Opt-out for FX 

The Court of Appeal examines multiple facets of the CAT's decision in the Evans and O'Higgins collective proceedings

On 25 July 2023, the Court of Appeal (CoA) handed down its judgment in respect of an appeal by rival proposed class representatives, Mr Evans (Evans) and Mr Michael O'Higgins (O'Higgins), in separate collective proceedings known as the FX claims. Both proposed class representatives (PCRs) brought proceedings against banks for breaching EU competition law in relation to foreign exchange spot trading.

In a unanimous judgment, the CoA overturned the Competition Appeal Tribunal's (CAT) earlier decision and ruled that proceedings should be brought on an 'opt-out' rather than an 'opt-in' basis and that the CAT hadn't erred in selecting Evans to be the class representative.

The CoA has also laid down further important guidance for the CAT in future certification proceedings and restated its role as "gatekeeper". Here, we summarise the key details from the CoA judgment and the wider impact of the case.

What you need to know

In its judgment, the CoA confirmed:

• the statutory right of appeal should be construed broadly. It is not limited in collective proceedings to matters which might bring an end to a claim and can involve an examination of how claims are being brought or will be decided. This should minimise the need for judicial review of the CAT's decisions and appellants bringing simultaneous judicial review and appeal proceedings out of an abundance of caution;
• the CAT was entitled, as a matter of case management discretion, to defer decisions to a later date on the merits of a claim and possible strike out on an 'own-motion' basis;
• on the opt-in vs. opt-out issue, the CAT erred in its approach to assessing, as is required by Rule 79(3) of the CAT Rules:
  • the strength of the claim, by treating the provisional view of the merits as definitive and according it decisive weight in the scales against opt-out knowing it would bring the claim to an end;
  • the practicability of bringing an opt-in claim, agreeing with the dissenting judgment of Mr Lomas in the CAT in reasoning that, where there would be no proceedings save on opt-out terms, this is a powerful factor in favour of a claim being certified on an opt-out basis;
• the CAT has broad and multifaceted discretion in selecting between rival class representatives.

Background to the appeal

The issues raised in this appeal relate to two prospective collective proceedings, pursuant to which PCRs apply to be certified to act collectively for a class of prospective claimants. If a claim is certified as suitable for a collective claim, the CAT then decides whether it should proceed on an opt-in or opt-out basis.

In this case, two rival claims were brought for certification before the CAT: one by Evans and the other by O'Higgins. Both claims are for damages against certain banks who were found by the European Commission to have engaged in an unlawful exchange of competitively sensitive pricing and other data with the object of reducing the risks normally attendant upon genuine competition. This allegedly resulted in the participating banks earning artificially inflated returns at the expense of competitors and counterparties. The total of both claims with interest approaches £2.7bn.

CAT judgment

In its first instance judgment, the CAT considered the merits of the two claims, ultimately deciding not to strike out, on an 'own-motion' basis, the prospective actions and instead explaining in its judgment why they considered a viable claim had not yet been formulated. In doing so, it deferred any decision on strike out until the prospective class representatives had been given an opportunity to address the CAT's comments in relation to the question of pleading a viable case, particularly on the difficult and novel issue of causation in cases of market-wide harm.

The CAT did, however, reflect its views on the merits of the claims when deciding whether the claims should be brought on an opt-in or opt-out basis. Here, it was decided by the majority that the merits of the claims were weak and that an opt-in class was more practicable.

The CAT also had to choose between the two competing prospective class representatives. There was unanimity in the decision to select a claim proposed by Evans, as, in the CAT's view, Evans articulated a marginally better theory of harm.

The CAT ultimately gave permission for Evans and O'Higgins to submit revised applications to be certified on an opt-in basis only.

Court of Appeal judgment in more detail

Evans and O'Higgins appealed the CAT's judgment on a number of grounds. The CoA considered the following issues:

(a) the law governing the difference between statutory appeal and judicial review;

(b) the test to be applied to strike out a claim and the deferral of an assessment of the merits;

(c) the criteria for determining opt-in vs opt-out; and

(d) the criteria to apply in selecting between rival PCRs.

