Representative Actions: Cautionary lessons from Smyth
Introduction
Class actions in England and Wales are becoming increasingly prevalent, driven by factors such as a growth in the availability of third-party litigation funding and a public shift towards seeking accountability for corporate misconduct.
Class actions are by their very nature large in scale and complicated, requiring a careful and well thought out approach on how they are structured.
The case of Smyth v British Airways & Easyjet [2024] EWHC 2173 (KB) (“Smyth”) provides a cautionary lesson for potential claimants in representative actions and practitioners in considering the “same interest” requirement.
Summary
Regulation 261/2004 EC (“the Regulation”) provides that airline passengers can claim compensation if a flight is delayed by more than three hours or cancelled. Compensation of this kind under the Regulation is not automatic, but rather an affected passenger is required to submit a claim via an online portal. Airlines are required to provide passengers with information as to their entitlement to claim compensation and the online portal system operated by airlines is required to be free of charge to the passenger.
In Smyth, Ms Claire Smyth (“the Claimant”) had a flight with British Airways from London to Nice in 2022, which was cancelled. The Claimant was therefore entitled to claim compensation under the Regulation. However, instead of making a claim under the Regulation via the British Airways portal, the Claimant decided to issue a representative action.
The purported class was all passengers who were entitled to compensation due to a cancellation or delay on approximately 116,000 British Airways and easyJet flights. Assuming approximately 200 passengers per flight (i.e. 23.2 million passengers) and making further assumptions, the claim would be worth £319 million.
The Claimant’s claim was funded by her employer, who was a resident of Monaco. The Claimant obtained an order from the High Court whereby it was declared that she would be entitled to 24% of any compensation she would recover on behalf of the persons she was representing in the action.
Same Interest Requirement
The proposed class which the Claimant wished to represent were passengers on flights where the cancellation or delay was not by reason of extraordinary circumstances, and which could not have been avoided even if all reasonable measures had been taken.
A key issue for the Claimant was that the class she purported to represent had no common issues. Under CPR r.19.8(1) all claimants in a representative action must share the same interest. Prior cases, which were considered in Smyth state that the same interest test is met if there are common issues which are shared by all of the claimants. Importantly, this assessment is to take place at the start of the claim.
The Claimant filed a witness statement with the court which proposed that the class of claimants be progressively reduced by removing those claims which did not qualify for compensation or which may have been met with an arguable defence. Only through narrowing down the claims via an iterative process would the Claimant reach a class which compromised claims where the represented parties had not been paid and there is no defence.
The proposed iterative process was as follows:
1. Airlines to identify their defences to each of the 116,000 flights;
2. Claimants to be sorted into groups and further information to be obtained from the airlines;
3. The Claimant’s legal advisers would then review the defences, conceding the claims where a defence could be made out; and
4. The airlines would then pay compensation to the claimant for all of the undisputed claims.
The issue the Claimant faced was that the claim form included more claimants than those in the above-identified class. The Claimant had instead brought the claim on behalf of all passengers on 116,000 disrupted flights.
The court held that the claim failed as the Claimant was unable to identify a class of claimants at the outset. Given the claimants on the claim form would be reduced at a later date (by way of the above iterative process) there was clearly no same class of claimants at the outset. The claim could therefore not proceed as a representative action.
The Court’s discretion
Despite the claim failing as the same interest requirement was not met, the court considered (as a matter of discretion) whether the claim could have proceeded as a representative action.
A number of factors were considered by the court:
1. Burden on the airlines – The court noted that the iterative process proposed by the Claimant to narrow down the claims to a class which shared the same interest would have put an unfair burden on the airlines. The airlines would have been required to review 116,000 flights to determine whether a defence existed.
2. Issue in resolving cases – The court also noted that where cases were conceded where a case was not pursued if it raised complex points of law, the case would be left unresolved. Given the number of flights involved, a significant number of claims would not be resolved by the Claimant.
3. The Claimant’s funder – The Claimant’s employer, who was domiciled in Monaco had funded the claim and provided security for costs. The court concluded that while the Claimant had held herself out to be a consumer champion, on the facts the dominant motive of the claim was for the financial benefit of its backers, principally, the Claimant’s employer. The court also raised concerns about a lack of transparency provided by the Claimant about the nature of the funding in place.
4. An alternative redress scheme – If the Claimant’s action was permitted to proceed, access to justice would not be furthered as there was an existing, accessible means of claiming compensation for delayed or cancelled flights free of charge.
5. Parliament’s intention – The fact that Parliament had not put in place an automatic scheme which required airlines to pay compensation (but rather placed the burden on passengers to bring a claim), demonstrated that permitting a representative action of this type to proceed would not be in keeping with Parliament’s intention.
Smyth is a salutary lesson for claimants and practitioners alike to ensure that the “same class” requirement is carefully considered and met when bringing representative actions. It is also key for sufficient transparency to be provided to the court if a representative action is funded. This is because the court has a wide discretion to take a lack of transparency into account when determining whether a representative action should proceed.
Written by George Kestel, Associate, Rosenblatt Law.