Tuesday, September 30, 2014

In South African law, use of class actions is not only a new development, it also significantly changes the bargaining positions of parties in liability litigation that companies cannot rely only on their ability to out-lawyer an opponent. In the past, companies were relatively immune from litigation in which many people had claims, particularly relatively small claims, because the risk of incurring legal costs often outweighed the potential benefit for individual litigants.

However, following the Supreme Court of Appeal's judgment in a matter involving the Children's Resource Trust, which established the procedure needed for instituting a class action in South African law, the likelihood of any company in the throes of a massive consumer debacle actually being visited with mass litigation moved from a legal improbability to a factual possibility.
In the past few years we have heard about class actions in the miners' silicosis case against mining companies, the bread price-fixing case against bread manufacturers, the Transnet pensioners' case, and class actions instituted by rights groups against the Department of Education in the Eastern Cape, to name a few.

There are many benefits to this development. Class actions can spur social and economic reform, particularly in rights cases. Most importantly, they enable people who do not ordinarily have the means to take legal action to do so.

And because companies are likely to be defending class actions rather than instituting them, the litigation risk matrix is significantly changed. When dealing with class actions, it is not simply a case of "we'll fight it out in court". In countries where class action is well developed, it is generally understood that the matter will probably not proceed to court to decide the actual merit of the case. Instead, the eventual success of the claim will be dictated by the size of the affected group and the size of the claim, sometimes irrespective of whether the claim is defendable.

So companies should not lackadaisically approach the formation of a class, or dismiss as a mere technicality the certification process just because they believe they have a good case on the merits of the matter. These initial procedural steps set the parameters for the "fight" on the road to a settlement.

Another issue that companies should bear in mind is that class action in South Africa is new, with the rules being made up as we go along. While the thought of a test case is thrilling for lawyers and academic writers, it is the type of litigation that companies should be wary of engaging in.

In other jurisdictions, safeguards have been developed to guard against the potential abuse of this procedure by enterprising lawyers eager to win a big settlement. In fairness, our courts are mindful of the potential for abuse, having announced that safeguards will be developed following a period of trial and error. But which company wants to be on the receiving end of that exercise?

Our law makes specific room for use of the class action procedure in giving recourse to people and affected parties in various circumstances, so the development of the procedure is inevitable.
Class actions remain high-stakes litigation, involving big numbers, an often high profile and a likely effect on the bottom line. That said, the fact that the recent attempt to establish a class action in the R699-car-scheme failed, is evidence that these procedures are not easy to initiate.

In addition, the launching of a mass claim offers companies a unique opportunity to deal with their litigation risk exposure in one go, which may eventually improve their future prospects.
A company should approach this type of litigation by first understanding the ambit of the potential class, whether proceeding using this mechanism is indeed the only option, and whether there are alternative dispute mechanisms that it can pursue.