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Class actions for financial services claims may soon become easier if the Financial Services Bill becomes law
In November 2009 a potential revolution in financial services court proceedings was brought to life as the Financial Services Bill was published. The Bill has now reached the Committee stage and may get Royal Ascent before the general election. The Bill primarily deals with regulatory changes concerning the FSA but it also provides for collective proceedings to be brought in respect of "specified kinds" of financial services claims, a mechanism which has traditionally been associated with the American legal system.
If passed, collective proceedings will be possible upon application to the court by a representative, to obtain an Order allowing collective proceedings to be commenced. Under the Bill, proceedings may be authorised by the court even if each represented person does not have a claim of the "specified kind" against all of the Defendants to the proceedings.
Types of claim
Claims will arise from three "specified kinds" of financial services sources:
The Bill envisages that a collective proceedings Order may be made in respect of claims on either an "opt-in" or "opt-out" basis.
How will it work?
Once the claim has been issued by the representative, it is then up to the court to decide if they proceed on an "opt-in" basis (those wishing to join the claim must notify the representative) or "opt-out" basis (those not wishing to join the claim notify the representative).
Much of the detail as to the mechanics of this class action process is yet to be drafted. It is envisaged that the Treasury will retain a wide power to introduce regulations setting out how claims relating to financial services or ancillary activities can be brought, which may include those arising before the Bill comes into force. Such regulations may provide that the FSA, the OFT and the Ombudsman scheme operator are entitled to be heard on an application for a collective proceedings. Normal rules about the limitation period for bringing claims can also be varied.
The Bill also allows for courts to make an award for damages without undertaking an assessment of the amount recoverable in each individual claim, therefore allowing the court to make a broad finding of loss or to set a formula to calculate loss without the need for the members of that class to show individual loss.
It is likely that detailed regulations and additions to the Civil Procedure Rules will be published in due course to set out more detail.
What does this mean for the future of financial services claims?
There has been a well documented rise in consumer action groups focussing on financial services claims in the past few years. Alongside this, Claims Management Companies ("CMCs") and their panel solicitors have developed a major new market pursuing the types of claims covered by the Bill.
Some consumers may have been put off pursuing claims if it is necessary to pay a court fee and issue legal proceedings. To date, CMCs and solicitors have generally preferred to pursue individual cases, thereby justifying charging substantial fees on each separate case. To some extent, the courts attempts under current case management rules to group cases or hear lead cases have been resisted by Claimants.
The Bill could make it much easier for consumer action groups to gain publicity and critical mass to pursue their causes. It may also change the behaviour of CMCs and panel solicitors to focus on a playing a role in a series of collective actions. It could also raise issues as to which cases are dealt with by the Financial Ombudsman Service ("FOS") rather than the courts, as the collective action could provide a streamlined method of resolving many similar cases that currently take up substantial FOS resources being dealt with individually.
The progress of this Bill needs to be monitored by financial institutions and every opportunity taken to comment on any draft regulations published so as to avoid creating a new opportunity for CMCs to commence actions which are not advantageous to consumers.
If you would like to discuss any of the issues arising from this briefing, or financial services claims generally, please contact Chris Busby.
In November 2009 a potential revolution in financial services court proceedings was brought to life as the Financial Services Bill was published. The Bill has now reached the Committee stage and may get Royal Ascent before the general election. The Bill primarily deals with regulatory changes concerning the FSA but it also provides for collective proceedings to be brought in respect of "specified kinds" of financial services claims, a mechanism which has traditionally been associated with the American legal system.
If passed, collective proceedings will be possible upon application to the court by a representative, to obtain an Order allowing collective proceedings to be commenced. Under the Bill, proceedings may be authorised by the court even if each represented person does not have a claim of the "specified kind" against all of the Defendants to the proceedings.
Types of claim
Claims will arise from three "specified kinds" of financial services sources:
- regulated activities
- consumer credit activities
- payment services
The Bill envisages that a collective proceedings Order may be made in respect of claims on either an "opt-in" or "opt-out" basis.
How will it work?
Once the claim has been issued by the representative, it is then up to the court to decide if they proceed on an "opt-in" basis (those wishing to join the claim must notify the representative) or "opt-out" basis (those not wishing to join the claim notify the representative).
Much of the detail as to the mechanics of this class action process is yet to be drafted. It is envisaged that the Treasury will retain a wide power to introduce regulations setting out how claims relating to financial services or ancillary activities can be brought, which may include those arising before the Bill comes into force. Such regulations may provide that the FSA, the OFT and the Ombudsman scheme operator are entitled to be heard on an application for a collective proceedings. Normal rules about the limitation period for bringing claims can also be varied.
The Bill also allows for courts to make an award for damages without undertaking an assessment of the amount recoverable in each individual claim, therefore allowing the court to make a broad finding of loss or to set a formula to calculate loss without the need for the members of that class to show individual loss.
It is likely that detailed regulations and additions to the Civil Procedure Rules will be published in due course to set out more detail.
What does this mean for the future of financial services claims?
There has been a well documented rise in consumer action groups focussing on financial services claims in the past few years. Alongside this, Claims Management Companies ("CMCs") and their panel solicitors have developed a major new market pursuing the types of claims covered by the Bill.
Some consumers may have been put off pursuing claims if it is necessary to pay a court fee and issue legal proceedings. To date, CMCs and solicitors have generally preferred to pursue individual cases, thereby justifying charging substantial fees on each separate case. To some extent, the courts attempts under current case management rules to group cases or hear lead cases have been resisted by Claimants.
The Bill could make it much easier for consumer action groups to gain publicity and critical mass to pursue their causes. It may also change the behaviour of CMCs and panel solicitors to focus on a playing a role in a series of collective actions. It could also raise issues as to which cases are dealt with by the Financial Ombudsman Service ("FOS") rather than the courts, as the collective action could provide a streamlined method of resolving many similar cases that currently take up substantial FOS resources being dealt with individually.
The progress of this Bill needs to be monitored by financial institutions and every opportunity taken to comment on any draft regulations published so as to avoid creating a new opportunity for CMCs to commence actions which are not advantageous to consumers.
If you would like to discuss any of the issues arising from this briefing, or financial services claims generally, please contact Chris Busby.
