A Christmas gift from the CAT: first settlement approved in UK collective proceedings

It’s days before Christmas, the panel has sat;
The parties have settled, a first for the CAT;
The amount was normal, the costs were fair;
The other defendants avoided the snare;
The feline, contented there’d be no appeal;
Said it was efficient to seal the deal.

Ho ho ho… The UK Competition Appeal Tribunal has approved the first collective settlement under the collective proceedings regime. 

The settlement was in the “roll-on roll-off” (RoRo) claim about the deep sea carriage of new motor vehicles. The claim follows-on from a 2018 European Commission decision that the defendant shipping providers had infringed competition law. For more information, see our previous blog post about the certification of the collective proceedings.

In true festive spirit, the CAT has approved the proposed settlement between the class representative and one of the 12 defendants to the claim, Compañia Sudamericana de Vapores S.A (CSAV).

The class representative and CSAV had agreed that CSAV was responsible for 1.7% of the value of commerce which was subject to the anti-competitive behaviour. The settlement amount was £1.2 million in damages and £380,000 in costs.

The class representative estimated that millions of class members would have been entitled to the damages. In the absence of a magical way of distributing gifts to millions of people in one night, the Tribunal agreed that the sum did not have to be distributed to class members yet.

Before approving the settlement, the CAT also considered the following three issues and reached conclusions on each which allowed it to approve the settlement:

• Was the settlement sum within a reasonable range? Was the split between damages and costs proper?
• Should the other defendants be prevented from making contribution claims against CSAV?
• Would undistributed sums revert back to CSAV?

Each of these issues are discussed in more detail below.

Was the settlement sum within a reasonable range? Was the split between damages and costs proper?

Under section 49A Competition Act 1998 and rule 94 of the CAT Rules 2015, the Tribunal will only approve a settlement if it is just and reasonable. The Rules require the CAT to take account of various factors, including:

• The amount and terms of the settlement.
• The likelihood of judgment being obtained for an amount significantly exceeding the settlement.
• The likely duration and costs of proceeding to trial.

The Tribunal refused to get drawn into a detailed consideration of the settlement amount or to conduct a mini trial. It held that the amount of the settlement was within the normal range, given the uncertainties of litigation. The CAT expressed deference to the fact that the parties, independent counsel and the class representative’s economics expert had all concluded that the settlement was reasonable. 

The Tribunal was of the view that proceeding to trial would take a long time and be expensive. It considered that removing CSAV from proceedings would benefit all parties by making them simpler (“[t]he fewer parties you have, the less costs, the less complexity, and the shorter hearings”). 

The CAT was also satisfied that £280,000 for the class representative’s costs of the proceedings, and an additional £100,000 for the costs of the settlement application, were reasonable in the context of the £1.2 million damages sum.

The Tribunal’s approach to these questions was characterised by a desire to facilitate the settlement agreed between the parties. This appears to be based on a policy objective of ensuring that collective proceedings are settleable. The rationale behind that objective is clear: collective actions can be legally, procedurally and logistically complex which is a great burden on the Tribunal as well as the parties. Even Santa’s workshop would struggle to clear the Tribunal’s current backlog of cases.

Should the other defendants be prevented from making contribution claims against CSAV?

The class representative and CSAV also sought a barring order which would make their agreement binding on the other defendants. 

CSAV and the class representative had agreed that CSAV was responsible for 1.7% of the market which was affected by the shipping cartel. As a natural result of the settlement, the class representative had agreed not to pursue the other defendants for that 1.7% of the market.

The class representative also originally asked the CAT to prevent the other defendants from arguing that they should pay less to the class representative because CSAV had market share greater than 1.7%. Likewise, CSAV asked the Tribunal to prevent the other defendants from seeking to claim against CSAV for the difference.

The applicants argued that the Tribunal has the power to make such an order under section 2(2) Civil Liability (Contribution) Act 1978, which provides that “the court shall have power in any [proceedings for contribution under section 1] to exempt any person from liability to make contributions…” 

There was a dispute about whether this section could apply in the present proceedings, since the other defendants had not yet issued a contribution claim against CSAV. The Tribunal avoided making a decision on the question. Instead, it recognised that the question was a difficult one and urged the parties to reach an agreement to avoid the matter going to the Court of Appeal.

