Is the CPO tide turning? Evans and O’Higgins opt-out class actions refused by the CAT

For the first time since the UK Supreme Court lowered the hurdle for claimants and litigation funders to bring competition collective actions in its landmark judgment in Merricks v Mastercard, the Competition Appeal Tribunal (CAT) has refused to certify a Collective Proceedings Order (CPO) on an opt-out basis. 

In a 2-1 majority judgment, the CAT in Mr Phillip Evans and Michael O’Higgins FX Class Representative Limited v Barclays Bank Plc and Others [2022] CAT 16 stayed both actions brought by the competing proposed class representatives (the PCRs), and has instead given the PCRs three months to refile their applications on an opt-in basis. 

The (255 page) judgment is notable for its consideration of a proposed class largely comprising sophisticated businesses, and as the first to consider carriage dispute issues. The CAT also determined that it could proactively consider whether the claims should be struck out, and/or if the proposed claims were better suited to opt-in proceedings, even if these were not issues raised by the parties.

We consider the CAT’s judgment in more detail below.

Background

The case concerns rival collective actions brought by two separate PCRs, Michael O’Higgins and Phillip Evans. Both sought CPOs on an opt-out basis in pursuit of follow-on claims arising from the European Commission’s May 2019 infringement decisions finding that the Respondents^[1] had breached Article 101 TFEU by operating cartels in relation to foreign exchange spot trading (the EC Decisions).

In July 2019, Mr O’Higgins incorporated a special purpose vehicle (Michael O’Higgins FX Class Representative Limited) for the purpose of bringing the proposed collective proceedings and filed his application. Mr Evans filed his application in December 2019. The PCRs purport to represent broadly the same class (ca. 40,000 members) on an opt-out basis which gave rise to a “carriage dispute”, i.e. the question of who was best placed to proceed with the claim. The CAT refused an application by both PCRs to determine carriage as a preliminary issue in 2020, so it fell to be determined at the same time as the CAT considered whether to certify either action.

The Majority Judgment

The CAT considered four fundamental questions.

(1) Should the claims be struck out?

The CAT determined that Rule 41(1) of the CAT Rules^[2] clearly gives the CAT the power to strike-out claims if it considers that the Applicant has no reasonable grounds for making the claim, even if there is no application for strike-out from the Respondent(s). 

It then went on to consider at length whether the claims should be struck out, and determined that both claims were indeed weak enough to be capable of strike-out. The CAT accused both claims of lacking particularity when it came to causation; in other words, it was unclear how the PCRs intended to prove causation between the infringements found in the EC Decisions and the alleged loss experienced by the class members. 

The CAT also remarked that both claims appeared to be founded primarily on the basis of economic theory of passed on or transmitted costs, and that economic theory did not automatically, or easily, translate into an actionable legal claim. While economic theory may establish the general principle that information asymmetry will result in an increase in the costs to the market, a legal claim is required to demonstrate “with some specificity” that a given infringement, by a named defendant, caused a loss to the class. The pleadings before the CAT failed to sufficiently – and precisely – demonstrate how “market-wide” damage was caused. 

Ultimately, however, the claims were not struck out, in light of the novel and difficult issues arising from the applications, including in respect of “market-wide harm”. It did however put the PCRs on notice that “absent significant amendment and revision a future strike-out application may very well be on the cards”.

(2) Were the claims suitable for certification as collective proceedings?

The CAT ruled that the claims were, in principle, appropriate for collective proceedings as they met both the authorisation and the eligibility criteria set out in the Competition Act 1998 (CA 1998). 

In respect of authorisation, the CAT determined, as it had in McLaren, that the fact that the O’Higgins claim was represented by a corporate entity should not preclude certification. 

In respect of eligibility, the CAT made light work of finding that the claims were: (i) brought on behalf of an identifiable class of persons; (ii) raised common issues; and (iii) were suitable to be brought in collective proceedings. It did however run through the factors listed in Rule 79(2) of the CAT Rules in respect of suitability, commenting that the existence of the separate Allianz proceedings^[3] was an indicator that the eligibility condition was not met, albeit not sufficient to militate against certifying the applications as suitable to proceed as collective actions. 

(3) Opt-in or opt-out?

The majority determined that (i) it could consider whether the action would be more appropriately pursued on an opt-in than an opt-out basis, even if the applicant was not pursuing certification on an opt-in basis, and (ii) that in considering this question, it should take into account all relevant factors considered for authorisation and eligibility, as well as (a) the strength of the claims, and (b) the practicability of bringing the proceedings as opt-in rather than opt-out proceedings. In considering the strength of the claims, the CAT was not required to reach a conclusion on the merits, but the PCRs had to meet a test “beyond the test for striking out a case”.

The majority declined to certify either claim on an opt-out basis. It held that both claims were “so weak that they are liable to be struck out”, and that a lack of clarity in the proceedings was a powerful reason against certifying the claims on an opt-out basis. 

It was also material that the class members were likely “sophisticated potential litigants” who would be capable of pursuing litigation outside of collective proceedings (as illustrated by the Allianz proceedings). The majority distinguished the case from Merricks, in which the individual claims were so small that an action would not have been pursued were it not for the collective action. Here, the majority saw “no reason why it is not practicable for the putative class to join on an opt-in basis…in particular given the general sophistication of the…class, the class knowledge, and the potential size of claim.” This was considered to be a compelling reason against certifying the claims on an opt-out basis.

