In depth: CAT ready to get tough on 'entrepreneurial' class actions

Class action experts have pointed to a ‘significant shift’ in the Competition Appeal Tribunal’s approach to certifying class actions. The level of damages likely to be distributed to class members is now being closely scrutinised at the start of the case, rather than being left until the end, a Bar Council conference on collective redress heard last week.

Last month, in Waterside Class Ltd v Mowi ASA, the CAT declined to certify a claim on behalf of a potential class of 44 million people who had bought Atlantic salmon, the price of which was alleged to have been affected by a cartel. The loss per class member was estimated at £2 to £9 – but the proposed costs budget, including after-the-event insurance, was £21m. The CAT raised concerns over the proportionality of the funding and the distribution model, effectively sending the proposed class representative (PCR) back to the drawing board.

Ben Williams KC, barrister at 4 New Square, told the conference that the Waterside decision built on the earlier case of Gutmann v First MTR South Western Trains Ltd, in which a £25m settlement was agreed but few class members came forward. ‘Take-up was less than 1%, with just under £217,000 distributed – fewer than 7,300 people, out of a class estimated to have been up to 10 million commuters,’ Williams said. ‘So when it came to consider what could fairly be paid to stakeholders [lawyers and funders] in those circumstances, the CAT stated that in view of figures like that, it didn’t regard the case as having been successful – even though it resulted in a £25m settlement.

‘So expect, in the future, far more attention to be paid to potential take-up and to proposals for distribution at the certification stage.’

'If these huge costs and enormous amount of court time were taken up… and the money was not distributed to class members, one could fairly ask, "well, what was this all for?"'

Sir Peter Roth, former CAT president

Waterside may mark a significant shift in the approach to certification, he added: ‘It, and cases like it, serve as a warning that there are limits to so-called “entrepreneurial” class actions. In future, we must assume that there may be a rigorous value-for-money test, and a much more intense focus on the likelihood of successful distribution at an early stage… Similarly, at settlement approval or judgment stage, expect severe pressure on stakeholders if the [result of] proceedings is not truly successful for the class. If the class is shy in coming forward, the stakeholders will get a haircut.’

Sir Peter Roth, a former CAT president, said: ‘I think everyone would agree with the statements that have been made in a number of CAT cases now, that the collective actions regime was not set up to operate for the benefit of lawyers, funders and experts… and the regime would not be achieving its objective if it did not produce redress for class members. If these huge costs and enormous amount of court time were taken up… and the money was not distributed to class members, one could fairly ask, “well, what was this all for?”’.

Williams also highlighted the CAT’s recent focus on the fees charged by class representatives. In Waterside, the CAT criticised the PCR’s proposed hourly rate of £300 per hour, saying class representatives should charge ‘public sector rates’ – while also expecting robust independence and an ability to scrutinise legal costs.

‘There is very understandable concern at how expensive these proceedings are,’ said Williams. ‘This is the most expensive jurisdiction in the world after the USA… [There are] unique costs pressures which have to be reconciled with procedures for mass redress where individual recoveries are very small. But there is a very real danger indeed of destabilising the market and seeing the baby disappear down the plughole.’

Elsewhere at the conference, Jeremy Marshall, chief investment officer at funder Winward, highlighted the cost to the funding industry as it waits for the government to reverse the July 2023 PACCAR ruling.

Meanwhile, Professor Rachael Mulheron KC of Queen Mary University of London examined whether there is a legal basis for legislation to reverse PACCAR to be retrospective in effect – concluding that there is. 

Since PACCAR, some former clients have brought claims against funders in a bid to recover percentage-based fees they had paid to funders in the past, on the basis that the PACCAR ruling means these payments were paid under a mistake of law. 

The time limit to bring such claims runs for six years from the PACCAR judgment, leaving a further three years for claims to surface against funders. ‘This has the potential to be quite vastly uncertain and disruptive to the industry,’ Mulheron warned.