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Consumer Trends 2023: Tackling Class Action's Perfect Storm

16 January 2023

With a challenging economic climate, better access to litigation funding, the implementation of the EU's Representative Action Directive and the rise of ESG – is this a perfect storm for Class Actions?

Historically the domain of the USA, there has been a significant uptick in the popularity of the class action/group litigation in the UK and across Europe. Retailers are now at risk on multiple fronts; from the product or service they provide to the vast consumer data they hold.

The UK market

A number of factors are contributing to the rise in such activity across the UK. Firstly, an increasingly challenging economic climate is causing a surge in litigation generally. A claimant is far more likely to pursue litigation if it promises meaningful compensation and very little risk.

Furthermore, improvements in technology and better access to funding means that group actions have become more attractive to claimants. In the UK, there has been a significant increase in "class action specialist" law firms, some of which have the benefit of overseas investment to promote and advertise claims about which potential claimants might otherwise have been unaware. Such specialist firms also have the resources to pursue claims for large volumes of claimants.

Europe

In Europe, class action activity is increasing as opt-out mechanisms become widely available. EU member states implemented the EU’s Representative Action Directive, a legal framework for consumer representative actions, by the end of 2022.

The Directive will enable qualified entities to bring representative actions, for both injunctive (requiring the infringing conduct to be stopped or prohibited) and redress measures (such as compensation, repair or price reduction) against traders who are infringing the provisions of EU law. The Directive includes both an opt-in and opt-out system.

This Directive provides consumers with an alternative to pursuing costly, lengthy individual legal proceedings, by way of an efficient method to obtain collective redress. The existence of such a mechanism is likely to lead to an uptick in such class actions being run.

Likely growth areas

In the UK, group actions have been filed across a range of sectors, including the financial sector and the consumer sector (such as the Volkswagen litigation).

We predict that ESG and its associated compliance requirements will drive a growing number of class action cases as investors, consumers and employees are increasingly looking beyond bottom-lines and assessing what businesses are doing to address climate change, tackle human rights abuse and improve diversity.

A good example of this is the class action being brought by environmental law organisation Client Earth, on behalf of activist shareholders, claiming that Shell’s 13 directors are personally liable, under the Companies Act, for failing to devise a strategy in line with the Paris agreement around emissions targets.

We also foresee an increase in data breach class actions, such as the British Airways (BA) Group Litigation Order, which followed a breach of BA's security systems leading to leaked data. A claim was filed on behalf of those impacted by the mass breach, seeking compensation for non-material damage, including inconvenience, distress, annoyance and loss of control of their personal data. Given the potential for such data breaches to take place, it is likely that such actions will increase.

What can be done?

It is impossible to know when the next class action will arise, but there are steps which can be taken now, including:

  • preparing a crisis/incident response plan;
  • risk assessment of the company's readiness to respond to group litigation;
  • ensuring that there is a cyber-incident response strategy in place; and
  • tracking complaints received from customers and monitoring any arising trends.

If you have any questions or would like to discuss any of these topics and what they mean for you and your business, please get in touch with our consumer sector and Class Action experts. 

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