This year marks four years since significant statutory reforms regenerated the UK’s collective actions arena. Following a rocky start to this new regime, it appears that 2019 may finally bring some clarity to potential claimants navigating the first hurdle of competition class actions: the Collective Proceedings Order (‘CPO’) application. This is the first stage in the process whereby the Competition Appeals Tribunal (‘CAT’) considers whether to authorise the proposed class representative to bring the claim on behalf of the class.
We previously covered the specifics of these major changes, in our client alert, which were principally brought in by the Consumer Rights Act 2015. Since then, a number of cases have been tested before the CAT, and we can now analyse the trends emerging, including the climate and appetite for litigation.
This update covers how recent key collective actions are shaping the UK’s new regime. Firstly, the CAT threw matters into contention by refusing to allow Walter Merricks to bring an action on behalf of private consumers against MasterCard. This was well reported given the number of consumers affected, and was of great significance: had the CPO been granted, it would have been the largest collective action in UK legal history. However, following a successful appeal against this decision at the Court of Appeal, the CAT must now reconsider the application. Secondly, we explore other recent ‘firsts’ – namely the first ‘opt-in’ class action, the first ‘standalone’ class action, and importantly, the first data breach class action. Thirdly, we cover the recent case law on third party funding, and how recent decisions may affect class-litigants in this evolving legal market.
An update to the Walter Merricks (MasterCard) class action
This action was intended to be a follow-on case from the interchange fees investigations on an opt-out basis (i.e. potential claimants are automatically included in the proceedings, but have the option to opt out). This comprised approximately 46 million UK residents seeking the value of £14 billion. The CAT had ruled that, even if the loss could be estimated across the whole class, attempting to calculate and distribute across the class for actual loss suffered by each individual was impractical.
On 16 April 2019, the Court of Appeal reviewed the CAT’s 2017 decision and granted Walter Merricks permission to appeal. For the purposes of the CPO application, the class representative (here, Walter Merricks) is only required to demonstrate that it is possible to assess the level of damage affecting the class, and that there is or is likely to be data available for this methodology for use at the full hearing. There is no need at this stage to produce detailed quantum evidence to calculate the loss suffered. The purpose of the application is to assess if the claims involve the same, similar, or related issues of fact or law, rather than a full assessment of the value of the claim from the available evidence.
While this new development does not guarantee that the collective action against MasterCard will succeed, nor that the CPO will be granted on this second attempt, it does confirm that large-scale class actions cannot automatically be thrown out due to the extent of the class size or ambiguity of the damages owed to each class member. Now that the Court of Appeal has redefined the CPO application process as a demonstration of an arguable basis for the action, this stage in the process should be a relatively straightforward exercise for many claims which follow-on from a previous competition authority decision. It is possible that this decision will encourage applicants to make more use of the collective actions regime, and we may see a rise in the number of collective actions brought to the CAT. However, this would not necessarily lead to a rise in vexatious cases, as the potential of having to pay a heavy costs order is sufficient disincentive: even if a litigation funding arrangement is sought to cover these costs, the claim would still need to satisfy the funder’s own scrutiny of the prospects of success.
Should the CAT grant the CPO and the case proceed to trial, it will be interesting to gain clarity on the evidentiary requirements for a collective action, particularly in relation to opt-out class distributions. Merricks has proposed that class members be given a proportionate amount relating to the duration of time spent in the UK over 1992 to 2008, up to the value of £300.1 Despite the favourable appeal, previous case law in the area of group litigation may complicate the process. The case of Adams v Cape2 suggests that it is not in the interests of justice to impose fixed damages based on ‘bands’ or categories of claimants rather than calculating actual loss by members of the class. The CAT may adopt similar reasoning to determine that categorising members by duration of UK residence is unjustifiable. While Merricks may have won this battle, he has not necessarily won the war.
Other cases in the spotlight
In addition, it is important to highlight some ‘firsts’ in the environment of collective actions. We are monitoring this area closely, but can highlight three cases in particular:
Truck cartel class action: the first to ‘opt-in’
This year, we are due to see the first ‘opt-in’ competition class action brought before the CAT. Opt-in class actions require potential claimants to actively register with the proposed class representative to bring the claim on their behalf. So far, more than 7,800 truck operators have registered to be represented by the Road Haulage Association for this action.3
The claim follows on from investigations by the European Commission into an allegation that truck manufacturers colluded to inflate their prices over a period of 14 years. In July 2016, the Commission imposed a record fine of €2.93 billion (approximately £2.5 billion) on four of these manufacturers. The estimated value of the current class action on the other hand is £5 billion.4
The CAT will hear the CPO application on 3 June 2019. Given the decision in Merricks, the criteria for granting a CPO should be relatively easy to meet and allow the case to proceed to a full hearing. It will be of interest to see what insights can be gleaned from a full hearing: unlike in previous class actions in the CAT, which have thus far taken the form of opt-out actions, this case comes prepared with an identifiable and definitive list of claimants, potentially with easily quantifiable damages.