In a unanimous judgment, the CoA allowed the appeal on the opt-in vs opt-out issue and therefore directed that the Evans proceedings now proceed on an opt-out basis. It otherwise dismissed the Evans and O'Higgins appeals.

We analyse the issues raised further below.

Statutory appeal or judicial review

The CoA concluded that the statutory right of appeal should be construed broadly in order to minimise the scope of judicial review. It considered that there is judicial inefficiency in forcing litigants to challenge CAT decisions by judicial review or, even worse, proceed simultaneously via judicial review and a statutory appeal (as in this case).

There are good reasons why an appeal should take precedence over judicial review. First, judicial review inserts an unnecessary non-specialist step in the progress of a CAT decision. Second, it is relevant that in practical terms there is not a great deal of difference (if any) between an appeal on a point of law and judicial review.

The CoA re-emphasised the principle that parties seeking judicial review should first exhaust other judicial remedies.

Where there is any doubt about the route of challenge, the procedure adopted in this case (whereby the Court sits as the CoA and High Court) makes sense. This also avoids duplicating court proceedings and saves on time and expense. Occasions in which the only possible recourse is judicial review are likely to be rare.

This clarification from the CoA should minimise the need for judicial review of the CAT's decisions and discourage appellants from bringing simultaneous judicial review and appeal proceedings out of an abundance of caution.

Assessment of the claim

Evans and O'Higgins both challenged the decision of the CAT to defer the possibility of an own-motion strike out on the merits and argued that the CAT had erred in failing to accept as sufficient the cases as pleaded. The CoA did not agree that the CAT applied the wrong test in law on either of these issues.

On the first challenge, the CoA considered that, in assessing the case, the CAT should be able to exercise its case management discretion and defer the possibility of a dismissal action on the merits.

On the second challenge, the CoA noted that the CAT examined the relevant causation issues on the pleadings in significant depth and found that the order of further and better particularisation of the pleadings was within its broad case management powers. The CoA also added an observation about the applicants' criticism of the respondent banks' approach of "opportunistically [standing] on the side line throwing rocks" when; (i) no pre-action disclosure had been given; and (ii) no application backed by an expert, or any other evidence, had been advanced. In this regard, the CoA noted that the CAT "does not obtain the same level of assistance from a respondent jumping on the passing bandwagon whilst, at the same time, keeping its card far distant from the table". Where this occurs, and the CAT employs its standalone power to strike out, the CoA observed that this comes with the risk of the CAT being compelled to do its own thinking without the assistance of a properly formulated, evidence-based objection from the prospective defendants.

This may lead the CAT in future cases, where it has concerns about a PCR's pleaded case, to encourage prospective defendants to bring forward their own applications if they share concerns about the case they are facing.

Aside from the position taken by the respondent banks, the CoA noted that the CAT has a continuing power to strike out non-viable claims and if the CAT has concerns about assessing the claim, it always has the option to adopt a 'wait and see' approach.

Opt-in / opt-out

Perhaps the key clarification offered by the CoA in its judgment is in relation to how the CAT should approach its assessment, of whether to certify a claim on an opt-in or opt-out basis, pursuant to Rule 79(3) of the CAT Rules. Rule 79(3) provides that the CAT may take into account all matters it thinks fit, including the strength and practicability of the claims.

In this case, the CoA was faced with multiple arguments on how the CAT had erred in its approach to these issues, ultimately holding that the CAT had erred in respect of its assessment of both the strength and the practicability of the claims.

In relation to strength, having concluded that it would not form a final view on the merits pending the filing of reformulated cases by Evans and O'Higgins, the CoA held that CAT was wrong to treat its (necessarily) provisional view as definitive and accord it more or less decisive weight in the scales against opt-out, knowing and intending that this would bring the claim to an end.

