In an eagerly awaited judgment, the UK Court of Appeal (the “CoA”) has unanimously upheld the decision of the Competition Appeal Tribunal (the “CAT”) to grant an opt-out Collective Proceedings Order (“CPO”) in proceedings brought by class-representative Justin Le Patourel against BT on behalf of approximately 2.3 million customers. The claim is valued at some £469 million plus interest.
The judgment comes just a couple of months after the CAT refused, for the first time since the UK Supreme Court’s landmark judgment in Merricks v Mastercard,[1] to grant an opt-out CPO in a case concerning two rival class actions relating to the manipulation of foreign exchange spot trading (the “FX Decision”).[2] It also marks the first time that the CoA has been specifically called upon to consider the mechanics of the CAT’s opt-in vs. opt-out determination. All eyes were focused on whether the CoA’s ruling would signal a turning point in the swathe of claimant-friendly CPO decisions by the CAT following Merricks. However, on 6 May 2022, the CoA dismissed BT’s appeal in its entirety and upheld the CAT’s decision to grant Mr Patourel an opt-out CPO.
The judgment contains important points of principle, and will give hope to those keen to see the continued expansion of the CPO regime that opt-out proceedings are very much at the heart of the competition collective actions regime. We consider the CoA’s judgment in more detail below.
Background
The Le Patourel proceedings concern an abuse of dominance claim against BT relating to its pricing for voice-only telephony customers. The claim arises out of preliminary conclusions reached by Ofcom that BT abused its market position to impose prices above the competitive level. The claim is however “standalone” given that Ofcom’s findings are not binding on the CAT. On 4 October 2021, the CAT granted Mr Patourel a CPO, becoming only the second competition law claim – and the first stand-alone claim – to be certified for pursuit by way of collective proceedings. A summary of the CAT’s CPO Decision can be found in our previous alert here.
BT was granted permission to appeal the CAT’s judgment to the CoA in November 2021, with the CoA hearing taking place in March 2022. BT’s appeal focused on the CAT’s decision to certify the proceedings on an opt-out basis (BT did not appeal the issue of certification itself). The CoA was required to consider three issues:
- The criteria which the CAT should apply when determining whether the claim should proceed on an opt-in or an opt-out basis;
- The CAT’s powers to determine that the distribution of awarded damages be made by way of account credit; and
- The role of a merits assessment in the CAT’s choice of opt-in vs. opt-out proceedings.
The CoA rejected BT’s arguments in respect of all three issues, emphasising the CAT’s broad discretion, following Merricks, to consider “all matters it thinks fit” in determining how a claim should proceed, and the aim of the CPO regime to promote access to justice.
Issue 1: Criteria for determining opt-in vs. opt-out proceedings
a) General presumption in favour of opt-in proceedings
BT argued that the CPO legislation provides for a general presumption in favour of opt-in proceedings. It focused particularly on paragraphs 6.38 and 6.39 of the CAT’s 2015 Guide to Proceedings, which provide that a class representative seeking opt-out proceedings must make submissions as to why they are “more appropriate” than opt-in proceedings. The CoA disagreed, holding that, read fairly, there is no such presumption in the relevant legislation. In particular, the Guide was drafted as “a tentative view as to how, in 2015, before the CAT had acquired hands-on experience, the President, quite reasonably, considered that the exercise of discretion might pan out”. In any event, the CoA held that the underlying legislation clearly proceeded on the basis of neutrality, such that it would not have been open to the CAT President to issue practice directions departing from the legislative intent. Indeed, as a postscript to the judgment, the CoA suggested that the wording in the Guide might be revised in light of the CAT’s increasing experience dealing which collective actions. It will be interesting to see if the government implements these suggestions as part of its current review of the CAT rules.