The majority also made reference to the fact that solicitors for Mr Evans had attempted a ‘book-building’ exercise to sign up potential class members, and that despite contacting 321 firms, it had been able to obtain only 14 advisory retainers. The majority was of the view that opt-out proceedings “should not be forced upon an apparently unwilling class”.

The CAT stayed both proceedings to allow the PCRs three months to consider if they wish to apply for a CPO on an opt-in basis instead. 

(4) Which PCR should have carriage?

Given that the CAT declined to certify either application on an opt-out basis, it did not need to decide the question of carriage (which only arises if the class members overlap). If the claims were to be certified on an opt-in basis, both class actions could continue (following checks that no class member is signed up to both claims). 

The CAT nevertheless indicated that, had it been required to decide the carriage issue, it would have decided in favour of Mr Evans’ claim. The primary factor appears to have been that it found Mr Evans’ claim to be slightly stronger, while recognising it was “a very marginal decision” given that both claims had only just passed the test for strike-out. 

Other interesting points

In considering whether to strike out the claims, the majority interestingly indicated that it “would have taken seriously” any assertion from the PCRs that they required some disclosure from the Respondents to make good their claims. We might therefore expect to see future proposed class representatives seeking early disclosure from defendants to bolster their applications. 

In considering whether the claims should be certified, the majority noted a concern that neither PCR had a “sufficient fighting fund” to bring the actions to trial and beyond, nor did they have sufficient ATE insurance to cover an adverse costs award. It did not consider this precluded certification given that the claims may settle and/or that further funding might be available, but it weighed as a factor against certification. It seems to have been an important factor to the CAT that the Respondents did not challenge the levels of ATE insurance, so we are likely to see scrutiny of funding and insurance arrangements in future cases. Paul Lomas disagreed with the majority’s view, indicating that funders are more likely to support opt-out proceedings, and that opt-in proceedings would be more expensive.

In considering whether the claims should proceed on an opt-in or an opt-out basis, the majority indicated that the fact that neither of the PCRs was a “pre-existing body” pointed away from certifying on an opt-out basis. It compared the PCRs’ position to “a trade association, whose established purpose it was to represent a specific class that had suffered alleged harm, but…found it difficult to corral members of the class into opting in, that would be a factor in favour of certifying on an opt-out basis”. It is notable however that Paul Lomas, in the minority, considered the opposite view were true, i.e., that a trade association’s involvement would favour opt-in.This is likely to be the subject of further discussion in the awaited CPO decision in the Trucks litigation, in which one of the PCRs is an established trade association (the Road Haulage Association).

The Dissent

The third member of the Tribunal dissented against the majority, indicating that he would have granted the CPO on an opt-out basis. Mr Lomas considered (amongst other factors) that the fact that the action would likely not proceed on an opt-in basis was a strong factor that should have led the majority to certify on an opt-out basis, in particular outweighing his view that the weakness of the claims militated towards opt-in. 

A turning of the tide for CPO applications?

This is the first judgment since the Supreme Court’s December 2020 decision in Merricks to buck the trend of certifying on an opt-out basis. It suggests that an opt-in mechanism will be more appropriate for classes comprising ‘sophisticated potential litigants’ such as financial institutions and large corporate bodies, particularly where the level of loss sustained is sufficient to enable them to pursue litigation independently. A powerful factor in this analysis is likely to be whether there are parallel claims being pursued on an individual basis – it is difficult to see the CAT certifying on an opt-out basis where there is clear evidence that opt-in (or an individual claim) is practicable.

It appears to have been key to the majority judgment that neither proposed class representative was able to make a cogent case in respect of causation, only surviving the test for strike-out on the basis that the case raises novel and difficult issues. The CAT also favoured Mr Evans as proposed class representative on the basis of the “strength” of his claim relative to the “strength” of Mr O’Higgins’ claim. Both of these points underline the importance of proposed class representatives developing a carefully considered and cogent case theory as part of their certification application.

Most disappointing was the lack of guidance on how the CAT will approach carriage disputes in future cases. The uncertainty in this area may render it less attractive for funders, particularly given that the CAT’s approach in this case suggests it may remain in favour of determining carriage at the same time as certification rather than as a preliminary issue, meaning increased costs for the competing proposed class representatives and defendants.

This is not the end of the road for the PCRs, who have both confirmed they will appeal the judgment and, in any event, have been gifted three months to consider whether to apply to bring their claims on an opt-in basis. Mr Lomas’ dissenting judgment shows that there is still plenty of discussion to be had on the CPO regime. 

In the meantime, we await the CAT’s decision in the Trucks CPO applications, which will hopefully provide further guidance around carriage and the relevance of the identity of the PCR to the opt-in/opt-out debate.  

 

Footnotes:

[1]    Barclays, Citibank, JPMorgan, NatWest/RBS, UBS and MUFG.

[2]    Competition Appeal Tribunal Rules 2015. 

[3]    Case 1430/5/7/22 (T).