- No U.S.-Style Class Actions in the UK Just Yet: UK Court of Appeal Rejects Representative Damages Action Against Air Freight Cartel
- November 23, 2010 | Author: Frances Murphy
- Law Firm: Jones Day - London Office
The English Court of Appeal has rejected a request to join hundreds of claimants to a damages claim against British Airways (BA) for its involvement in an air freight cartel. Had the appeal been successful, it could have set the precedent for U.S.-style class actions (group actions) in England.
Background to the judgment
In September 2008, the law firm Hausfeld brought a representative action before the English High Court on behalf of two original claimants, two flower importers, and hundreds of additional unidentified claimants, including direct and indirect purchasers of air freight services. The claimants sought damages from BA for loss caused by BA's participation (together with other airlines) in the air freight cartel, through which prices were inflated.
To bring the representative action, the claimants relied on Rule 19.6 of the English Civil Procedure Rules, which provides that, where more than one person has the same interest in a claim, the Court may order that the claim be continued by one or more of the persons as representatives of any other persons who have that interest. The rationale for this rule is that a single action is more efficient, speedier, and cheaper than many individual claims.
In Spring 2009, the High Court had denied the claimants' attempt to rely on Rule 19.6. The High Court had ruled that the 180 unidentified claimants (the number had increased by the time of the Court of Appeal judgment) could not be joined in one action because the proceedings were not equally beneficial for everyone in the represented class. This was due to potential conflicts of interest, including that some of the claimants may have passed on the alleged overcharges to others within the group, such that BA might be able to raise a passing on defense against some (direct purchasers) but not others (indirect purchasers).
Judgment of the Court of Appeal
The High Court's judgment was upheld by the Court of Appeal. It found that the direct and indirect purchasers did not share a "common interest" beyond the common facts of the cartel. The Court held that having a "common interest" is not synonymous with having a claim arising from a single event, product, or transaction (such as a cartel). The Court found that the claimants did not to have the same interest required by the rule because:
The persons represented were not defined in the pleadings with a sufficient degree of certainty to constitute a class of persons with 'the same interest' capable of being represented by the original claimants. The Court observed that the pleadings were materially flawed.
There was a potential for conflicts to arise from the defenses that BA could raise in response to the different claimants, in particular the passing on defense. For example, the direct purchasers would not want BA to raise the defense that the direct purchasers had passed on any inflated price to their customers, but the indirect purchasers to which the inflated price had been passed on by the direct purchasers would want BA to raise the passing on defense.
The Court of Appeal determined that the potential for conflicts reinforced the fact that the direct and indirect claimants did not have the same interest and that the proceedings were therefore not equally beneficial to all those who would be represented.
What now for the claimants?
The claimants may appeal the judgment. While the Court of Appeal itself refused the claimants permission to appeal to the Supreme Court, the original claimants could apply directly to the Supreme Court for leave to appeal. The claimants have not announced whether they will appeal.
In addition, the two original claimants, the flower importers, have a claim on their own behalf, separate from their claim as representatives for the other direct and indirect purchasers. The flower importers’ claim was stayed pending the outcome of the European Commission's investigation into the cartel. That stay soon may be lifted, as last week the Commission adopted its final decision against the cartel, finding 13 airlines, including BA, guilty of cartel activity and fining 11 of those airlines a total of €799 million. BA was fined €104 million. If none of the cartelists appeals the infringement decision, then the stay can be lifted, with the result that the flower importers could proceed with their claim against BA for damages. The flower importers have two months from the date of the Commission's decision to decide whether or not to continue with their case against BA. If they do and they ultimately succeed, BA will not face any payout alone - earlier this year BA joined around 30 airlines as defendants to the claim, asserting they would be jointly and severally liable.
Actions outside England
England is not the only forum in which damages claims have been brought in this case. Air France-KLM settled a claim in the U.S. in July, agreeing to pay $87 million to direct purchasers of air freight services. However, indirect purchasers were omitted from that settlement, apparently resulting in a €400 million claim by multiple claimants led by Ericsson and Philips, filed in the Netherlands against Air France-KLM in September. A special purpose vehicle called 'Equilib' has been established to bring the claim on behalf of the multiple claimants. It is managed by Claims Funding International, which will take a commission if damages are awarded.
Implications of the judgment for class actions in the UK and EU
There still may be class actions (collective redress) in the EU.
English law already provides for representative actions. Under section 47B of the Competition Act 1998, a representative claimant may bring damages claims on behalf of a collection of claimants in the Competition Appeal Tribunal, after the defendant has been served with an infringement decision by a competition authority. This procedure was not used by the claimants in the BA case, because they commenced their action prior to an infringement decision. Absent an infringement decision, a claimant may only bring a stand-alone action for damages before the High Court.
Nevertheless, the judgment of the Court of Appeal has certainly set back the path for collective redress in the English courts. Under this judgment, the fact that the claimants all were affected in one way or another by the same cartel was insufficient to satisfy the 'common interest' test necessary for a representative action. This judgment holds back what some might have called the 'Americanization' of civil procedure in England that was threatened by the flower importers’ claim for collective redress against BA. The judgment will certainly be welcomed by defendants in damages cases, who will be keen to limit the financial fallout of being found guilty of cartel activity.
The EU appears to remain committed to some form of collective redress system in the future, although the road towards it is proving to be long and winding. After shelving its 2008 White Paper on damages actions at the end of 2009, in October 2010 the EU Commission published an information notice outlining future steps for developing policy and potential legislative initiatives in the area of collective redress. EU Competition Commissioner Joaquín Almunia has stated that in the second half of 2011 he will present specific proposals on antitrust damages actions, following a consultation on the relevant common legal principles. However, concern remains that the options for collective redress vary too widely throughout Europe for any EU system to be workable or welcome. It remains to be seen if, by 2012, a formal system for collective redress in the EU will be a reality.