Hope and fear as class action lawsuits get the go-ahead
The framework has been set for the launching of class action lawsuits within the South African legal system after a landmark ruling was handed down by the Supreme Court of Appeal in Bloemfontein last week.
Legal experts and practitioners on Monday hailed the court's overturning of a 2011 Western Cape High Court decision not to provide a class certificate to litigants seeking a class action legal case against bread cartels found guilty of price fixing in 2007.
Premier Foods, Tiger Brands, and Pioneer Foods were all fingered for collusion in setting the price of retail bread in the Western Cape, after then independent bread distributor Imraahn Mukaddam blew the whistle on the trio's crooked activities.
A week before Christmas in 2006 three separate bakeries linked to each respective company simultaneously raised bread prices by 35c per white loaf and 37c per brown loaf.
After an exhaustive investigation by the competition commission, all three companies were slapped with multimillion-rand fines for their roles in the price fixing.
In law, a class action is a form of lawsuit whereby a group of people can collectively bring a claim to court against a single or group of defendants in the hopes of them being sued.
Until now there was no monetary or legal basis in South Africa for those personally or professionally affected by collusion to be reimbursed or compensated.
Holding businesses to account
But Mukaddam – now coordinator for the Western Cape consumer forum – along with representatives from Black Sash, the Children’s Resource Centre, the Congress of South African Trade Unions, the National Consumer Forum and several individual bread consumers are hoping this ruling will change that.
Mukaddam told the Mail & Guardian that while any monetary incentive realised through a class action lawsuit will be managed by a trust that will aim to support small to medium bakeries in the Western Cape, as well as uplifting poor people through feeding schemes, this legal battle was more about holding big business to account for their actions.
“This isn’t just about the money. It’s about setting a precedent whereby we tell companies that consumers can’t be taken for granted and taken advantage of ever again,” he said.
Dali Mpofu, secretary general of Advocates for Transformation, said the group’s crusade will go a long way in determining the future of class action legal cases in the future.
“While the general view of our courts has been to encourage class action lawsuits, there has never been a firm legal precedent set with a view to bringing them into action, and this ruling could change that,” he said.
Mpofu added the case has an opportunity to set a constitutional precedent in terms of upholding the rights of South African citizens.
“The Constitution introduced the concept of rights to legal recourse in this country, so this has the potential to deepen the reach of the Constitution by actually seeing it in action,” he said.
Challenges and problems
But while the introduction of class action framework to the South African legal system could be seen as a positive move, it brings with it possible challenges and problems too.
The abuses that have arisen in the United States's legal system with mass and class actions have been largely driven by the potential payoff for not only the litigants affected by the actions of those being sued, but also by their legal representative.
A study by the research firm Tillinghast Towers-Perrin estimated that class action litigation system in the US amounts to $252-billion annually – putting massive pressure on companies forced to allocate billions in potential legal fees every year.
Additionally, exploitations that have arisen in the US with class actions have resulted in massive fees being awarded to lawyers as the more plaintiffs a lawyer can recruit, the greater the potential payoff.
Chris Hart, chief economist at Investment Solutions, said that while class action lawsuits provided the opportunity to challenge “otherwise untouchable monoliths”, it could be abused.
“It’s all fair and well allowing this into law to promote good service delivery and performance. But how can we assure it doesn’t become a vehicle for extortion as it has done in other international legal systems?” Hart told the M&G.
Hart said that if class action legal challenges become more common in South Africa, they would have to be monitored to ward off exploitation.
But Mpofu dismissed Hart’s suggestion, saying the positives of this development outweighed the negatives.
“Maybe the floodgates should be opened,” he said.
“We can’t justify a conservative approach to the law when the access to legal recourse and justice is enshrined in our Constitution.”