Background

As reported in our previous Class Actions Bulletin, the UK Government's Department for Business, Innovation and Skills ("BIS") published a draft Consumer Rights Bill (the "Draft Bill") on 12 June 2013 to implement proposals for the reform of private actions in competition law. The Draft Bill is currently being considered in the House of Commons and is expected to be passed into law by the end of 2014. Two key aims of the Draft Bill are to enhance the powers of the Competition Appeal Tribunal (the "CAT") and to introduce a limited opt-out collective actions regime to allow consumers and businesses to bring actions collectively. Schedule 8 of the Draft Bill, if enacted, will give the CAT jurisdiction to hear collective proceedings and to approve collective settlements relating to infringements of Competition Law.

Following the publication of the Draft Bill, BIS asked the CAT to draft procedural rules (the "Draft Rules") to govern both collective proceedings and collective settlements. The Draft Rules were developed and published by the CAT on 10 March 2014 in order to explain how it is anticipated that collective proceedings and collective settlements will be brought by the CAT.

Key features of the Draft Rules relating to collective proceedings

As envisaged by the Draft Bill, the Draft Rules implement safeguards to narrow the scope of the UK's new opt-out collective actions regime to minimise the potential for abuse. For example, the Draft Rules require that any prospective collective action must, in order to proceed, be certified by the CAT by means of a Collective Proceedings Order ("CPO"). To make a CPO, the Draft Rules state that the CAT must be satisfied that the following requirements are fulfilled:

  1. The person who brought the proceedings must be a person who the CAT can authorise to act as the class representative in those proceedings (Rule 5(1)). Under Rule 6(1), the CAT will only authorise a person to act as class representative if it is "just and reasonable" for that person to act as the class representative. The Draft Rules confirm, however, that it is not strictly necessary for the class representative to be a class member.  
  2. Under Rule 7(1), to be eligible for a CPO, the prospective claims must:
  1. be brought by an identifiable class of persons;
  2. raise common issues; and
  3. be suitable to be brought in collective proceedings.

Rule 7(2) provides further guidance as to the determination of "suitable" claims, stating that the CAT will take into account factors which include, amongst others, whether collective proceedings are an appropriate means for the fair and efficient resolution of common issues, the costs and benefits of continuing the collective proceedings, whether any separate proceedings making claims of the same or similar nature have already been commenced by members of the class and the size and nature of the class.

The Draft Rules do not, however, provide further guidance as to what constitutes an "identifiable class of persons" for the purposes of Rule 7(1).

There is also limited guidance as to the basis of the CAT's determination of whether collective proceedings should be "opt-in" or "opt-out" proceedings. Rule 7(3) only cites two factors that the CAT should take into account when determining whether collective proceedings should be opt-in or opt-out proceedings, namely, the strength of the claims and whether it is practicable for the proceedings to be brought as opt-in collective proceedings, having regard to all the circumstances, including the estimated amount of damages that individual class members may recover.

Rule 8(1) sets out what the CPO must contain, including identifying the class and sub-classes, the claims certified for inclusion, whether the collective proceedings are opt-in or opt-out, details of the defendants and addresses for service, an order that the class representative must act as such and details of the remedy sought. In addition, the CPO must specify the time and manner in which, in the case of opt-in collective proceedings, a class member may opt-in. With respect to opt-out collective proceedings, the CPO must specify the time and manner in which a class member who is domiciled in the UK may opt-out and a class member who is not domiciled in the UK may opt-in.

The Draft Rules clarify other important procedural details in relation to the collective actions regime, including how to commence proceedings and the content of the claim form (Rule 3), the role and responsibilities of the authorised class representative in a collective action and guidance in relation to the assessment and distribution of damages in collective actions (Rules 20 and 21). The Draft Rules also confirm the preservation of the "loser pays" costs rule, which is a key safeguard to ensure that the opt-out collective regime is not abused (Rule 26).

Key features concerning collective settlements

Under the Draft Rules, collective settlements can be made both in opt-in and opt-out proceedings where a CPO has been made. In the case of opt-in proceedings, the class representative may not, without the permission of the CAT, settle those proceedings before the expiry of the time specified in the CPO as the time by which a class member may (without permission from the CAT) opt-in to those proceedings (Rule 23).

Under an opt-out CPO, an application for a collective settlement may be made to the CAT by the class representative or the defendant in the collective proceedings (or such defendants who wish to be bound by the proposed collective settlement) (Rule 22). At the hearing of the collective settlement application, the CAT may make a collective settlement approval order where it is satisfied that the terms of the collective settlement are just and reasonable. In coming to this decision, the CAT shall, according to Rule 22(7), take into account all relevant circumstances including:

  • the amount and terms of the settlement;
  • the number of persons likely to share the settlement;
  • the chances of a judgment being obtained at an amount significantly in excess of the settlement, the duration and cost of the collective proceedings (if they proceeded to trial); and
  • the opinion of the expert or legal representative of the applicant and the views of any represented person or class member.

Where the CAT approves the collective settlement after the expiry of the period in the CPO, the collective settlement approval order binds all represented persons (the exceptions to this are those individuals who specifically opted out of the collective settlement or who are not domiciled in the UK and did not opt-in to the collective settlement in the time specified in the collective settlement approval order).

Collective settlements can also be made in proceedings where a CPO has not been made. Rule 24 sets out what the application for such a collective settlement shall include and who can make such an application. In such cases, it is necessary for the CAT to authorise a person to act as the settlement representative. The CAT will only do this if it considers that it is "just and reasonable" to do so. In determining whether it is just and reasonable for a person to act as the settlement representative, the CAT will consider whether that person will fairly and adequately act in the interests of class members and whether it does not have a material interest which is in conflict with the interests of the class.

Next steps

The CAT's current Draft Rules will be subject to further amendment in the future. The publication of the Draft Rules forms part of a broader review and will be the subject of a formal consultation by BIS at a later date. Furthermore, the Draft Rules are likely to be revised to reflect any amendments that may be introduced during the Draft Bill's passage through the UK Parliament before its enactment.