b) Exercise of discretion
BT argued that it was not open to the CAT to consider the ease (or otherwise) of converting identifiable possible class members into litigants, since the only relevant factors were the identifiability and suitability of the potential claimants, not the likelihood that they would actually sign-up to the class. The CoA disagreed. It held that accounting for the likely take-up of an opt-in class action (both before and after a damages award) was directly relevant to the question of whether proceedings were more suitable for opt-out proceedings. The CoA considered this to be in line with the Supreme Court’s observations in both Merricks and Lloyd v Google[3] such that the “ability of a claimant to covert identifiable contacts into litigants is…an important factor which goes well beyond the issues of identifiability and contactability”. Here, considering the likely demographic of affected BT customers and the technical nature of the claim, the CAT was entitled to conclude that, if opt-in was ordered, the take-up could be very limited, thus justifying an opt-out approach.
The CoA’s decision reinforces the appropriateness of the CAT’s assessment of the likely uptake of the class in the recent FX Decision when considering opt-in vs. opt-out proceedings, although it is interesting that in the FX Decision the majority decided that the fact there had been a low uptake of claimants following the class representative’s marketing efforts militated against (rather than in favour of) opt-out proceedings as they “should not be forced upon an apparently unwilling class”.
c) Funding
Another critical issue was whether the preference of third-party litigation funders is a relevant consideration for the CAT in determining whether proceedings should be opt-in or opt-out, and, if so, the weight to be attached to this consideration. In what will no doubt be welcome news for funders, the CoA held that the CAT was right to consider the financial position of the parties, including their ability to attract funding, and that it is “self-evident that in many large-scale consumer based collective actions the availability or non-availability of third-party funding may be dispositive of whether the claim ever gets off the ground”. It was therefore fundamental to the principle of access to justice that the CAT was free to consider (amongst other factors) the preference of Le Patourel’s litigation funder. BT’s argument that this would mean CPOs would only over be granted on an opt-out basis was rejected – the CAT did not simply accept the position of the funder, but conducted its own assessment of whether a lack of take up would make the proceedings unviable for funding, thus thwarting the proper administration of justice.
d) Practicability
Finally, BT argued that in considering whether opt-in proceedings are “practicable” for the purposes of CAT Rule 79(3), the CAT’s task was to assess simply whether they were “doable”. The CoA disagreed – practicability is not simply a question of whether it can be done, but rather whether it would be “reasonable, proportionate, expedient, sensible, cost effective, efficient etc.” to order opt-in over opt-out proceedings.
Issue 2: The CAT’s powers to order account credit
As part of its original decision to grant an opt-out CPO, the CAT had considered it relevant that damages could simply be credited to BT customers’ accounts, without requiring active steps to be taken by the affected class. On appeal, BT argued that the CAT had no power to make such an award, and to do so would frustrate the general position that the CAT could only award damages by way of a fixed and fungible sum.
The CoA disagreed, noting that nothing in the relevant legislation prevented the CAT from awarding damages in a manner which “maximises recovery and compensation for the class”. The CoA expressly noted that “the collective action regime is in many respects a departure from established tenets of civil liability” and that it would be a “retrograde step” to construe the concept of distribution as inextricably bound to a formal concept of damages when “the philosophy behind the legislation is to create a new and innovative regime unshackled from this mainstream tradition”. The CoA considered the impact should BT’s arguments prevail, holding that if, in an appropriate case, an account credit results in redress to consumers expeditiously, fairly, and cost effectively, then any rule which makes it easier to attain such redress will “also increase the incentive on companies holding customer accounts to comply with the law”.
Interestingly, and in yet more welcome news for funders, in considering BT’s arguments that crediting accounts would prevent class representatives and funders from being paid (because the only express provisions for costs in the opt-in/opt-out regime are in relation to the allocation of undistributed damages awards), the CoA held that the CAT had wide case management powers and can, if it so chooses, use these to ensure that funders and class representatives are paid first and before the distribution of awarded damages to consumers begins.
Finally, the CoA held that the fact that some customers may no longer have BT accounts was irrelevant. The CAT has the power to make a variegated order requiring an account credit for some and a payment of a monetary sum to others as the case and circumstances might be.
