Can defendants in collective proceedings communicate directly with class members? The Court of Appeal rewrites the rules…

On 8 December 2023, the Court of Appeal delivered an early Christmas present to defendants facing collective proceedings by overturning a CAT decision which restricted their communications with members of the claimant class. 

Whilst the Court’s judgment will make life slightly easier for defendants, it is unlikely to be the last word on the issue. In this article, we set out where the law has got to and where it might go next.

Background

The judgment relates to the McLaren collective proceedings, which seek damages arising from abusive conduct by providers of deep-sea freight services for motor vehicles (see our previous blog post on the certification of the collective proceedings order (“CPO”)). 

In mid-2022, the defendants’ solicitors wrote to certain large 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. They stated that this would involve time and expense and possibly require them to disclose confidential information, and if the businesses intended to form part of the class action, they should seek legal advice as to their document preservation obligations. 

The class representative objected to the letters and brought an application to challenge them.

The CAT’s approach: no (or very restricted) communications

In November 2022, the CAT sided with the class representative and found that the letters should not have been sent (see our previous blog post on the decision). 

In essence, it found that defendants in collective proceedings should not communicate directly with actual or potential class members (i.e., including members of a proposed class prior to certification of the CPO) in relation to matters concerning the proceedings. Even if the parties agreed to such communications, they would still be subject to the CAT’s supervision.

The CAT’s decision left several unanswered questions, some (but not all) of which were addressed by the CAT in the interchange fee and Kent v Apple collective proceedings. In the interchange fee collective proceedings, the CAT clarified that the defendants could still respond to merchants who had approached them and asked to settle, but only where those merchants had already brought individual claims and were acting through legal advisers. In Kent v Apple, the CAT allowed an application by a Brick Court barrister to opt out of the class as he was concerned that given the McLaren judgment, his friends and colleagues acting in the proceedings would otherwise need to "police their interactions" with him in relation to their work. The CAT did not appear particularly concerned by the implications of their approach in either case, but it was clear from both cases that it was causing headaches for parties.

The Court of Appeal: a more relaxed approach

The Court of Appeal overturned the CAT’s judgment and held that CPO defendants can communicate directly with class members without first seeking permission from the Tribunal.

It noted that there is no general rule in civil litigation which prevents defendants from communicating directly with claimants, and there are no material differences between CPOs in the CAT and representative actions or other forms of group litigation in the High Court which would justify a different rule for CPOs. 

The Court held that the CAT had misinterpreted its own rules by imposing such a restriction. In fact, CAT Rule 94(2), which prohibits defendants making settlement offers directly to class members, would be unnecessary if there was a general rule preventing defendants from communicating with class members at all.

The Court also found that there were several policy reasons why such a rule should not be applied:

• Class representatives are not “in a trusted position” prior to certification: Defendants should therefore not be bound to communicate with the class through a potentially unsuitable self-appointed representative.
• Timing unfairness: It would be unfair if, for example, the class representative gave a media interview and the defendants had to apply to the CAT before they could respond.
• Interference with the conduct of the defence: Defendants should not be obliged (for example) to apply to the CAT before approaching potential experts, who may happen to fall within the class definition, as such communications would likely be privileged. 
• Interference with the conduct of the defendant’s business: Similarly, defendants should not be required (for example) to apply to the CAT before reporting on the litigation to their investors.

How should defendants now approach communicating with class members?

CAT Rule 94(2) continues to prevent defendants in opt-out class actions from approaching class members directly with settlement offers. However, beyond this, defendants now appear to be largely free to communicate directly with class members in relation to the claim. 

The Court made clear that it had “no doubt” that the CAT could impose restrictions on communications under its case management powers in individual cases, and it invited the CAT to consider issuing a practice direction or making orders in individual cases to give guidance to parties. For example, the Court noted the potential harm of a misleading multi-media campaign urging class members to opt out shortly before the relevant deadline, and it cited Canadian case law which stated that correspondence should not be “inaccurate, intimidating or coercive or made for some other improper purpose aimed at undermining the process of the court”.

Our bet is that the CAT will take up the Court of Appeal’s suggestion to issue guidance in the course of 2024, particularly focusing on the important topic of disclosure, which was of course one of the key concerns in its original decision in McLaren. However, we anticipate that such guidance will be far less restrictive for defendants than the CAT’s original decision. We therefore expect that when looking to the year ahead, defendants in CPO cases will find their lives slightly easier thanks to the Court of Appeal.

The appealability of CAT decisions

The Court also gave further guidance on the scope of permissible appeals from the CAT to the Court of Appeal under s.49(1A) Competition Act 1998, which gives a route to appeal for decisions which are "as to the award of damages". 

In a similar vein to its previous decision in Evans v Barclays (see our previous blog post), the Court took a broad approach to appealability and held that "as to the award of damages" encompassed decisions on any issue capable of having some causal effect on the award of damages. This would include case management decisions which have “a real and material potential effect on how a party is able to pursue and conduct its defence of a claim for damages”, and so whilst timing decisions are unlikely to be appealable, decisions regarding disclosure or admissible evidence should be.

Unhappy litigants have recently taken to appealing CAT decisions by way of applications for judicial review, to guard against the risk that the relevant decision was not appealable under the Competition Act as it was not "as to the award of damages". This has required the Court of Appeal to sit as the Administrative Court when hearing such appeals, and so the Court’s clear guidance in this case should be helpful for litigants and avoid the need for this procedural fudge going forward.