In its latest decision considering the collective proceedings order (“CPO”) regime, London & South Eastern Railway Limited & Ors v Gutmann  EWCA Civ 1077, the Court of Appeal (“CoA”) has upheld the October 2021 decision of the Competition Appeal Tribunal (“CAT”) to grant a CPO in respect of so-called “boundary fares” claims against South Western Trains (“SW”) and South Eastern Trains (“SE”).
The judgment stands as a further demonstration of the low threshold that class representatives need to meet in order to obtain certification under the CPO regime. The judgment is also significant in providing clarification around aspects of the regime that had previously been the subject of debate.
We consider the CoA’s judgment in more detail below.
The case concerns two separate claims against SE and SW, alleging that they abused their dominant positions contrary to Chapter II of the Competition Act 1998 (the “Act”) by failing to make boundary fares “sufficiently available” and/or to use their “best endeavours” to ensure customers were aware of boundary fares, which enable customers to travel beyond the boundary of their travelcard to their destination.
The CAT’s decision in October 2021 marked the third and fourth CPOs granted under the UK’s competition collective actions regime. A summary of the CAT’s judgment can be found here.
The appeal brought by SE and SW broadly concerned the following issues:
- whether section 47C(2) of the Act – which allows the CAT to award damages on an aggregate basis without considering each class member individually – also permits issues relating to liability (including causation and proof of loss) to be assessed on an aggregate basis;
- whether the methodology advanced by the claimants setting out how key issues would be determined or answered at trial satisfied the Microsoft test;
- the appropriate influence of the CAT’s finding that the cost-benefit analysis “slightly” weighed against the granting of the CPO; and
- whether the CAT had incorrectly refused to dismiss as unarguable certain parts of the claims against SE and SW.
Issue 1: Scope of section 47C(2) of the Act – aggregate assessment of liability
SE and SW argued that the CAT had incorrectly held that section 47C(2) of the Act permits issues relating to liability to be determined on an aggregate – as opposed to individual-by-individual – basis. While the issue had been considered previously by the Supreme Court in Merricks v Mastercard  UKSC 51, the Supreme Court had not, SE and SW argued, conclusively ruled that section 47C(2) of the Act could be read in this manner.
The CoA rejected this ground of appeal, concluding that the prior decisions of the CoA and Supreme Court in Merricks (at paragraph 29), Lloyd v Google LLC  UKSC 50 (at paragraph 31) and Le Patourel v BT Group PLC  CAT 30 (at paragraph 32) supported the view that section 47C(2) of the Act also covered the assessment of liability and represented binding authority in this respect. In any event, it found that making an aggregate damages award invariably entails determining issues of liability. If section 47C(2) of the Act did not permit issues relating to liability to be assessed on an aggregate basis it would accordingly undermine its effectiveness (and thereby the effectiveness of the CPO regime more broadly).
Issue 2: Finding of a plausible and credible methodology for calculating aggregate damages
A claim can only be brought under the UK competition collective action regime where it raises “common issues” and the CAT determines that it is “suitable” to proceed on a collective basis. To enable the CAT to form a judgment on commonality and suitability, the class representative is required to put forward a “methodology” setting out how key issues will be determined or answered at trial. Any “methodology” put forward will necessarily be hypothetical in nature. It must, however, satisfy the test set out in Pro-Sys Consultants v Microsoft (“Microsoft”), which held that expert methodologies should “be sufficiently credible or plausible to establish some basis in fact for the commonality requirement”, “grounded in the facts of the particular case in question” as opposed to being “purely theoretical or hypothetical”, and “offer a realistic prospect of establishing loss on a class-wide basis so that, if the overcharge is eventually established at the trial of the common issues, there is a means by which to demonstrate that it is common to the class”. The court in Microsoft also held that there must be “some evidence of the availability of the data to which the methodology is to be applied”.
SE and SW contended that, even if they were wrong in their submissions on Issue 1, the CAT had nonetheless erred in finding that the methodology put forward by Mr Gutmann met the requirements of the Microsoft test. In particular, they argued that:
- the CAT was wrong to accept that the class could meet the Microsoft test by reference to a survey intended to be carried out in the future; and
- the CAT erred in adopting as a starting point the assumption that no consumer would, rationally, wish to pay more for travel than they absolutely had to.
The CoA rejected these arguments. It began by making a number of observations with respect to the Microsoft test. In particular, it noted that:
- The test is not a statutory test. It articulates a “common sense approach” and confers upon the court or tribunal in question a broad margin of discretion.
- Given that the certification stage precedes disclosure, the methodology put forward by the class representative is necessarily provisional and might, properly, identify refinements and further work to be carried out following disclosure.
- While the methodology put forward by the class representative should address how key issues will be determined or answered at trial, it does not actually need to identify the answers at the certification stage.
- A central consideration for the CAT when assessing whether a methodology satisfies the Microsoft test is whether it is likely to be workable at trial. It should be borne in mind in this regard that the CAT can make assumptions and use common-sense intuition to fill in gaps. It has the power to wield a “broad axe” and work in “a relatively rough and ready way”.
- There is no requirement for class members to give witness evidence in support of the methodology, noting that the logic behind an opt-out order is that the class representatives will not have contact with class members prior to distribution.
