Clifford Chance

A further blow for representative action claims – £319m claim against airlines struck out

In Smyth v British Airways Plc & Ors [2024] EWHC 2173, the High Court struck out a representative action against certain airlines for cancelled/delayed flights because the proposed representative claimant failed to satisfy the "same interest" requirement and be transparent about her motivation and funding arrangements. This is yet another decision from the English Courts striking out claims brought using the 'opt out' representation action procedure under CPR 19.8. 

Background

Facts

The facts are simple and, for many, will be all too relatable. The proposed representative claimant, Ms Claire Smyth, was booked on a BA flight from London to Nice on 18 June 2022. On 14 June (less than 7 days before departure), the flight was cancelled. Pursuant to Article 7(1) of the EU Regulation 261/2004 (retained post-Brexit), Ms Smyth had the right to claim, under specified conditions, compensation against BA. BA maintains a portal through which passengers may claim compensation free of charge. 

Ms Smyth did not use the portal. Instead, she brought a claim against BA and easyJet, seeking to represent a "very large" class of members who had booked flights with either airline, scheduled to depart from, or arrive at, an airport in the UK during the period 1 December 2016 to 31 August 2022 whose flight was then cancelled or delayed by three hours or more and, in respect of which, passengers had not received legally due compensation. Ms Stella English, who had taken an easyJet flight, was added as the second claimant in order to represent class members who had also taken an easyJet flight (as Ms Smyth could not purport to represent those class members).

Class definition

A peculiar feature of the class definition was that Ms Smyth did not intend for the claim to proceed on behalf of all individuals who fell within the class definition. Rather, Ms Smyth envisaged that the class would be progressively trimmed once the defendants had undertaken significant work at considerable expense in analysing the 116,000 cancelled and delayed flights included as a schedule to the claim form to identify, for example, whether the claims qualified for compensation or if any arguable defences applied (e.g., where passengers were given more than 7 days' notice of cancellation). If so, those members would be carved out of the class definition by amendment, revealing the true and final class of members comprising those who had not been paid and for whom there was no arguable defence. Following this exercise, any issues of law would be identified and determined and, if in the claimant's favour, Ms Smyth suggested the Court would simply order the defendants to pay the applicable compensation to her, to be distributed to the class subject to a 24% deduction for legal and funding fees.

Funding

Another feature of the claim is that it was funded by Mr John Armour, an Australian citizen who is a resident of Monaco and who is Ms Smyth's employer. Mr Armour's past activities caught the attention of the Court. In 2014, the New Zealand Financial Markets Authority ("NZFMA") sanctioned Mr Amour and entities he controlled for mass-mailing unsolicited offers to consumers to purchase securities at prices substantially below their market value.  

Whilst the funding arrangements had not been disclosed, Ms Smyth had obtained a separate Court order, on a without notice basis, declaring she would be entitled to deduct "an aggregate sum of 24% of any compensation recovered by her on behalf of" class members. It appeared that the 24% deduction comprised the funder's fee payable to Mr Armour, and the fees payable to Ms Smyth's legal representatives (although the precise split was unknown). Based on a rough estimate provided to the Court, assuming the claim was worth £319 million, if successful, Ms Smyth would be entitled to a sum in excess of £70 million for legal and funding fees.

The airline defendants opposed the claim. They sought an order striking out the representative action and/or an order directing that Ms Smyth may not act as a representative.

Decision

Master Davison J issued judgment in favour of the airline defendants, striking out the proposed representative action and directing that Ms Smyth may not act as representative.

The judgment is worth reading in full for its faithful recitation of the applicable principles regarding the circumstances when a Court will grant a representative order, and its careful reasoning why those circumstances were not met in the case before it.

In short:

• Jurisdictional requirements not met:  Ms Smyth had failed to satisfy the same interest requirement in CPR 19.8, which requires the proposed representative claimant to have the same interest in the claim as the proposed class members. 
  
  Here, it was clear that there were multiple different claims, all raising their own issues requiring individual assessments (such as the "extraordinary circumstances" defence). As such, the interests of class members trespassed a long way beyond merely being divergent, to being conflicting, which was inimical to establishing the requisite same interest.
  
  Further, Ms Smyth failed to identify a single common issue, resolution of which would benefit the (amorphous) class. Rather, Ms Smyth had just set out a high-level description of the class members' causes of action, which was insufficient.
  
  These defects could not be remedied by successive amendments to the class to carve out members without the same interest (i.e., those where an arguable defence applied) which would reveal the true and final class. This is because the same interest had to be satisfied at the time of the application not the conclusion of the proceeding, and to allow a representative action to proceed on the basis that the same interest would be met only after successive amendments, is to recognise it is not a representative action in the first place and would render nugatory the same interest requirement.

• Discretion not to allow the representative action: Even if the jurisdictional requirements had been met (i.e., the same interest requirement), Davison J would have exercised his discretion not to allow the claim to proceed as a representative action. This was for two reasons.
  
  First, the lack of transparency surrounding Ms Smyth's motivations, funding, and suitability. The Court was not convinced that Ms Smyth was a "consumer champion", and it transpired that Ms Smyth had been Mr Armour's yoga instructor and she had been set up and was now running a family office for him in London, which might compromise her independence as the representative claimant. There were also questions about the NZFMA's investigations into Mr Armour, which were not explained by Ms Smyth. Further, whilst the Court could not rule on the lawfulness of the funding arrangements, as they had not been disclosed, the Court's provisional view was that the funder's entitlement to compensation was excessive and disproportionate.
  
  These issues informed the Court's second reason for exercising its discretion to not grant the representative action. Ultimately, the proposed representative action would not promote access to justice. Easily accessible alternative remedies were available to each class member, and these could be accessed with no cost deductions (such as direct access claims with the airline defendants, alternative dispute resolution schemes which the airline defendants were part of, and even the Small Claims procedure).
  
  Overall, the Court refused to sanction the representative action because it found that the dominant motive lay in the financial interests of the funder, Mr Armour, and not the interests of consumers.

Discussion

The decision shows the importance of the Court as a gatekeeper for consumer representative claims. 

Davison J's judgment reinforces the importance and substance of the same interest requirement. Representative claimants must be able to identify, with precision and discipline, the composition of the class members and the common issues of fact or law resolution of which will benefit them. The judgment therefore reinforces the importance of the same interest requirement as a bulwark against poorly defined classes and poorly articulated common issues.

The decision also makes clear that the Court will expect candour from the proposed representative claimant about its motivation for bringing a representative action and their links to third-party litigation funders (if funded). Whilst litigation funding is seen by the Courts as desirable, it will be examined through the prism of access to justice which applies to all – the proposed representative claimant, the proposed represented class, and the defendants. Here, access to justice would not be served by a funded representative action where easily accessible, no cost alternatives were available to the class members without deductions from any compensation payable. Corporate defendants would do well, therefore, to consider such alternatives should a representative action arise. The Court was also clearly troubled by the identity and past activities of the funder, Mr Armour, which had not been explained, as well as the excessive and disproportionate return the funder stood to gain.