Following the creation of the opt-out competition claims regime a decade ago, collective action proceedings have advanced at pace. Since then, significant issues have been identified for both claimants and defendant companies. Businesses facing collective actions can incur cost, uncertainty and reputational exposure before the merits of a claim are properly tested. Conversely, a low bar for class certification leaves claimants vulnerable to picking up the tab for pursuing expensive claims that ultimately fail.
The government is considering legislation to place guardrails on some aspects of the opt-out collective action regime. Through a consultation which concludes this month, the Department for Business and Trade intends to strike a balance for both potential claimants and defendant companies.
It is unclear how much Andy Burnham will prioritise these reforms given the flurry of policy changes since his arrival in Downing Street. What is evident, however, is that a set of rules that are fair and transparent for all participants in cases before the Competition Appeal Tribunal (CAT) is essential. The following proposals provide such a template.
A key aspect under consultation is whether the certification threshold should increase. A higher bar would filter out weak or speculative claims at the outset. Under the current rules, the CAT must be satisfied that the claims are eligible for inclusion in collective proceedings and that the proposed class representative is appropriate – a threshold that the Supreme Court confirmed in Merricks v Mastercard is deliberately low.
A practical measure to achieve this aim is to introduce a suitability test that takes into account the cost/benefit of the proposed proceedings. This could be achieved by amending the relative suitability test in section 47B(6) of the Competition Act 1998 to include a preliminary merits assessment and proportionality inquiry in which the CAT would refuse certification where the costs would likely be disproportionate to what the claimants would actually receive.
The post-Merricks position established that ‘the certification process is not about, and does not involve, a merits test’. The government’s consultation states that ‘post-Merricks, the bar for obtaining a collective proceedings order is, in the government’s view, still low, weakening the filter effect intended to guard against speculative claims’. Including a cost/benefit analysis at the certification stage might address outcomes such as in Gutmann v SSWT, where less than £216,000 reached the class against over £10m to advisers and funders.
The consultation suggests the current prohibition on damages-based agreements (DBAs) could be lifted for opt-out collective actions, as well as legislation to mitigate the Supreme Court’s PACCAR judgment, which deems third-party litigation funding arrangements to be DBAs if the funder return is expressed as a percentage of the damages. Both measures could increase competition, drive down the cost of litigation finance and increase claim volumes.
The need for change is reinforced by feedback in the consultation documents that the regime is ‘virtually reliant’ on third-party litigation funding; that market practice suggests that claims now require a quantum of approximately £500m to attract funder backing; and that uncertainty surrounding PACCAR risks funders withdrawing.
Previously, the government committed to introduce legislation addressing PACCAR, but failed to do so. Such delays compound uncertainty. The Litigation Funding Agreements (Enforceability) Act 2024 failed to pass before the 2024 election.
Under rule 85 of the Competition Appeal Tribunal Rules 2015, the CAT can vary or revoke a collective proceedings order either on its own initiative or on application. Multiple defendants have applied to ‘dismiss’ or ‘vary’ proceedings: for example, in Ennis v Apple (decertification sought on Evans grounds); Rodger v Google (a variation application); and in Evans itself (where the CAT is now considering the defendants’ application to dismiss following remittal). However, no formal periodic review mechanism exists to enable the CAT to monitor funding arrangements and budgets.
The government could address this either by adding a new rule to the CAT Rules or by amending the Competition Act 1998 providing that the CAT must conduct ‘checkpoint reviews’ at defined milestones (for example, close of pleadings or exchange of expert reports).
Oversight of the class representative’s funding position at defined milestones is particularly important in light of, for example, the CAT’s recent comments in Sciallis v Fender Musical Instruments Europe Ltd. The CAT criticised the class representative’s lawyers, Pogust Goodhead, as being ‘unhelpful, uncooperative, deliberately obfuscatory and misleading’ regarding the class representative’s funding position.
Under the current scheme, only the claimant files a budget under rule 78. The CAT has broad costs powers under rule 104, including the power to make interim payments on account of costs with detailed costs assessment to follow at the conclusion of proceedings.
In the consultation, respondents reported budgets ‘doubling within months of certification’ and a lack of transparency in defendant spending that impedes after-the-event insurance procurement. This comes from both sides. Defendants raised issues of claimants taking multiple ‘bites of the cherry’ at the certification stage until success is achieved. Claimants reported defendant tactics of taking a ‘scorched earth approach’, litigating every point as far as possible to drain claimant budgets.
A potential solution is to amend the CAT Rules to require both the class representative and the defendant(s) to file and exchange detailed costs budgets (for all phases including trial) within 28 days of certification. Requiring the CAT and the opposing party to be notified of any variation over, for example, 15% within a suggested period of 14 days, and the CAT holding costs management hearings on budgets after exchange, if necessary, would provide much-needed ongoing oversight.
Becca Hogan is a partner and Tom Crawford a senior associate at Signature Litigation. Paralegal Nikki-Sutton MacGregor also contributed to this article
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