Businesses should be wary of class action lawsuits as groundbreaking Shell decision has global reach
Class action lawsuits are becoming increasingly popular in the UK, and a combination of the coronavirus, Brexit and previous claimant-favourable outcomes will mean UK companies see more action against them in the coming years.
Britain is part of something of a third wave of class action lawsuit popularity.
The practice of collective claims started in the United States, where it is still rife, then moved to Australia, where it became so popular the Australian government is looking at ways to regulate the sector. Class actions are now growing in popularity in Britain.
According to Alan Watts, a partner at global law firm Herbert Smith Freehills (HFS), class action lawsuits first gained popularity in the UK after the financial crisis. The crisis encouraged the creation of claimant law firms, he said, which spend their time looking for cases to bring to court, opposed to cases to defend.
“When everyone was seeking to take action against the banks, your traditional firms would be conflicted, because if they were acting for the bank, they couldn’t then sue them. So the claimant firms had a natural in post-crisis, as they didn’t have the conflicts, and so they started building cases,” he said.
Then the litigation funders moved in, said Watts, spotting a market “ripe for exploitation”. Class actions have since grown in their abundance, with major firms like Amazon, Mastercard and Facebook each dealing with groups actions in the last year.
In the UK litigation funding is where a third party with no prior connection to the litigation agrees to finance all or part of the legal costs of a claim, in return for a fee payable from the proceeds recovered by the funded litigant.
HSF partner Chris Bushell said mass-tort claims could compound an already growing market, generating more action in the sector as early as the next 12 months.
“If there’s an English holding company you can sue them here in relation to a horrible event that took place in another jurisdiction,” he said. “Vedanta and Shell have said that in principle you can do that, so you can see a world where there might be a number of similar claims that are issued.”
In January 2020, a Dutch court ruled Shell must pay damages to four Nigerian farmers for two oil spills back in 2008. The farmers had complained the oil spill made their villages uninhabitable due to the pollution.
The court found that the Nigerian subsidiary of Shell was liable for the oil spills, and although Shell argued the leaks occurred as a result of sabotage, and therefore was not fault, the court found in favour of the farmers, and the oil giant faces a yet to be determined bill.
The Dutch ruling paved the way for Britain’s Supreme Court to rule that Royal Dutch Shell can be sued in London’s High Court. The Supreme Court said around 50,000 people in two Nigerian communities could bring a lawsuit against Shell and its Nigerian division Shell Petroleum Development Company of Nigeria over the oil spills.
Before that, in 2015, a group of nearly 2,000 Zambian villagers field a lawsuit against Vedanta Resources in a UK court over water pollution caused by its subsidiary’s copper mining operations.
The following year an English High Court judge ruled that a lawsuit against Vedanta Resources could proceed in Britain. The ruling was challenged and appealed, but ultimately the Court of Appeal dismissed the appeal and allowed the villagers to pursue their claim in the UK.
The rulings could mean parent companies headquartered in the UK, with subsidiaries – even third party subsidiaries – around the world, could be liable when something goes wrong on another continent.
Bushell said claimants liked the certainty and confidence that the British legal system brings, adding: “Take the example of the Shell case, bringing litigation in Nigeria is quite a risky and unpredictable thing to do, but bringing a case in England means you have confidence in the system.
“If you’re a litigation funder, you’re going to want to bring proceedings in a jurisdiction where you think it’s going to be dealt with properly, rather than there being a risk of corruption.”
Class actions represent neither a David and Goliath tale, nor, thanks to protections embedded in the UK’s legal system, do they mean companies face endless spurious claims.
The reality in Britain is more measured: “You’ve potentially got access to justice for people who ordinarily wouldn’t have had it, and you’d hope that in terms of making the world a better place, the larger institutions would take heed of that,” said PCB Litigation partner Natalie Todd, who is also a member of the London Solicitors Litigation Association.
On the other hand, class actions are more ‘cold hard business’ than ‘power to the people’, said HFS’s Watts.
“[The area] probably needs regulating… The involvement of the funders means on a case that probably should succeed, the people who are bringing the case are actually not going to get the kind of compensation they deserve, because the funders are going to take a large slice of anything that’s recovered, and that’s why they’re there – it’s their business.”
The pandemic and Brexit may also give rise to more class action claims. PCB’s Todd said Brexit had created logistical problems that were shared by many companies trying to get goods in and out of the UK, which could see companies banding together with a collective claim.
Bushell said he found difficult to imagine what a Brexit claim might look like, but with coronavirus, he could see people taking action against employers who made them uncomfortable during the crisis, or potentially exposed them unnecessarily to the virus.
The wheels are already in motion on at least one coronavirus-related class action lawsuit. Former Arcadia employees have vowed to take legal action against the retail empire and its owner Philip Green.
Law firm Simpson Millar has been contacted by tens of ex-Arcadia employees, and is in the early stages of an investigation to secure what is known as a ‘protective award’ on their behalf, for the company’s failure to properly consult staff about mass redundancies.
Ahead of class action lawsuits becoming more popular in the coming years, HFS’s Watts said UK companies should be “mindful” of the risk of group actions.
“I think it’s one of those risks that they need to be mindful of, and they need to be more mindful depending upon where they operate,” he said. “Businesses make promises, and they need to be making sure they’re keeping those promises – and that’s not a bad thing.
“They just need to be mindful. Everyone, for example, is mindful of data security. Before, businesses were worried they might be fined by the Information Commissioner’s Office, and now it could be because someone brings a claim against them.”
But business can breathe a small sigh of relief – it is unlikely class action lawsuits in the UK will become as popular is they are in the US.
Boies Schiller Flexner managing partner Natasha Harrison explained: “I don’t foresee that we will shift wholesale to the US way of doing things without a meaningful change to process.
“That’s because the US style of litigation is what is called “opt out”, so a class is certified, and everyone is deemed to be included in it. But in the UK you have a positive “opt in” system which operates as a natural check and balance on turning into a complete US style of litigation.”