Train fares give rise to first ‘standalone’ action
Toward the end of this year, we will also see the UK’s first ‘standalone’ competition class action. Standalone actions allow private claimants to bring an action against a business for an alleged breach of competition where there has not been a previous decision from either the UK or EU competition authorities.
This action, structured in the ‘opt-out’ format, alleges that train service providers did not publicise the availability of ‘boundary fares’, which allow London Travelcard users to purchase a ticket for travel outside of London without needing to pay twice for the zone travel up to zone 6. The CPO application hearing will take place on 5 November 2019.5
Unlike in follow-on cases, both parties will have to ‘start from scratch’. Should the claim proceed to full trial, the class representative, Justin Gutmann, will have a high evidentiary burden in proving not only the damage to the class, but that an overcharge and competition infringement occurred in the first instance. Once this is satisfied, Gutmann would then need to demonstrate that the infringement directly caused the loss.
Similarly, there remains the issue of demonstrating that the aggregate loss of the class is the £93 million which the claim alleges, and satisfying the CAT of an appropriate method of calculating the individual damages throughout the class.
First data breach collective action risks opening floodgates
On 22 October 2018, the Court of Appeal allowed a collective compensation action by over 5,500 staff who were victims of a data breach in 2014.6 Andrew Skelton, formerly a senior internal auditor at Morrisons’ headquarters in Bradford, leaked payroll data of nearly 100,000 employees, including name, date of birth, address, salary and bank details. Skelton was jailed for 8 years for offences under the Computer Misuse Act 1990 and the Data Protection Act 1998. Morrisons now faces the potential outcome of paying compensation to each of the 5,518 employees bringing the action, as the Court of Appeal upheld the High Court decision that Morrisons bears vicarious liability for the leak.
The vicarious liability verdict may cause concern to potential defendants in collective actions: there is the risk of an increase in actions brought by employees or even shareholders following personal data breaches effected by malicious or disgruntled employees. The Court of Appeal found that Morrisons would be vicariously liable, even though Skelton’s motive for disclosing the data was to cause financial harm and reputational damage to his then-employer – an argument from Morrisons’ counsel along this line did not carry much weight. Furthermore, per the well-established “close connection” test, a company would stand a risk of being held vicariously liable if the employee’s actions in committing the breach had a sufficient nexus to their day-to-day role. Skelton was entrusted with the data for his role, and even though the personal data breach took place on a weekend, the close connection test was met.
On 17 April 2019, the Supreme Court formally gave Morrisons leave to appeal the decision. While the date for the appeal hearing has not yet been set, this is a significant inaugural landmark in the development of the collective action regime; the outcome of which will shape the landscape of class litigation on personal data breaches.
Costs considerations for collective actions
In collective actions, the class representative carries the burden of the adverse costs rule, one of the most significant barriers to litigation in the English courts. It is therefore commonly accepted that third-party litigation funding plays a role in funding collective proceedings, both to afford access to justice for a wider class of litigants, and indeed also to mitigate the personal exposure of the class representative. In a recent erosion of the Arkin cap7 (which was first put in place in the light of various policy considerations, including to protect the interests of litigation funders so as to develop the funding market), the court has now ruled that the cap need not be applied at all.
In a ruling handed down on 17 April,8 the High Court concluded the Court of Appeal had not intended the Arkin cap to apply in every situation, and so it was therefore free not to apply it. The court further confirmed its wide discretion when considering costs orders against a non-party. Snowden J concluded that it would not have been just to apply the Arkin cap in this case, as he concluded that the funder’s priority was getting a return on a purely commercial investment, which took precedence over any compensation payable to the claimant it sponsored. The funder chose to invest an amount that bore no correlation to the defence costs. The court had recently pointed to the fact that the scope of the Arkin cap was limited,9 but this ruling marks the first decision where the court has directly declined to apply a cap to a funder’s liability in respect of post-litigation adverse costs. This does not signify, however, a wholesale departure from the Arkin cap, which remains a tool for the courts to apply with their discretion.
The courts appear to be responding to the growing sophistication of the litigation funding market with this decision. The effects of this include that funders should now assess potential exposure to the full extent of an adverse costs order, which may be a barrier for smaller litigation funders. There will be increased importance placed on funders obtaining after the event (‘ATE’) insurance.
This outcome may be welcomed by those defending claims from funded litigants, as the entirety of the costs of defence could stand to be recovered. As mentioned, collective actions are often supported by a funder: this decision should certainly act as a deterrent to funders merely looking for a high return. In turn, it will reinforce the obligations of class representatives to ensure collective actions they are supporting are not vexatious, therefore also assuring funders who are willing to provide support. It is apparent that the courts’ decisions on whether to apply the Arkin cap will turn on the specific funding arrangements of each case, alongside any broader policy considerations.
We will continue to monitor these developments, particularly how and whether these recent ‘firsts’ will affect the growing appetite for collective actions.