In this regard, the CoA stated that they saw the force in the reasoning of Mr Lomas' dissenting judgment at first instance. Mr Lomas concluded that an approach indicating that stronger cases were certified as opt-out and weaker cases, opt-in, lacked legal foundation. Ultimately, the CoA reaffirmed the position as articulated in Le Patourel¹ that the legislation creates no predisposition for or against any outcome and in most cases the merits will be a neutral factor.

In relation to the assessment of the practicability of the Evans and O'Higgins claims, the applicants argued that the CAT majority had erred in the inferences drawn from the undisputed fact that, absent an opt-out order, there would be no claim. The CAT had concluded that if the prospective class members, being large and sophisticated entities that could afford to bring proceedings, did not do so it was because they did not "want" to litigate – and accordingly there was no access to justice deficit. The CoA disagreed with the inferences to be drawn from the evidence about potential claimants' unwillingness to commit to opt-in proceedings, including from statistical evidence. This evidence, in the CoA's view, explained the reluctance of participants that the PCR's lawyers had encountered. The CoA also held that it was now clear from the case law that where there would be no proceedings save on opt-out terms, this is a powerful factor in favour of a claim being certified as opt-out.

Selecting between rival PCRs: the carriage dispute

The CoA considered that the CAT has broad and multifaceted discretion in selecting between rival class representatives, but it must apply a test of suitability.

The norm will be that the CAT will choose a single representative; it is unlikely to be sensible or feasible to appoint two representatives to represent the same class. However, the CAT is not, in principle, precluded from choosing more than one representative, for example, if it became necessary in order to overcome an otherwise insoluble conflict between members or sub-members of a class. The CoA also stated that it agreed with the CAT that "first to file" is a largely irrelevant factor and to systematically accord this weight (as in various US and Canadian jurisdictions) would be to risk encouraging premature and ill-thought through claims.

Bringing order and control or "unleashing the litigation leviathans"?

This CoA judgment marks yet another important decision in the development of the jurisprudence of the collective proceedings regime. As Green LJ noted at the outset of his judgment, this case was the first to come before the CAT following the Supreme Court's seminal judgment in Merricks. Since then, more than 30 collective actions have come before the CAT and it has grappled with a range of novel procedural and legal issues, instituting and fine-tuning a range of case management techniques "all with the object of bringing order and control to what otherwise risks the unleashing of litigation leviathans".

As with every appellate judgment in this nascent regime, it is natural to think of the potential implications and whether, where there is a favourable outcome for PCRs, the door will be opened and in the words of Green LJ, the "litigation leviathans" unleashed. Such an assessment is always nuanced and needs to be considered in the context of other, recent CoA judgments and assessed on the basis of the issues before the CoA, as well as in the context of the recent Supreme Court decision on funding and the potential implications of that decision (see our article here).

As referred to above, perhaps the most significant aspect of the CoA decision is its guidance on how the CAT should approach the opt-in vs opt-out issue. In particular, the potential practical outcome of this is likely to be that PCRs will now be more likely to argue that failed attempts to get claimants to commit to opt-in proceedings, combined with evidence that, absent an opt-out certification, there will be no proceedings, should weigh in favour of opt-out certification. This is the case especially since the CoA held that "access to justice is not the only lodestar" which guides the issue of practicability of bringing opt-in claims, reaffirming the Supreme Court's endorsement in Merricks that that purpose of the statutory scheme was facilitating, rather than impeding, the vindication of legal rights, and applying the regime in a manner which encouraged compliance with the law.

We suggest that it does not, however, follow from this that the CAT will simply take a permissive approach to certifying opt-out claims going forward. After all, each future case before the CAT will turn on the matters in front of it at the time, in line with the CAT's discretion to take into account "all matters it thinks fit" in determining whether to certify on an opt-in or opt-out basis.

Authors: Tim West, Partner; Angus Rance, Senior Associate; Victoria Beswick, Associate; Florence Chan, Solicitor

Footnotes

_{1. Le Patourel v BT Group PLC and another [2022] EWCA Civ 593}