CN04 - Competition Appeal Tribunal rules on first ever carriage dispute in UK FX cartel class action

On 31 March 2022, the Competition Appeal Tribunal ("CAT") refused to certify two claims advanced against a number of UK banks for their participation in a foreign exchange spot rate manipulation cartel as opt-out collective proceedings. The novel issue before the CAT at the certification hearing was a 'carriage dispute', whereby it was invited to consider which of the two rival applicants looking to bring an opt-out claim would be most suitable to represent the interests of the class members. By declining to certify either claim on an opt-out basis, the CAT effectively side-stepped the issue.

Key takeaways

• The CAT has jurisdiction both to certify collective proceedings on a basis other than that which is applied for by a class representative and to strike out any claim on its own initiative even where a strike-out or summary judgment application has not been brought.
• Pleading cases of "market-wide" harm will be particularly difficult for claimants.
• The "strength and practicability" of the claim will be significant factors in determining whether a claim should proceed on an opt-in or opt-out basis.
• The choice of proposed class representative ("PCR") should be considered carefully when bringing collective actions.

In summary, the CAT found in this case that: 

• both claims were liable to be struck-out under rule 41(1)(b) of the CAT Rules (an issue that it unusually raised of its own initiative). However, given that the claims raised novel issues for further judicial consideration (in particular, in relation to the issues of "market-wide harm" and the carriage dispute), it was not appropriate to exercise its strike-out discretion at this stage in the case;
• both actions met the general test for certification, namely that the collective claims raised the same, similar or related issues and were suitable to be brought in collective proceedings;
• nevertheless, the merits and impracticability of the claims pointed strongly away from certification on an opt-out basis. The claims were stayed and the applicants given permission to make a revised application for certification on an opt-in basis, which the CAT indicated would be likely to succeed; and
• while it was not strictly necessary to consider the carriage issue given the decision not to certify at this stage, were the CAT minded to grant certification on an opt-out basis, it held that it would marginally favour the Evans PCR.

The CAT has the power: the initial jurisdictional questions

Opt-in v opt-out

Both Mr O'Higgins and Mr Evans applied for certification on an opt-out basis only. Counsel for each of the applicants contended that it was therefore not open to the CAT to grant a collective proceedings order on an opt-in basis. The CAT disagreed; it did have jurisdiction to decide between opt-in and opt-out proceedings, and cited three principles upon which the discretion is based: (i) the interests of the due administration of justice; (ii) the interests of the proposed class (which are not necessarily the same as those of the applicant); and (iii) the interests of the proposed defendants to the action. 

Strike-out

The CAT also made the unusual move to consider striking the claims out of its own initiative, which it has the power to do under CAT Rule 41(1)(b). While noting that no strike-out application had been made, the CAT considered it appropriate to consider strike-out given the concerns it had as to the merits of the claims, particularly given that they were based on economic theory alone.

Pleading "market-wide harm" cases of this kind will be particularly difficult

The lack of a clearly pleaded position in relation to issues of causation led the CAT to conclude that neither claim could plausibly proceed to trial. This was driven by the fact that both claims sought to advance cases of "market wide" damage based on pure economic theory pointing to potential inefficiencies in the market. In the CAT's view, neither applicant successfully articulated a sufficiently pleaded and factually evidenced causal link between these alleged inefficiencies and any consequent losses for consumers, stating that "economic theory does not, in and of itself, constitute an arguable legal claim".

In this case, strike-out was not ordered due to the need for further judicial consideration in this area and the fact that the applicants had not had an opportunity to address the CAT's thinking on the adequacy of their pleadings. Nevertheless, it is clear that the CAT will not shy away from striking out collective proceedings claims itself where appropriate.

Further clarification on certification and the opt-in/opt-out issue 

Merits assessment

Following certification of the Merricks (see our October 2021 newsletter), Gutmann, and Le Patourel collective actions as opt-out proceedings, the Evans/O'Higgins judgment provides further guidance on key issues surrounding the bases for certification. 

In particular, questions surrounding the relevance of the "'merits" of the claim to its suitability to be brought as collective proceedings are addressed and the common law position clarified. The CAT confirmed that it considers itself bound by the Supreme Court's majority judgment in Merricks and, more specifically, Lord Briggs' contention that merits are distinct from issues of suitability. As such, there is "no separate, freestanding 'merits' condition" contained within the legislation as it relates to certification (see our February 2021 newsletter).

The strength and practicability of the claims

The CAT may, however, conduct something akin to a merits assessment when determining whether a claim should be certified on an opt-in or opt-out basis (but only in that context). It confirmed the general principle that the stronger a claim is, the more suitable it will be for opt-out proceedings. 