The CAT appears to have been concerned that an appeal about a small part of the litigation may cause delay to the rest. In the spirit of the season, the class representative agreed to forgo any damages to the extent that the other defendants proved that CSAV did have a market share larger than 1.7%. In turn, the other defendants agreed not to claim against CSAV. The result was that the class will take the risk on CSAV having a larger market share than 1.7%.

The judgment did not deal with whether the CAT had the power to make the orders originally sought. Whilst the economics of the present case meant that it could be resolved by the consent of the parties, that will not always be the case.

If defendants cannot obtain barring orders, that will be a significant hurdle in any attempts by class representatives to settle with a substantial portion (but not all) of the defendants. It is also difficult to see how such an order could be fair to defendants that are not party to a settlement agreement unless the class representative agrees to take the risk as it did in the present case.

Would undistributed sums revert back to CSAV?

In the absence of a settlement, there is no express provision in the collective proceedings regime which allows settlement sums to revert to defendants. If a claim goes to trial and a defendant is ordered to pay damages, the default rule is that unclaimed sums are paid to the designated charity, currently the Access to Justice Foundation. 

By contrast, rule 94(9)(g) expressly contemplates that the Tribunal should take account of provisions in a settlement which provide that unclaimed balances revert to defendants.

In the present case, CSAV and the class representative had agreed that any undistributed sums would revert back to CSAV, who would also have priority over any other settling defendants. Accordingly, if the other defendants settled with the class representative as well, CSAV would be entitled to be repaid its whole £1.2 million (if at least that much remained undistributed).

The Tribunal held that the terms of the settlement agreement were reasonable, although this appears to have been because those terms are expressly subject to the CAT approving them when it orders any distribution. The CAT refused to come to a decision about whether it would actually order the reversion, preferring to leave that question until there was a distribution plan.

The Tribunal’s reluctance to approve the reversion is understandable. The statutory purpose of the collective proceedings regime is providing effective access to justice for claimants. That purpose would not be achieved if class members were not given a fair opportunity to make their claims before the sums reverted to CSAV. As the Tribunal said, there was no distribution plan and there had been no decision about how damages would be allocated or assessed, which is bound to make it difficult for the Tribunal to satisfy itself that class members will be given a fair opportunity to claim.

But competition litigation has the benefit of plenty of economists, and this is the time of year when economic journalists like to talk about the inefficiencies of gift giving. Although cash will, no doubt, be more welcome to them than ugly socks, there can also be no doubt that (for one reason or another) a significant proportion of any class will not claim distributions that they are entitled to. 

Until the treatment of undistributed damages is clarified, CSAV can have no certainty about how its settlement will work economically. If the reversion mechanism is upheld, and the claimants win at trial, it seems very likely that CSAV will get substantially all of its damages back. If other defendants settle as well, then the amount it gets back is likely to depend substantially on whether its reversion is given priority over the other defendants’ reversions.

All defendants want for Christmas

Defendants don’t want a lot for Christmas, but they do need clarity about the approach the Tribunal will take to undistributed sums. 

Whether or not reversion mechanisms are upheld is likely to completely change the economics of settlements. If the Tribunal is pursuing a policy objective of encouraging parties to settle, as indicated by its approach to assessing the reasonableness of the deal, it should seek to give clarity to defendants so that they can price their offers appropriately.

Ensuring that class members have a fair opportunity to claim for distributions is also an entirely valid objective. The need for the Tribunal to monitor and regulate the distribution process is made particularly stark because, after damages have been awarded, litigation funders’ economic interests will no longer be aligned with the class’s economic interests by default. 

However, these are issues that can be resolved by the class representative, its solicitors and the Tribunal ensuring that communications with class members and the distribution plan are sufficiently robust. It does not justify a lack of transparency about how much settlements will cost defendants.

The snow is unlikely to settle in London this Christmas, and neither are defendants until they’re able to price their liabilities effectively.