Supreme Court rules against funding opt-out class actions trough priority reduction in awarded compensation
The Norwegian Supreme Court recently issued a ruling in case HR-2023-1043-A that has significant implications for opt-out class actions. The court ruled that class representatives in opt-out class actions are prohibited from seeking legal financing when the funder is entitled to a portion of the total awarded sum. This decision is expected to impact the feasibility of securing funds for opt-out class actions in the future.
The case involved the Alarm Customer Association initiating an opt-out class action against Verisure and Sector Alarm. They sought compensation for the companies' infringement of competition laws, which led to significant fines of MNOK 766 and MNOK 467.3 imposed by the Competition Authorities. The Alarm Customer Association was formed to represent the interests of over 400,000 affected customers in response to the Competition Authority's decision.
A key issue was the eligibility of the Alarm Customer Association as the group representative under Norwegian Dispute Act Section 35-2. This section mandates the potential representative to demonstrate willingness and financial capability to bear potential costs in case of loss, as specified in section 35-9 (2) and (3). The Alarm Customer association's arrangement with the funder Therium involved covering legal costs in case of failure and receiving compensation three times their investment in case of success, reducing each class member's compensation accordingly. The court had to assess whether the Alarm Customer Association could be appointed as the class representative under these conditions.
The court found that according to the wording of the Dispute Act, liability for class representative costs only applies to opt-in class actions, not opt-out class actions. This includes cases where the liability is indirect, such as a reduction in awarded compensation instead of direct payments. The court found limited support in the preparatory works for extending this liability to opt-out class actions.
Additionally, the court considered the EEA-principle of effectiveness, which prevents procedural rules from hindering the exercise of rights derived from EU/EEA law. However, since the Dispute Act already provides alternative means to enforce EU/EEA law-based claims, the court concluded that the principle of effectiveness did not impact the interpretation.
Furthermore, the court highlighted that Chapter 35 of the Dispute Act provides comprehensive regulation of funding access for opt-out class actions, effectively safeguarding the interests of class members. Therefore, the court suggested that it is the legislature's responsibility to allow opt-out class actions to seek external litigation financing by reducing the awarded compensation. This is particularly important as many class members may be unaware that their rights are subject to a lawsuit.
The recent verdict from the Supreme Court undoubtedly poses a setback for third-party funded opt-out class actions in Norway. While the decision doesn't outright dismiss the viability of such actions, it significantly dampens their appeal to professional funders who are unable to recoup costs directly or indirectly from class members. This limitation raises substantial concerns about the feasibility of funding these lawsuits in the future. The court's suggestion for the lawmaker to consider altering the regulation demonstrates its reluctance to determine the exact course the law should take.