The strength of the claim comprises the first of two factors which must be taken into account when considering the opt-in/opt-out issue in addition to those considered in respect of certification; the second being whether it is practicable to bring the claims on an opt-in basis. Given that these additional factors are specifically identified in the legislation, the CAT asserted that they are to be regarded as "intrinsically likely" to be significant in determining the nature of the claim. 

Introducing a general test for "practicability", the judgment confirms that claims should be considered in light of "that which is practicable from the standpoint of the members of the class concerned" (CAT's emphasis) and not what is "theoretically" possible. Consequently, the CAT must have regard to the practical bars to opting in, and the likely attitudes of the class member "on the Clapham omnibus". 

Further, buy-in (or lack of it) from the class members will therefore go some way to determining the opt-in/opt-out issue; as the CAT sees it, "the choice between opt-in and opt-out proceedings turns on this difference". In circumstances such as this case where the claimant law firms were unable to recruit willing participants to the claims despite sizeable efforts and the relatively significant pay-outs each potential claimant stood to gain, the CAT considered it impractical for either claim to proceed as opt-out proceedings. Simply put, "proceedings should not go ahead where members of the class do not want it to go ahead". 

The choice of class representative is key: the carriage dispute

While this was the CAT's first ever judgment on a carriage dispute, it did not in fact rule on the carriage dispute, as its refusal to certify the claims as currently formulated rendered the issue moot. However, the CAT provided guidance to assist future litigants in selecting appropriate class representatives.

The general test

Where there are competing applications, the CAT will consider whether one proposed class representative represents the class better, given the specific nature of that class. It will focus on any concerns surrounding, rather than the relative advantages of, a prospective representative. The judgment introduces a general test in this respect, formulated as follows: 

"Would an interested and well-informed member of the proposed class have a concern or concerns about the proposed PCR and – if so – what is the nature of that concern or those concerns? To what extent do those concerns enable a differentiation between PCRs?"

The choice of PCR will clearly have a significant effect on the viability of the proceedings, and the suitability of the proposed representative is considered an absolute requirement for certification. Indeed, the CAT remarked that "it is better for the class action not to proceed at all than for it to be progressed by an inappropriate representative" (CAT's emphasis). 

Funding concerns

The CAT also examined the respective funding proposals for each application in considerable detail in order to assess the PCRs' plans for the litigation and their ability to cover the respondents' costs, underlining the significance of ensuring suitable and sufficient funding mechanisms are in place at the outset. 

Relatedly, it expressed some misgivings about the PCRs' ability to "adequately and fairly" represent the proposed class members, questioning the extent to which the PCRs were "truly independent of the funders and the law firms supporting the applications" (CAT's emphasis). This was primarily because both PCRs were approached by the lawyers and funders behind the claims for the purposes of advancing the litigation, and did not bring the claims themselves. As a result, the CAT was concerned that the PCRs would be potentially vulnerable to having to agree a settlement that covered contingent fees and funders' profits at the possible expense of the class. Conversely, it noted that were the PCRs instead heads of trade bodies whose established purpose was to represent the interests of consumers, for example, this would turn the tide in favour of opt-out certification. 

While this was not a reason ultimately to disqualify either PCR, this was a factor of significant weight in the CAT's assessment. 

"Frivolous" disputes 

Commenting on the very fact of the rival applications, the CAT reprimanded the applicants' failure to reach a resolution amongst themselves in circumstances where the claims were insufficiently distinct to warrant a lengthy and expensive carriage dispute. These remarks suggest that "frivolous" carriage disputes will not be looked on favourably by the CAT in the future, and that rival applicants should endeavour to find common ground wherever possible. These comments from the CAT are noteworthy, particularly since courts in other jurisdictions (notably Australia – where competing class actions are common) have, in contrast, taken a much more pragmatic approach to dealing with similar carriage disputes.

Timing

The judgment provides helpful guidance regarding the timing of competing filings, including confirming the CAT's expectation that, where an applicant wishes to make a related or duplicative application to one which has already been made, it should seek permission to attend the initial case management conference for the original claim in order that the CAT can manage the carriage dispute. Any non-attendance would need to be justified by the later applicant. Nonetheless, due consideration will always be given to whether the first application has 'jumped the gun' on its application, with poorly formulated pleadings noted as an indicator of a premature filing. 

Legal teams

The CAT saw no material differences between the firms bringing the applications, but emphasised the importance of the solicitors instructed being familiar with claimant collective actions involving competition and financial markets law. 

Next steps

The O'Higgins and Evans applications have been stayed, and the applicants have three months to submit revised applications on an opt-in basis. Both applicants have stated their intentions to appeal in circumstances where they say the proceedings are not viable to be brought other than as opt-out proceedings. 

With thanks to Imogen Chitty of Ashurst for her contribution.