Issue 3: The relevance of merits to the choice between opt-in and opt-out
BT argued that the CAT misdirected itself in law in concluding that the strength of the proposed claim was only of relevance in favour of dismissing opt-out proceedings if BT could show that it was “very weak”. BT argued that, if correct, this would create a “systemic slant” against opt-in proceedings because a defendant will always have to establish a claim is “very weak” before opt-in proceedings become appropriate, even if it could otherwise surmount the test for summary judgment/strike out that claims must demonstrate “a real prospect of success”. Thus, BT argued, the CAT had created an entirely new test not supported by the statutory scheme.
The CoA disagreed. While noting certain ambiguities in the wording of the CAT’s CPO judgment, it held that, viewed objectively, the CAT had plainly not intended to create a new test. Rather, the CAT had, in determining BT’s application for summary judgment of Le Patourel’s claim, considered the merits of the claim in the traditional way, finding that, based on the evidence before it (including Ofcom’s findings and the expert reports put forward by the claimant), Le Patourel’s claim had a reasonable prospect of success. An assessment of the merits of the claim had played no further role in the CAT’s analysis in determining whether the claim should proceed on an opt-in or opt-out basis. Rather, the CAT’s decision was motivated by other conclusions, all of which were within its power to conclude.
Impact of the judgment on the CPO landscape
The CoA’s judgment is particularly notable for its exposition of the importance of policy considerations in determining whether proceedings should proceed on an opt-out basis, and its deference to the CAT’s expertise. The CoA’s judgment is at pains to emphasise the limited remit of the appellate court in this context, holding that a weighing up of the various factors relevant to the choice of opt-in vs. opt-out is essentially an exercise of judgment over facts and evidence by a specialist body that will, over time, accrue an increasing well of experience in how to handle complex cases. Therefore, the CoA “should not interfere simply because it might, for the sake of argument, have drawn a different conclusion from the weighing exercise”. This suggests that future defendants hoping for a stringent review of the CAT’s decisions to grant opt-out CPOs by the CoA may be disappointed, with the CoA intervening only in the most extreme cases.
The judgment will also be welcome news for claimant funders. Despite the CoA’s suggestion that the CAT will not simply take funders’ preferences for opt-out proceedings at face value, it is difficult to forsee a situation where claimant firms and funders are unable to make compelling arguments that opt-out proceedings would be more suitable on the grounds of allowing proper access to justice, and fulfilling the legislative intent behind the CPO regime to allow the recovery of small sums by large claimant classes. The CoA’s explicit recognition that methods of distribution need not comply with the “traditional” methods of compensation in English law will also be welcome news to those consumers who may (for various reasons) be reluctant to opt-in to class-action proceedings at an early stage, allowing them to achieve compensation by way of account credit (or potentially other effective forms of set-off) without taking any active steps to join the claim. The CoA’s indication that lawyers/funders can be paid before damages are distributed will no doubt spur further actions that may not have enticed funders previously given the possibility of a high damages take-up.
On its face, the ruling clearly aligns with the recent trend in favour of the certification of consumer claims on an opt-out basis, evidenced only last week by the CAT’s “on the spot” certification of a £1.5bn standalone opt-out collective claim against Apple. Those hoping that the FX Decision marked a turning point in the trend for approving CPO decisions are likely to find little comfort in the CoA’s decision. However, with a number of further CPO decisions waiting in the wings, and an imminent hearing before the CoA in the Gutmann proceedings, there should be plenty more insights into judicial attitudes towards the CPO regime over the coming months.
For further information, please contact:
Sarina Williams, Partner, Linklaters
sarina.williams@linklaters.com
[1] [2020] UKSC 51.
[2] Mr Phillip Evans and Michael O’Higgins FX Class Representative Limited v Barclays Bank Plc and Others [2022] CAT 16.
[3] [2020] UKSC 50.
