Scottish court refuses application by instructed lawyers to act as the representative party in first Scottish class action decision

Introduction

In July 2020, a new class action procedure, termed “group procedure” came into effect in Scotland (see our previous articles here and here). The first reported decision on Scottish group procedure, Thompsons Solicitors Scotland v James Finlay (Kenya) Limited [2022] CSOH 12 has now been issued.

Prior to launching group proceedings, two initial applications require to be made, one to authorise the proposed representative party for the group, and one to give permission to raise the claims as group proceedings. These applications may be presented concurrently or consecutively. In this case, the two initial applications were presented consecutively, however, it was the application for authorisation of the representative party that took up the bulk of the court’s attention.

The proposed representative party was the firm of solicitors instructed by the group. While the court acknowledged that the legislation which created group procedure expressly permits persons who are not themselves members of the claimant group to be the representative party, the court was of the view that this application should be refused.

The applications

The claims which the applications related to were personal injury claims by current and former employees of a Kenyan tea plantation. The decision says little about the claims themselves, merely noting that the information provided by the applicant was sufficient to show the claims were sufficiently similar to be suitable to be dealt with as group proceedings.

The main focus of the decision was on the application for the solicitors acting for the claimants to be appointed as the representative party.

The court rules require the court, when presented with such an application, to determine whether the applicant is a “suitable person” to act in that capacity. The rules set out a non-exhaustive list of factors the court is to consider in reaching its determination. These are:

(a) the special abilities and relevant expertise of the applicant;

(b) the applicant’s own interest in the proceedings;

(c) whether there would be any potential benefit to the applicant, financial or otherwise, should the application be authorised;

(d) confirmation that the applicant is independent from the defender;

(e) demonstration that the applicant would act fairly and adequately in the interests of the group members as a whole, and that the applicant’s own interests do not conflict with those of the group whom the applicant seeks to represent; and

(f) the demonstration of sufficient competence by the applicant to litigate the claims properly, including financial resources to meet any expenses awards.

In relation to the first of these factors, the applicant submitted that it was a long-established firm which almost exclusively handled claimant personal injury litigation and which had experience of group proceedings.

In relation to the remaining factors, the applicant firm provided a witness statement which set out information regarding the applicant’s standing and financial resources as well as the absence of any conflict of interest with any members of the group. It also explained that the funding arrangements were speculative and subject to success fees.

In relation to the applicant’s financial position, the applicant submitted that it had a solid financial base which allowed it to absorb unsuccessful cases and any associated awards of expenses against claimants. The applicant also made reference to the new Scottish qualified one-way costs shifting (QOCS) rules (see our LawNow here) which came into force last year for personal injury cases raised after 30 June 2021. The applicant submitted that the application of the QOCS rules meant there was little likelihood of a finding of adverse expenses against the group.

The court’s concerns

Lord Weir queried whether it was appropriate for the solicitors who were instructed in the case to also act in the representative party capacity. In particular, he raised issues over the potential for conflict of interest and the appearance of impropriety arising out of the possibility that decisions that were made by the applicant as representative party could be influenced by their financial interest as the firm acting in the proceedings.

The applicant sought to reassure the court by making the point that any concerns around the applicant’s own interests would be dealt with by the professional rules relating to conflicts of interest and client management which the applicant was bound by, as well as its professional responsibilities to the court.

In the absence of any Scottish case authority on the point, the court had regard to a number of Canadian authorities as well as extracts from the Scottish Civil Courts Review (2009) and the Taylor Review of Expenses and Funding of Litigation in Scotland (2014) which had recommended the introduction of group procedure.

Lord Weir was of the view that while the Scottish Civil Courts Review had recommended that group procedure should be designed to be usable by “representative bodies”, he did not think the Review group had had the scenario presented by this case in mind when making those comments.

So far as the Canadian cases were concerned, Lord Weir noted there was a discernible theme in them regarding the potential for conflict of interest and the possible appearance of impropriety that could arise. He noted that:

“Implicit in that concern would seem to be a recognition that, all things being equal, the positions of representative plaintiff in class proceedings and ‘class counsel’ are, and should be, separate and distinct.”

Lord Weir added:

“I wish to make it clear that I impute absolutely no impropriety on the part of the applicant in putting itself forward as a representative party. Far from it. But the broader concern I have mentioned is legitimate, and no less relevant, to group proceedings in this jurisdiction, which are themselves in their procedural infancy. The concern arises, in the circumstances of this application, from the apparent blurring of the distinction between a party and its advisors, and the improbable consequence that the applicant would be issuing instructions, as representative party, to itself on matters relating to the progress of the group proceedings.”

Lord Weir was also of the view that the information that had been provided about the funding arrangements:

“…emphasised the potential for conflict - or the appearance of it - to arise in circumstances where a global settlement might be proposed to the representative party…”

In these circumstances, the court was not persuaded that the applicant was a suitable person to be authorised as the representative party. However, rather than dismiss the application, the court continued the matter to allow consideration to be given to proposing an alternative representative party.

This approach was presumably informed by the court’s view of the second application before it, namely the application seeking permission to bring group proceedings. Lord Weir commented that so far as that application was concerned:

“…in principle, and subject to satisfactory resolution of the representative party application, I am satisfied that the criteria for granting that application are met.”

In this regard, and as noted above, the court was satisfied on the commonality of the issues raised and their suitability to be dealt with by group proceedings. It seems that attempts were made to argue that permission should be refused on jurisdictional and limitation grounds. The court appears not to have been persuaded by those arguments, however, the decision says very little about those submissions.

Comment

This first decision on group procedure will be of considerable interest to organisations that may be vulnerable to class actions in Scotland. It provides some valuable early insight into how the court will deal with the initial ‘certification’ stage.

What seems clear is that the authorisation application will not be a tick-box exercise. The key concerns the court had in this case were raised by the judge himself, since they had not been raised by the proposed defender. The judge specifically asked the applicant’s counsel to address him on these issues and to provide analogous authorities from other Commonwealth jurisdictions in order to assist him in reaching a decision. Whilst this is only one decision, it gives some reassurance to potential defenders of group proceedings that the ‘suitability test’ will be given detailed consideration, even where this has not been challenged by the proposed defender.

The decision is less informative as regards the permission application. However, one point of interest to note is the court’s apparent unwillingness to consider what appear to have been reasonably complex preliminary legal points as grounds for refusing permission. It will be interesting to see whether, in future cases, the court is willing to consider these types of legal issues at all as part of the merits assessment, for example, where it can be unequivocally demonstrated that the point is a “slam dunk” rather than one that can only be determined after a full hearing on the relevant issues.