The Supreme Court recently had to consider whether class action representatives in an opt-out class action could have third-party funding with priority deduction in the awarded compensation. The ruling is anticipated to have an impact on the market for third-party funded opt-out class actions in Norway.
The Alarm Customer Association's long-awaited decision in their class action against home alarm system providers Verisure and Sector Alarm was rendered by the Supreme Court on 5 June 2023. The association sought compensation for alleged violations of competition laws. However, the Supreme Court dismissed the Alarm Customer Association as the class representative due to a condition they imposed, which required splitting the awarded amount with a third-party funder they had an agreement with.
The case revolves around the Norwegian Competition Authority's and their finding that the two alarm providers were engaging in unlawful market sharing from 2011 to 2017. Consequently, Verisure and Sector Alarm were fined MNOK 766 and MNOK 467.3 respectively, for their infringement. The Alarm Customer Association was established following the ruling from the Norwegian Competition Authority. The only objective of the Association was to seek compensation for more than 400,000 affected customers who argued that the illicit market sharing led to excessive charges for the products and services that was received.
Under the rules of Chapter 35 of the Norwegian Dispute Act, the Alarm Customer Association initiated an opt-out class action against the alarm providers. Opt-out class actions require that each claim involves limited values or interests, making individual pursuit impractical, cf. Section 35-7 (1) of the Disputes Act. As per Section 35-2(d), a class representative must be appointed to act on behalf of the class and bear potential liability for costs. The court must approve the class action's continuation and assess the eligibility of the class representative.
The Alarm Customer Association had secured third-party funding for their class action, whereby the funder would cover both the association's and the alarm providers' legal costs if the action should fail. In the event of success, the funder would receive compensation equivalent to three times their investment in the class action. The funder's share would be given priority, resulting in reduced compensation for each member of the class action.
The pivotal issue before the Supreme Court was whether the association could be appointed as a representative of the class actions. The Alarm Customer Association would only accept the position as class representative if the court approved the funding agreement. Without such approval, they could not bear the potential liability for costs, thus undermining their willingness to act as the representative.
The Supreme Court's interpretation of the Dispute Act was that liability for the class representative's costs applies solely to opt-in class actions, not opt-out class actions. The principle of effectiveness, which ensures individuals' rights derived from EU/EEA law are enforceable, did not influence the interpretation. While the Supreme Court acknowledged the advantages of third-party funding in opt-out class actions, it emphasized that legislative changes would be required.
Consequently, the Supreme Court ruled against approving the arrangement, rendering the class representative unwilling and ineligible. Without a willing representative, the class action couldn't proceed and was dismissed.
The Supreme Court's decision will likely affect the willingness of professional funders to finance opt-out class actions in Norway, if they cannot recover costs from class action members directly or indirectly. Restricting opt-out class actions to non-profit actors and publicly financed institutions willing to fund the lawsuit will most likely limit the number of class actions that are brought, thereby limiting the customers possibility of seeking a remedy for infringements on competition laws.
Nevertheless, the Supreme Court's ruling relates to opt-out class actions. Customers will still have the option of bringing an opt-in class action, where the members can be held liable for the group representative's costs. It is also worth noting that the Supreme Court suggested the need for legislative consideration to alter the current regulations. It is not unlikely that the recent judgement will prompt discussions and potential legislative changes.
