news - Commercial Litigation - Group litigation: Summary from the In-house Counsel Litigation Conference 2018
The In-house Counsel Litigation Conference held at the Law Society and sponsored by Stewarts was an insightful look into the multifaceted challenges that in-house counsel face. The conference was an opportunity for in-house counsel to update their knowledge on the risks and benefits that litigating can bring.
Clive Zietman (Partner and Head of Commercial Litigation at Stewarts), Adam Johnson QC (Partner, Dispute Resolution, Herbert Smith Freehills LLP), Jenny Whiteman (Director of Legal Services, Hermes Investment Management) and Caroline Goodman (Founder and CEO, Institutional Protection Services) took to the stage to discuss group litigation.
The three key items on the agenda were:
The current position – where we are and how we got here?
Challenges in group litigation cases, and
Issues for the future – how do we see the area developing?
The current position
It is apparent that group litigation is not a UK-born trend but rather started its lifespan in the US. US financial antitrust cases have been widespread, with LIBOR and foreign exchange cases, in particular, making front-page headlines. Yet the UK has not developed an exact replica of the US class action system, far from it.
There are a number of differences in the US litigation structure that makes the US a natural home for group litigation. Firstly, adverse costs do not exist in the US. Secondly, in relation to financial litigation, in particular, there is wide-ranging investor protection, which creates a harmonious environment for claims. Going to trial prevents certainty and, therefore, creates significant risks for defendants who will often prefer to settle than face a jury.
Adverse costs were identified as a key stumbling block for the progression of UK group litigation, with the RBS rights issue case being flagged as the key development in this area. Another factor noted by the panel was that we tend to be far more apprehensive about risk-taking than our US counterparts. UK companies tend to want certainty and precedents to guide them in their decision making. Such certainty has not yet been established.
The negative side to over-litigating was also pointed out. The US class action system is often looked at with scepticism by us Brits. There appear to be a plethora of unmeritorious claims which we don't tend to see in the UK.
The challenges in group litigation
The panel moved on to consider the challenges facing in-house counsel regarding the management and conduct of litigation. Clive Zietman pointed out that structure was crucial to a successful group claim. A steering committee to make decisions is essential, as is funding and ATE insurance. Considering settlement possibilities early on will put the group in a good position if and when such discussions commence. Failure to consider settlement options early on wastes crucial time and could potentially make settling difficult when the opportunity arises. Adam Johnson QC pointed out that from a defendant's point of view, they will want to engage in a dialogue about settlement at some point.
While group litigation in the UK has proven to be feasible, in the absence of an American-style class action system it appears much more difficult to run class actions in the UK.
The crucial difficulty for an in-house practitioner is the obligation to make a judgement on the merits of joining a particular litigation. Jenny Whiteman pointed out that there are a number of key considerations. The first is the need to relay the necessary information to your non-lawyer colleagues in an easily digestible way, but without losing any of the crucial detail. The in-house practitioner needs to balance the risks of joining the case on the one hand, for example, the reputational impact, alongside the prospects of success on the other.
Other important considerations are any key relationships your firm may have with the defendant, adverse costs, and how your company feels about appearing in the media.A company will want to know at what point they can walk away from the litigation without any fallout and at what point that option disappears. Before weighing up these different factors, it is worth considering which can be managed or alleviated. The obvious one is adverse costs which can be protected against through insurance.
Caroline Goodman confirmed that if adverse costs are covered by insurance, and other risks are managed, then her clients would be much more likely to get involved in a case. This was one of the areas that IPS evaluated when conducting due diligence on group shareholder actions for its institutional investor clients around the world.
Clive Zietman pointed out the fear many have of a compensation culture ensuing in the UK. But the reality is that we couldn't be further from that. Companies are extremely cautious and will not get involved in any sort of litigation that looks dubious. There are a number of players that look at group actions carefully before they can even get off the ground. Not only do private practice lawyers carefully scrutinise potential actions, third party litigation funders put considerable thought into the plausibility of any claim.
The panel also considered the reputational and PR aspects that a company might face when litigating. Caroline Goodman felt that in the past there was a fear of being seen to be involved in opt-in shareholder cases. But now the landscape has shifted and there is a fear of not being involved in cases, particularly now that we are beginning to see cases resolve. Significant settlements like RBS and Fortis make even the most conservative investors question why they didn't join a case. She suggested that it's a good idea to understand how you are impacted by all the various potential cases being proposed, and whilst that doesn't mean joining every case available to you, it does mean knowing what your options are and then undertaking due diligence to ensure you join the best case available on the best terms.
Panellists mentioned the need to be prepared to deal with questions from directors. They have found directors have become more interested in group litigation and sometimes approach them to ask if they are going to get involved in certain litigation. In this scenario, the in-house practitioner wants to be prepared to justify their decisions.
Putting a process in place in advance can help in-house practitioners prepare for such queries. If you have set criteria when considering litigation, you can justify your decisions in relation to that. You might want to include decisive factors such as loss thresholds, whether you have the capacity to work on this case and are you willing to take the lead on it. Also, you need to consider administrative factors such as who needs to sign off on the decision. Having such a system in place will save time and streamline your decision making process. An added advantage would be to put in advance exclusions, such as that you will never litigate against a certain company, in certain jurisdictions or under a certain loss threshold, thereby saving you time later down the road.
In-house counsel may find they face competing pitches from different private practices who want to take their claim. Choosing the right firm can be difficult and time-consuming. Caroline Goodman pointed out that a helpful solution is to instruct an independent firm to advise on which package looks like the better option.
The future of group litigation
The final topic considered by the panel was the future of group litigation.Clive Zietman pointed out that our court system is not currently set up for group litigation. Under-resourcing is a significant factor affecting the courts.
When done right, there are significant benefits to choosing to litigate as a group. A large number of claimants can make an impact on a defendant – a series of big institutions will be taken more seriously than a single claimant. Another advantage is that group litigation allows for the progression of claims which individual claimants would struggle to bring on their own. Also, if risk can be shared out why bear the burden on your own?
The panel considered what future group actions will look like. A possible trend in the future is that groups will be split up by size or type of claimant, with institutional and retail investor only groups, rather than groups that contain a cross-section of claimant types and sizes.
Claimants participating in group litigation should also think about their conduct within the group. For a streamlined process, claimants should be collaborative and think critically about what issues should be approached and in which order. They should consider what the most constructive approach is for the group as a whole.
Clive Zietman
Head of Commercial Litigation
czietman@stewartslaw.com