- Collective actions are often brought on behalf of consumers who, on an individual level, have only suffered relatively small losses. The facilitation of such claims is one of the core justifications for the existence of collective redress regimes. Accordingly, it would be illogical to require the methodology to cater for and reduce the quantum attributable to nominal or de minimis claims.
Turning to consider SE and SW’s submissions with respect to the representative claimant’s reliance on survey evidence, the CoA noted that the use of surveys in competition cases was “unremarkable”. It also said the CAT had gone to great lengths during the certification hearing to satisfy itself that the methodology could be adapted, and had taken into account the extent to which the data relied upon might be regarded as sub-optimal. The conclusion reached by the CAT in this regard, the CoA held, was accordingly well within its margin of judgment.
As to SE and SW’s submissions regarding the assumption that consumers would not have wanted to pay more for travel than they absolutely had to, the CoA held that the CAT had adopted the correct starting point. The CoA rejected SE and SW’s arguments that adopting such an approach could lead to over-compensation, noting that this argument would “only hold water” if the CAT was “unable to make adjustments at trial to take account of issues [that] the defendants prevail upon”.
Issue 3: Impact of cost/benefit analysis on the grant of CPOs
In considering the suitability of the claims to proceed under the CPO regime, the CAT held that the overall cost/benefit balance was “slightly” against certification. However, taking into account other considerations, the CAT nonetheless granted the CPOs sought. SW argued that the CAT had erred in this respect, adding that the CAT had failed to attach sufficient weight to the likely cost of the proceedings and the difficulty of distributing any award to claimants. It pointed to the fact that the costs incurred by the class representative for the certification stage had come in three times higher than originally predicted. It also expressed concern that few consumers would be likely to come forward following any damages award, owing to the low sums available and the challenges that consumers would face in proving their entitlement to payment, because they would be unlikely to possess proof of their train travel.
The CoA rejected these challenges.
With respect to the fact that the costs incurred by the class representative for the certification stage had come in higher than predicted, the CoA noted that this information had not been available to the CAT at the original hearing and no application had been made to the CAT asking for it to be considered subsequently. In the circumstances, therefore, it did not consider it appropriate to adjudicate on the matter. In any event, the CoA noted, the CAT would monitor costs as the proceedings progressed and the fact that the class representative had incurred costs did not necessarily mean that he would be entitled to recover them if the claim prevailed at trial.
As to the difficulties associated with proving entitlement to payment and distribution, the CoA suggested that it would be open to the CAT to find “creative ways” of distributing the award so as to maximise the benefit to the relevant consumers. The CoA noted that, once an award has been made, the choice of distribution lies between a distribution to the class or to the selected charity. It suggested, however, that where a direct distribution to class members is not possible, it might, as a proxy, be appropriate to look at indirect means of distribution – e.g. in the case at hand it might be appropriate to explore the targeted reduction of certain train fares on a forward-looking basis.
Issue 4: Arguable formulation of abuse
The final issue concerned the CAT’s decision to refuse SE and SW’s application for summary judgment or strike out of the allegations of abuse concerning (i) the failure of third party agents to offer boundary fares; and (ii) the failure to offer boundary fares for “all” geographically relevant journeys, including those where the consumers benefited from other discounts – e.g. advanced fares. SE argued that neither of these constituted an arguable abuse of dominance, while SW’s application focused specifically on discounted tickets sold by third-party agents.
With respect to whether or not SE and SW could be held liable for the conduct of third-party ticket sellers, the CoA concluded that this was an issue for trial. The CoA noted, however, that if SE and SW’s conduct had resulted in third-party ticket sellers being incentivised to set prices at levels which were artificially inflated, then it was arguable (drawing on the CJEU’s findings in Kone v ÖBB Infrastruktur (EU:C:2014:1317) with respect to umbrella pricing) that SE and SW should be liable for the adverse financial consequences of this.
With respect to whether it might be considered an abuse not to offer boundary fares in conjunction with other discounts, the CoA agreed with the CAT’s observation that the law on “unfair” abuses was in a state of development. It noted, however, the indication given by the CJEU and German Federal Supreme Court that where a dominant undertaking charges consumers for a service they do not need or want, or makes a consumer pay again for a service that they have already paid for (in whole or in part), this might amount to an abuse. Accordingly, it rejected this ground of appeal.
Impact of the CoA’s Decision
The CoA’s decision further demonstrates the low threshold that class representatives need to meet in order to obtain certification under the CPO regime. Its response to SE and SW’s arguments with respect to the CAT’s cost/benefit analysis suggests that it will seldom be possible to defeat applications for certification on the basis of potential difficulties in distributing any eventual damages award. The CoA has also afforded class representatives some leeway by recognising that the methodology for calculating aggregate damages may be based on sub-optimal datapoints and “perfected” after disclosure. More broadly, the adoption of a wide view of what might constitute an abuse of competition law (including transparency failings) is likely to further add to the attractiveness of the CPO regime to claimant law firms and their funders.
There is little in the judgment for prospective defendants, although they make take some comfort from the CoA’s acknowledgement that the submission of an “exorbitant” costs budget does not mean that these costs will be ordered to be paid if the claim ultimately succeeds. With several CPOs now proceeding to a substantive merits analysis though, our prediction is that the tide isn’t far from turning.
For further information, please contact:
Sarina Williams, Partner, Linklaters