8.5.2 Representative action

The aforementioned procedure of consolidation in which a number of claims and parties are joined in a single set of proceedings may lead to practical difficulties because each individual, as party to the proceedings, has the power to intervene. The GLO procedure, to be analysed in the next paragraph, is based on an opt-in mechanism: only the parties that file a claim are bound to the judgments in the test claim. However, in a representative action, a named claimant or defendant can prosecute or defend on both his behalf and on behalf of the represented class.1 Even though the members of the represented class are not party to the proceedings, they are, however, bound by the court's judgment on the claim.2 it is noteworthy to mention that since the represented persons are not parties to the proceedings, the proceedings can be commenced without their consent,3 they are not granted the ability to opt out of the class4 and the case can also be settled without their approval. The latter is a serious drawback for the interested persons.5 The fact that, unlike in US class actions, the represented parties who are not participating in the action nor in the eventual settlement, do not have the possibility to opt out, while they are bound to the judgment because of the res judicata effect,6is probably the main reason that English courts are strict in the interpretation of the conditions to initiate representative actions.

A representative action can be filed if two conditions are fulfilled:

The 'same interest' requirement used to be defmed in strict terras: a common interest8 arising, for instance, onder a common document, a common grievance, and a remedy beneficial to all, but not damages.9 It was for a long time difficult to use the representative action due to this strict interpretation of same interest and the inability to obtain damages. However, in Prudential Assurance & Co Ltd v Newman Industries Ltd,10 the court held that the representative action could be used in claims arising from tort as well as contract and that a declaration could be made that the defendant was liable and the represented class members were entitled to damages, which could then be pursued on an individual basis.11 The declaration on the defendant's liability in damages to each member of the class individually would have res judicata effect in favour of all represented class members. They only have to prove their actual losses in separate proceedings.12 In EMI Records Ltd v Riley13thecourt held that damages were recoverable in a representative action, if the global amount to the entire class was ascertainable.

Following these lower court decisions, the Court of Appeal held in The Irish Rowan14case that it had erred in the Markt case and outlined that the representative action rule as drafted in 1871 had safeguards for class members who wished to disassociate themselves from the class by permitting them to opt-out of the class.15 Furthermore, it held that in this case, there was sufficient commonality as the class members entered into separate but identical contracts with each contract containing a "lead underwriter clause" to the effect that each insurer undertook to be bound by acts of the leading underwriter and to be liable for her share for all decisions taken against the leading underwriter. Furthermore, the Court of Appeal affirmed that claims for damages are not to be automatically excluded from the representative action. It is noteworthy that if the defendant has the possibility of separate defences, e.g. in representative actions alleging (negligent) misrepresentation on part of the defendant causing damage to the members of the group, damages cannot be claimed in a representative action.16 Reliance on the misrepresentation must be established by each investor individually.17

It is arguable that prospectus liability claims based on the same misleading information in the same document, i.e. the prospectus, could be brought onder the representative action rule. However, given the fact that each individual investor has to claim and, upon challenge, prove actual causation between the misleading information and his investment decision, i.e. reliance, the claim in the representative action must be limited to the common question whether the defendant was liable. An advantage is that the judgment in the representative action will be binding for the other investors, unless they opt out from the class.18 Unlike the declaratory judgment of the Dutch Supreme Court in the World Online case, the English court's decision on the misleadingness of the prospectus and the tortiousness of the defendant's behaviour will, in principle, have binding effect in the individually initiated proceedings in which the investors claim damages from the defendant company. It is important to note that it is not very likely that private claimants will initiate representative proceedings in which a declaratory judgment is sought, because of the risk that they have to pay the defendant's costs without the guarantee of financial contribution by the represented parties. In practice, only representative (investors) associations which get (mandatory) funding from their members will be able to incur the costs and risks of initiate representative actions.

Another important feature that renders the representative action `ineffective' and mostly unused is the fact that there is no requirement that the represented parties be notified of the proceedings brought on their behalf. Furthermore, they are not entitled to be heard. Based on the English case law and the case law on article 6 of the European Convention on Human Rights, it is very likely that parties who did not receive reasonable notice of the case and were denied any opportunity to present their case, are successful in challenging the binding effect of the judgment.19 Given the fact that a judgment given in representative proceedings cannot be enforced against any person who is not a party to these proceedings without the court's permission,20 the interested parties are able to raise the violation of their due process rights by lack of notification. Another reason that litigation conducted on the basis of the ruling in Prudential is limited may be that the represented person has to start individual proceedings after the declaratory judgment is obtained, because of the fact that for reasons of procedural justice21 the court in representative actions is restricted to rule on common questions of law or fact.22

Finally, it is important to mention the most recent case in which the Court of Appeal restricted the use of representative proceedings. In Emerald Supplies Ltd et al. v British Airways plc.,23 it held that it is a requirement of bringing or continuing a representative claim that at all stages of the proceedings, not just at the date of judgment, it is possible to say of any particular person whether or not the qualifies for membership of the represented class of persons by virtue of having the same interest in the proceedings as the representative claimant. Referring to Radcliffe v Coltsfoot Investments Ltd, the court held that 'the case did not fall within the mie governing representative actions. Although the claims involved common questions of fact or law, they did not satisfy the test that the plaintiffs should have a common interest. The duty was not the same in each case. The represented class did not suffer the same grievance or seek the same remedy. The only final relief claimed was damages. The remedy sought by way of declaration as to breach of duty would not be final: it had only been sought in order to convert the suit into a representative action.' 24 In the case at hand, claimants brought proceedings against British Airways for damages, contending that it had been party to agreements and concerted practices with other freight providers. The claimants asserted that they were representative of all other direct or indirect purchasers of air freight services the prices for which had been inflated by one or more of the alleged agreements or concerted practices. The court dismissed the appeal on ground that the judgment in the action for a declaration would have to be obtained before it could be said of any person that they would qualify as someone entitled to damages against British Airways. The proceedings could not accurately be described or regarded as a representative action until the question of liability had been tried and a judgment on liability given.'25 Until the proceedings are concluded it could not be known whether the members of the class would have the same interest.

From this ruling, it can be concluded that representative actions are restricted to claims that share a single common interest, like in pollution cases; claims arising from a single event or a similar transaction such that individual substantive rights are shared by several persons, like product liability claims, personal injury claims following mass disasters and prospectus liability claims, are excluded; the laffer cases should be brought onder the Group Litigation Order.