UK businesses braced for class action suits after BA and Virgin pay out $200m

The US attorney who won $200m (£102m) in damages against British Airways and Virgin Atlantic yesterday has put the UK business community on notice for a surge of American-style class action lawsuits against British companies.

"This is the first time that there has been a trans-jurisdictional recovery on a parity basis, and it's just the beginning," Michael Hausfeld, the lawyer from the firm Cohen Milstein Hausfeld & Toll who led the case. He added that the firm would be "more aggressive in providing increased access to justice on behalf victims of mass wrongs in other jurisdictions. A cartel is a mass wrong."

Under the landmark settlement, the airlines admitted to colluding to hike fuel surcharges from an average of about £5 to around £60 for a long-haul return ticket over a two-year period between August 2004 and March 2006. The carriers agreed to repay sums of up to £20 to 5.6 million passengers affected by the charges, both in the US and the UK. The settlement is the first time that claimants outside the US will be able to collect damages from a class-action suit brought and argued in America.

A website where claimants can apply for refunds, www.airpassengerrefund.co.uk, went live at 7pm last night. The BA chief executive Willie Walsh called the settlement "fair and reasonable". He added: "We absolutely condemn any anti-competitive activity by anybody."

The episode has been particularly painful for BA. The carrier has already paid a £121.5m fine to the Office of Fair Trading and another $300m to the Department of Justice. Virgin was immune from penalties because it informed the authorities of the wrongdoing. It is on the hook for the damages in this case. Of the £73.5m set aside for UK claimants, about one-third is set aside for Virgin customers. On top of the $200m headline figure, the companies will have to pay Cohen Milstein's fees, which legal experts estimate could fall between 20 and 30 per cent of the overall reward, or up to another $60m.

BA and Virgin will also have to pay all the operational costs of the website, freephone and processing of millions of refunds. Virgin said that it "deeply regrets its involvement in this matter and believes the provisional settlement reached now draws a line under this episode".

The legal framework in the UK does not allow for US style class-action suits. However the Civil Justice Council is leading an "extensive lobbying campaign" to push through changes to UK rules to facilitate more robust "collective actions" to allow consumers to recover damages from large-scale fraudulent or cartel behaviour, said Ingrid Gubbay of Cohen Milstein.

One of the chief differences is that collective claims in the UK require that all claimants be named at the outset of the case, which makes collective claims much more difficult than in America's opt-out system.