Opting in, opting out

There has been a glut of CPO applications for class actions in recent times, many of which have been certified. This has led to some welcome clarification on many potential points of discussion at the certification stage.

One of the key areas that has been in dispute is whether cases should be certified as being opt in or opt out, and what the factors are that would affect this decision. The CAT (in Trucks) and the Court of Appeal (in Le Patourel vs BT – full disclosure: I am the economic expert for Justin Le Patourel in this case) have between them arrived what seems to be a sensible starting point for the assessment:

·??????Small value mass consumer claims are more likely to be certified as opt-out claims (Le Patourel vs BT)

·??????Material value business claims are more likely to be certified as opt-in claims (Trucks)

From the perspectives of proportionality and access to justice, this approach makes sense. The key arguments in favour of an opt-out approach in Le Patourel related to “convertability”, i.e. the likelihood, even if potential class members could be identified and contacted, that they would choose to become involved in an opt-in mass consumer claim litigation.

This does seem unlikely for mass consumer claims in general, even before account is taken of the characteristics of the customers in question. From an economic perspective, there is a strong free-rider effect. Any individual’s decision whether or not to engage with the relevant materials and so opt-in is going to be personally costly (in that it will require considerable effort to understand the issues in question) for limited personal benefit (due to the small size of many such claims) and the low impact of any individual consumer’s decision on whether the claim goes ahead or not (with a potential class size often running into the millions, any one individual’s decision to opt in or not is not going to make or break the claim). Taken together, requiring an opt-in claim in these circumstances would likely mean that no claim would get off the ground.

In contrast, the class in the Trucks litigation contains a much smaller number of typically more informed customers (in that they may well have in-house counsel and so will find it less costly to understand the issues), with higher value claims (claims for each truck are typically in the order of thousands of pounds), and where any individual claimant has more of an impact on whether the action is brought. Class members also have more potentially relevant information (e.g. on prices paid and pass on) that could be more easily accessed by the class representative in an opt-in context where firms have made a conscious choice to join the litigation.

So this feels to me to be a situation where the legal outcome and reasoning are in line with an economic approach. This is a relief, given some of the other decisions of competition authorities and Courts in recent times (see previous and forthcoming posts…).