Could the Financial Markets Test Case Procedure be an alternative for group legal actions?

In recent years, the UK legal landscape has seen a significant increase in group actions, allowing individuals to come together to bring same or similar claims against a defendant(s).

Historically, there have been three main options available to people wishing to bring group actions.

The traditional mechanisms for bringing a group action in England and Wales

Firstly, a group with a shared cause can bring legal claim against the same defendant through a group litigation order (GLO) under CPR Part 19B. This is essentially an ‘opt-in’ mechanism whereby proceedings are issued for each individual claim, to then be collectively managed by the court.

Secondly, a group of people who share the ‘same interest’ may be able to bring a representative action under CPR 19.8. These are ‘opt-out’ claims where a representative brings or defends a claim on behalf of a large class of persons. Here, any judgment or order is binding on everyone affected, whether they join the proceedings or not. This mechanism is at the discretion of the court – if the ‘same interest’ test is met, the court will then determine whether to allow the representative action to go ahead.

Thirdly, for competition claims, people can bring actions for damages through collective proceedings orders (CPO), heard by the Competition Appeal Tribunal (CAT). Claimants taking this course of action were originally limited to exclusively ‘opt-in’ claims but following an amendment to section 47B Consumer Rights Act 2015, ‘opt-out’ claims are now available. Each claimant is no longer required to decide to join the claim; instead they will be presumed as included in the action unless they have expressly opted out.

The Financial Markets Test Case Procedure

Initially introduced as a trial scheme in 2015, the TCP became a permanent practice direction under CPR Part 63A, effective from October 2020.

The scheme was piloted to help facilitate resolutions to issues relating to the financial markets where guidance was needed. This allowed cases to be determined without the need for an existing cause of legal action between the relevant parties.

To bring such a claim, the individual or company involved must start their claim in the Financial List, a specialist court list set up to address the business needs of parties taking legal action on financial matters. Claimants must prove that their claim “raises issues of general importance in relation to which immediately relevant authoritative English law guidance is needed”. The litigant must be a person who is or was actively in business in the relevant market, only then issuing proceedings by mutual agreement against another party who is or was also actively in business in the relevant market.

The TCP was piloted to allow courts to grant declaratory relief, a judgment that states whether the parties are entitled to seek remedy from the courts, in a more “friendly” manner where no orders as to cost will be made. Third-party litigation funders, who are often attracted to fund group actions due to the extensive costs involved, could fund such test cases as a form of investment, with the hope that any successful judgment may open the door to follow-up claims or related wider settlements, which they can then also support.

So far, the TCP has only been used once: The Financial Conduct Authority v Arch and Others [2021] UKSC 1. This case concerned whether non-damage business interruption insurance, covers businesses against losses from interruption due to various causes, extended to cover the closing of non-essential businesses due to COVID restrictions in the first national lockdown. The Financial Conduct Authority (“FCA”) represented the interests of policyholders, many of them small and medium sized businesses, against eight defendant insurers.

The test case sought to determine in principle whether the wording of 21 sample policies did cover for COVID-related losses, and to then decide whether the claimants would be entitled to payouts from the insurers. The FCA estimated in the first instance judgment that the case could potentially affect over 370,000 policy holders and be worth at least £1.2billion.

The final judgment in January 2021 by the Supreme Court, on appeal from the High Court, found in favour of the claimants. The judgment provided important guidance, confirming that the losses suffered could in theory be covered by non-damage business interruption insurance, whilst not actually ruling on whether the specific losses were covered.

The future of the TCP

The TCP offers an appealing new way to obtain collective redress. Where claimants find themselves seeking guidance on a point of law, such a procedure may be of use to help propel a claim forwards. Legal precedents can be established, potentially with wide-reaching impacts, without the need for an actionable claim or for all interested parties to be fully represented.

At first glance, this could be deemed as concerning if relevant, yet unrepresented parties are not given the option to raise issues in front of the court. However, the courts have suggested that litigants can instead elect a regulatory body or trade professional, such as the FCA, to represent large group interests. The court will then consider whether all interests are properly put before the court before continuing, allowing all voices to be heard.

This procedure has also been commended for the speed at which issues can be resolved. Notably, The FCA v Arch and Others was concluded in just over seven months, which is unheard of for group claims. Given the timely and prompt manner in which settlements can be reached, appealing to those litigants wishing to keep down costs, the group claim landscape may have expected more use of this mechanism.

Arguably, the unique and unprecedented nature of COVID as the context of the test case is what lent itself to be well-suited to the TCP. Perhaps this, coupled with the limited awareness of the procedure as well as its rather stringent eligibility criteria, has meant the TCP has had less exposure than expected.

It is still to be seen whether the TCP will be used again, but it nonetheless offers an interesting new route for issues to be resolved in court for groups of people bringing legal action.