Group class action: An emerging legal risk for pharma businesses

Michael Frisby, Partner at Stevens & Bolton LLP, a law firm based in England, explains what group class action is and why it is a growing risk for pharmaceutical firms.

Global events have created challenging trading conditions. Covid-19, Brexit, the energy crisis and the war in Ukraine have put pressures on businesses, with inflationary increases now entering economies across the world. These trading conditions are such that supply chains can be disrupted resulting in delays, or the inability to perform according to contract. Inflationary pressures can make performance unprofitable and lead parties to terminate contracts.

Regulatory attention remains focused on the pharma sector, and there is an emerging risk of group redress. Pharma companies need to be aware that they could be the target of group class actions. Collective and group redress have become increasingly prevalent, particularly in England and Wales.

Read more: How to navigate UK and EU quality regulations in a post-Brexit world

The claims are typically large scale and high value and there is an infrastructure in place in the form of specialist claimant law firms and available funding to pursue these claims.

English law has a procedure for various claimants to bring similar claims against the same defendant, with all the claims being heard together. A high-profile example is Bates vs. Post Office Limited. The claimants were sub postmasters who had been victims of the Horizon accounting computer system used by the Post Office. It had incorrectly identified innocent sub postmasters as dishonest and approximately 600 people brought claims in a group action. The case settled for just under £58m in 2019.

Competition law

Another way of bringing claims is under a Collective Proceedings Order in the Competition Appeal Tribunal. This allows a person to bring claims for a class of claimants for breach of competition law, either in the context of a pre-existing finding of breach of competition law, or on a standalone basis.

Read more: The latest regulatory changes for pharma supply chains

A recent example is the Merricks vs. Mastercard case. Walter Merricks brought a claim against Mastercard due to the interchange fees charged by card issuers to retailers which were often passed on to consumers. It claimed the interchange fees were fixed in breach of competition law.

This is the First Collective Proceedings Order issued in this jurisdiction. It was brought on an “opt-out” basis – in other words anyone who used a Mastercard in this jurisdiction in the relevant period is a potential claimant. It has a class of approximately 45 million people with the claim worth approximately £14 bn. The court has said that the claim value amounts to about £155.80 plus interest for each class member.

Costly litigation

Two observations arise from this: Mastercard is now facing a very substantial piece of litigation that will be costly and time-consuming to defend, that is without even considering the cost of any damages and what it might have to pay. Secondly, it raises the question of whether any consumer would bring a claim of this sort for £155.80 plus interest on their own.

There is a third way of bringing claims for collective redress, through the representative claims procedure. This offers the possibility of bringing a class action on an “opt-out” basis for non-competition law cases. The Supreme Court recently considered a claim brought by Mr Lloyd against Google, alleging breach of data protection laws by Google in tracking usage of Apple iPhone users.

Mr Lloyd wanted to bring the claim on an opt-out basis (like the Merricks case). The Supreme Court decided he could not do so because the claimants had to have the same interest in the claim; in this case they were all claiming damages but not all had suffered the same loss.

This creates the possibility of using the opt-out procedures in future for non-competition claims where claimants all suffer the same loss. These types of claim include competition, data breach, shareholder, commercial contract, consumer and product liability and Environmental, Social and Governance (ESG) claims. Life sciences companies could, theoretically at least, face any of these types of claim.

Consumer claims

High profile consumer claims brought against pharma companies such as the Seroxat group litigation against GSK, the DePuy hip replacement lawsuits filed against Johnson & Johnson and its subsidiary DePuy, and PIP breast implants claims have not been successful, but many other claims that have been brought may have settled.

There is an appetite amongst litigation funders to invest in group actions. As already mentioned, there are claimant law firms looking to bring claims and use advertising to attract clients. They will offer potential clients a ‘no win – no fee arrangement’ and will obtain legal expenses insurance to protect the client from any adverse costs in the event the case is lost.

The client is then able to pursue a claim without having to fund any of it and feel safe in the knowledge that it will have no liability if the case is lost. Pharma companies should therefore be aware that they will be an attractive target and claims against them may be pursued.

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