow-on damages actions (traditionally defendants in group litigation), it is harder now to predict which side of a dispute a party will be on. Many parties historically seen as potential defendants might someday need to act as claimants.

A classy future for the English courts?

As the above case has highlighted, while the US looks like it is embracing one specific form of dispute resolution to deal with group actions, the English court system remains open for business for both claimants and defendants and for arbitration and litigation. While class actions remain in their nascent stages, the English courts look poised to replace the US as the latter continues to curtail the rights of claimants in group actions.  In doing so, it should remain a flourishing centre of dispute resolution in the coming years.