A little less conversation: CAT restricts defendants’ communications with actual or potential class members

As the CPO regime becomes more popular, the CAT’s choice to fiercely resist defendant communications with actual or potential class members in the McLaren judgment left defendants with plenty of questions, some of which were recently put to the CAT by Visa and Mastercard in the interchange fee class actions. But does the CAT’s approach risk overlooking the potential downsides of barring communications from defendants in future class actions?

The Competition Appeal Tribunal (CAT) has continued its trend of handing down landmark decisions in its ever-expanding case law on collective actions. In a judgment in the McLaren class action at the end of November 2022, the CAT unanimously ruled that class action defendants cannot communicate with actual or potential members of the class, unless the CAT directs otherwise or the parties agree. However, it then went on to issue guidance to Visa and Mastercard in the interchange fee class actions to provide clarity on the application of its ruling.

Background

The CAT made a collective proceedings order (CPO) for McLaren’s claim to proceed on an opt-out basis back in May 2022 (see our previous article about the CPO certification), following which potential UK class members were given nearly three months to opt out. In that time, solicitors for the majority of the defendants wrote letters directly to businesses that formed part of the proposed class pointing out that unless they opted out of the action they could be required to disclose documents, which would involve time and expense and possibly require them to disclose confidential information. The letters went on to suggest that if businesses intended to form part of the class action, they should seek legal advice as to their document preservation obligations.

McLaren’s representatives were copied to these letters and subsequently made an urgent application pursuant to the CAT’s case management powers under the 2015 Competition Appeal Tribunal Rules, seeking an order that the defendants would not be allowed to communicate with actual or potential members of the class.

The key question: can defendants communicate with actual or proposed class members?

While the need for urgency had dissipated by the time of its decision, the CAT acknowledged that the application raised an “important point”: to what extent can defendants to collective proceedings communicate with actual or proposed class members? McLaren argued that, while the 2015 rules did not expressly address the point, they made it clear that defendants could not communicate with class members. Alternatively he contended that even if the rules did not prohibit such communication, the letters sent by the defendants’ solicitors “crossed the line of what was acceptable” and so the CAT should exercise its discretion under its case management powers to prevent any further communication. The defendants disputed the application on several grounds, including that:

• the rules did not (expressly or impliedly) restrict them from communicating with class members;
• their right to freedom of expression – protected by Article 10 of the European Convention of Human Rights (ECHR) – would be infringed if such a restriction was found; and
• the letters were, as they put it, “conspicuously fair” in their presentation of the issues and in having copied McLaren’s representatives.

The CAT’s answer: communication from defendants is not permitted

The CAT unanimously decided that there was an “inherent” restriction in the relevant rules that prevents defendants from communicating with class members. This applies not only when an action has been certified, but also to communications by any proposed defendants with any proposed class members where a CPO is being sought.

Concluding that such a restriction was “clearly framed”, the CAT appeared to rely heavily on a purposive interpretation – as opposed to being guided by what the rules expressly do (or do not) say. For example, it emphasised the process established by the rules (in particular, rules 75 and 76, which address the procedure for commencing and responding to a CPO application) and the regime’s intention, which is to allow claims to be brought on behalf of individuals without them each having to incur their own costs. The CAT determined that a restriction on defendants’ communications with class members “arises inevitably” from the rules and is even “necessary to” the structure of the collective action regime. In the CAT’s words: “The whole point of the collective proceedings regime is that the represented persons are represented by a class representative” (original emphasis).

The CAT gave short shrift to the arguments relating to freedom of expression, noting that a restriction to the defendants’ qualified Article 10 rights was justified in the circumstances, as that restriction was intended to ensure due process (which is itself protected by Article 6 of the ECHR) in the collective action regime.

In all, the CAT found that, unless it rules otherwise or the parties agree (which, even then, would still be subject to the CAT’s supervision), defendants cannot communicate with actual or proposed class members. Despite the defendants in this case having agreed to cease communicating with class members, the CAT proceeded to grant an order preventing them from doing so. It went on to include a form of postscript, which included observations on the content of the letters sent and what it called the “canard that this non-communication obligation in some way inhibits defendants… from properly exercising their rights of defence”. The CAT observed that, had it not found the rules to contain a clear restriction on communications from defendants, it would in any event have deemed the letters sent to be unacceptable (again, due to them “cut[ting] across and undermin[ing]” the potential benefits of the collective action regime).

The McLaren judgment appeared to close the door on any possibility of direct communications between defendants and actual or potential class members. Yet, despite this clear messaging, the McLaren judgment left important questions unanswered, including:

• Where should the line be drawn in terms of defendants’ communications?
• How should defendants treat communications with parties who cannot be part of a class (eg, because they have already brought a separate action) but who, prior to certification, technically fall within a class representative’s proposed class definition?
• Are defendants allowed to inform parties of this fact, which would save all parties time and expense?
• Are they allowed to settle with those parties?

The judgment also risked cutting across parallel claims in the courts that overlap with any collective proceedings. The complexity of these issues became stark as Visa and Mastercard asked the CAT to address the judgment’s application at the first case management conference in the interchange fee class actions in December 2022.

A more nuanced approach for parallel individual proceedings… but what next?

To set the scene, the interchange fee class actions were brought against a backdrop of myriad claims already proceeding against Visa and/or Mastercard in both the High Court and the CAT. These were brought on an individual basis, relating to a wide variety of interchange fees (often including, but not limited to, the commercial and inter-regional fees subject of the class actions), some of which are being managed as umbrella proceedings.

Following the McLaren judgment, it appeared that Visa and Mastercard would be unable to respond to merchant communications prior to a certification decision, given that they may form part of a potential class. Visa and Mastercard therefore sought clarification from the CAT on the application of the McLaren judgment in these circumstances, which it handed down on 13 January 2023.

The CAT acknowledged that a tension arose between encouraging procedural efficiencies/settlement and protecting the purpose of the CPO regime. Ultimately, the CAT largely upheld the McLaren judgment, but decided that a more nuanced approach was required as to whether – and how – Visa and Mastercard could respond to communications in circumstances where there are existing individual proceedings.

In broad terms, it found that Visa and Mastercard could engage with communications in certain circumstances (eg, in relation to issues outside the scope of the class actions and/or where claims involved issues both within and outside the scope of the class actions or if the merchant is represented and had been alerted by the defendants to the existence of the class actions).

Key takeaways

Given the unique and inherently complex backdrop to the interchange class actions and the circumstance-specific nature of the CAT’s conclusions in the interchange fee judgment, it remains to be seen whether this narrow carve-out will be applied to other cases. However, with the CPO regime gaining popularity, this is unlikely to be the end of the CAT’s iterative navigation through these difficult issues.

More generally, the CAT’s choice to fiercely protect the CPO regime’s purpose from the perspective of class members arguably overlooks the potential downside to barring communications from defendants. Even-handed communications, drafted and sent by legal representatives (who are themselves subject to professional standards and regulatory obligations) and copied to the class representative could play a valuable role in curbing the mass-claim-hungry, book-building exercises that claimant law firms and litigation funders are embarking upon as the collective action regime gains confidence, particularly where class members are sophisticated businesses with access to legal advice. Further, while the CAT’s approach admirably seeks to support the regime’s purpose, the regime was not intended to facilitate the flooding of judicial systems with unmeritorious or uninformed claims that could be discouraged through legitimate and responsible defendant communications.

In light of the implications and remaining uncertainties arising from the CAT’s decisions, we will be betting our blue suede shoes that this is not the end of the matter.

This article was first published on the GCR Class Actions hub on 21 February 2023.