Group Litigation
For many in the legal community, the financial crisis resulted in an end to the flow of repeat corporate business that would come through into the office. One group, however, that could be said to have regarded the disruption in the financial markets with more optimism than most, were litigators.
Paul Davies and Simon Nurney, Macfarlanes LLP
In particular, those specialising in group actions recognised that the sudden loss in value to the financial holdings of many individuals and funds presented an opportunity to scrutinise any sign of malpractice as a means of recovering losses (matters frequently overlooked in a rising market). For example, the Companies Act 2006 introduced a wider scope for shareholders to bring derivative actions and there have been proposals to make it easier for consumers (for example, of financial services) to bring group actions, which are more in line with the “opt-out” style of class actions seen in the US, although these have not yet been implemented. In the courts, the government’s bail-out of the banks led to discontented shareholders in Northern Rock (a major lender in the UK housing market that was nationalised after a “run” on the bank) to commence a judicial review challenge in relation to the compensation package they were offered by the government.
However, the rise and rise of group actions has not been limited to the financial sector. The events of the Deep Water Horizon illustrates the extent that an environmental disaster can impact not only a business but also an entire sector. Looking at the UK, empirically at least, there appears to have been an increase in the number of environmental group actions. Notable examples include the Corby Borough Council birth defects contaminated land case (a potentially similar scenario is the subject of ongoing observation in Scotland), the Toxic Sofa litigation and, from our own experience, the Abidjan Personal Injury Group litigation (the largest environmental/personal injury group action litigation yet seen in the English High Court).
While the US – as a more claimant friendly jurisdiction – has a long history with asbestos cases and other toxic torts, the reason for the notable recent increase in England is less clear. However, the following factors appear to be potential drivers: an increase in understanding, and a greater sensitivity to, environmental risks; an explosion in the volume of EU environmental regulations; and, in England, a widening of judicial rules to hold companies (and, in some instances, their parent companies) responsible for overseas activities.
The greater understanding of environmental risks is evidenced through the rapid and widespread acceptance, for example, of climate change risks. Although climate change litigation (in particular, climate change class actions) is still at an embryonic stage, interested parties are clearly looking at climate change principles and policies in considering and expanding the claimant routes available. For example, in the UK, the government’s policy to build a third runway at the UK’s busiest airport, Heathrow, was blocked through judicial review based (at least in part) on climate change policies.
This example also hints at the “opportunities” in the context of litigation that result from the proliferation of environmental regulation (aided by the apparent greater firepower of interested parties, such as NGO’s). In particular, greater transparency, also allows claimants more ready access to documentation that may prove helpful to their case. The Aarhaus Convention has had major implications for corporate risk strategies in interacting with public bodies. The potential information that may be available under Europe’s chemical regime (REACH) further opens the door to suppliers being targeted regarding their knowledge of the potential harmful effects of substances within products.
As a long-term trend, we see the scope of environmental risks and, therefore, environmental regulation, only increasing – given the greater scientific understanding of issues such as climate change, the combined effects of chemicals and nanotechnology. All point towards the increased standing of environmental issues (leading to potential litigation).
Large scale environmental litigation of the nature described above also often has an international element. Environmental lawyers will be all too aware that the transboundary impact of environmental issues prevents easy boundary lines being drawn. So, in the context of group actions, one of the key initial battles is likely to concern jurisdiction.
Under English law, a company with a registered office in England that commits a tort abroad can nevertheless be sued in the English Courts albeit under the relevant foreign law. Further, and more disconcertingly for international corporations, a parent company can (in certain circumstances) be sued in England for the activities of its foreign subsidiary. For example, in the Cape litigation, the court held that an English holding company could be sued in England for the acts of its foreign subsidiary where foreign claimants were at risk of being denied justice in their own country. This case has spawned numerous actions in the UK concerning activities of foreign subsidiaries; the Trafigura group litigation being one example and another being the claims against BP in connection with a pipeline in Columbia. As such, an English holding company of EMEA subsidiaries could easily be exposed to claims in the English courts for torts committed by those subsidiaries in foreign jurisdictions.
But this talk of litigation may cause many environmental lawyers – particularly those of us in jurisdictions that more clearly distinguish the role of litigator/advocate from transactional lawyers – to wonder what role we have to play.
In all cases involving “toxic torts”, causation is almost always the most hotly contested area. For environmental cases, a detailed forensic approach to the evidence – including a proper understanding of all of the technical issues and how the technical/expert evidence will be assessed by the court – is essential. The environmental lawyer is ideally equipped and uniquely placed to assist and advise the client in this key area (whether for claimant or defendant). The environmental lawyer’s ability to translate the technical issues into legal solutions or easily understood explanations can be decisive to delivering the appropriate course of action.
On the basis of a thorough and early collection of data and examination of data gaps, the client will quickly have a fuller and more detailed understanding of the technical background. Causation can never be determined as a matter of generality; it is always entirely dependent on the specific circumstances of the case – the chemicals, location, the soil or air conditions, temperature, wind speed/direction etc.
In order to achieve this, selecting the right team of experts (on the basis of the facts available) at the earliest opportunity is vital. There can be no substitute for the experts and the legal team visiting the location of the incident (and surroundings) to collect data and compile the most robust and accurate understanding of the factual events possible – whether by way of soil/air/water samples, detailed tests and analyses, photographs, plans, witness statements etc. An in-depth understanding of the specific technical issues surrounding the claim and a clear understanding of causation (exposure levels and alternative causes) are invaluable.
However, this does not mean that an environmental lawyer will face an easy sell to the client. Not only is such an exercise costly, but one of the key issues that often arises in group litigation is the portrayal of the incident in the media. Claimant lawyers, in light of the emotive nature of toxic tort claims, openly acknowledge the benefits of media coverage and the English courts are often reluctant to “control” such media comment (where it remains within the bounds of reason) as they understand that it is a lawyer’s duty to assist their client.
As such a defendant (usually a corporation) is frequently under pressure to answer one-sided questions from the media at very short notice – prior to print deadlines (and almost always after the bulk of the article has been drafted). The importance of how a client responds to the media questioning is heightened given the widening effects of social media (blogs, Twitter etc) and increasing international media co-operation. This pressure to release a positive and concise message can conflict with a company’s preference (and usually, the lawyer’s advice) to spend time understanding the bottom line of the case, which in reality is what drives the litigation. There is a difficult balance to be achieved between providing accurate data and information to the media and responding to information that is disseminated.
This position is not limited to the media. Almost all corporations involved in a high-profile group litigation action will have institutional relationships with shareholders or banks that need to be maintained. The core business of the relevant company can be all too easily forgotten by the external lawyers in the litigation, while the need to maintain or extend lines of credit or insurance cover, or both, and maintaining share value quickly create real conflicts between sharing highly confidential information, yet keeping the strategic direction of the litigation on course.
Such claims will only increase – given regulations and given international elements – and a company that does not seek expertise early will be at a severe disadvantage.