Kenny Henderson

CMS’s European Class Action Report 2022, led by Edinburgh-based partner Kenny Henderson, looks at class action activity in the UK and across Europe over a six-year period from 2016 to 2021. It is the only study to analyse data from class action proceedings across Europe and to map a true picture of class action risk.

2021 saw a record high for the number of collective proceeding order (CPO) applications filed in the Competition Appeal Tribunal (CAT) in the UK. 85 per cent were stand-alone claims - a marked change from 2016 to 2020 when the majority of claims filed were follow-on claims. Stand-alone claims are often seen as attractive for claimant law firms and funders in that regulatory scrutiny attracts attention from various potential claimants.

“2021 was a huge year for UK competition class action,” says Mr Henderson, a litigation & arbitration partner at CMS. “Active claims now encompass a total of more than 170 million persons. With 100 million of those involved in claims filed in 2021 alone, it is abundantly clear that risk is growing rapidly. Class action risk is also increasing in other areas including consumer claims and ESG.

“A ‘rush to the courthouse’ dynamic is developing, where many people will be involved in multiple class actions without their knowledge. Claimant law firms and litigation funders are not waiting for regulators; they are increasingly bringing stand-alone claims where they will seek to prove liability.”

Litigation funding encouraging rise in class actions

The explosive growth in litigation funding has been identified as a major driver of class actions.

In the UK alone, funders’ new investment into UK litigation are approaching £1 billion per annum.

Across the EU, litigation funding is on the rise too, with third-party funding predicted to grow to €1.6bn in revenue by 2025. A lack of regulation governing litigation funding has been identified as a cause of concern, with industry experts expecting statutory regulation to be introduced if the use of third-party funding continues to expand. In June 2021, Axel Voss MEP published a report with draft recommendations for regulating third-party litigation funding. Included in these proposals are rules around transparency and clarity, capital adequacy and fiduciary duty. There is also a recommendation for funders to be authorised in order to conduct business, with an office registered in a member state and activities monitored by a domestic regulator.

“Claimant law firms and litigation funders are more active than ever before, looking for new claims to bring – which they see as profitable opportunities,” says Mr Henderson. “Class actions can be expensive to fund, and litigation funders will of course do their diligence carefully. But many funders are focusing on this area given the potential for very high rewards.

“As litigation funding expands, and in particular into class actions where the class members are often private individuals without independent legal advice, we are expecting increasing calls for formal statutory regulation.”

Claims across Europe reach record-high levels

A total of 110 class actions seeking damages were filed across Europe in 2021, slightly higher than 2020’s previous record-high figure. This represents a 120 per cent increase between 2018 and 2021. The UK continued to take the lion’s share of activity, accounting for 54 per cent of all claims in Europe, but claims continued to flow across Europe, with the Netherlands (13 per cent) and Portugal (2 per cent) in particular seeing a significant rise in class actions.

“Class action risk continues to increase across Europe, and it is high on the risk register for multinationals,” Mr Henderson adds. “Whether a claim is certified on an opt-in or opt-out basis continues to be a hotly contested topic across Europe, with the increasing prevalence of U.S.-style opt-out mechanisms still a major concern for businesses. The Representative Actions Directive, which all EU member states must pass legislation to comply with by the end of 2022, may also inspire a fresh wave of new claims across Europe and businesses need to be prepared.”

To date, very few countries have updated their domestic legislation to ensure compliance with the Directive.

Consumer and competition claims intensify

CMS’s study shows that between 2020 and 2021, there was significant growth in product liability, consumer law and personal injury claims across Europe, with triple the number of consumer claims being filed in 2021 as in 2020. This growth was driven by a number of factors, including large numbers of Dieselgate claims, relating to the scandal involving German carmaker Volkswagen over the emissions levels of its diesel cars.

The financial services sector in particular saw a greater diversity of new claims in 2021. Whereas over a five-year period, product liability, consumer law and personal injury claims and competition law claims comprised 15 per cent of claims; in 2021, they comprised over a third. Claims relating to financial products / shareholders / securities were still the most prevalent type in 2021 however, accounting for 42 per cent of all new claims.

Meanwhile, the technology sector saw a sharp rise in competition cases in 2021. Over the period 2017 to 2021, competition claims comprised fewer than 1 in 5 new claims. In 2021, competition claims accounted for 40 per cent new claims in this sector. This was closely followed by data protection claims (30 per cent), fuelled by GDPR and the potential for data protection issues.