BT case may shape UK class action landscape

In January, the trial in Justin Le Patourel v. BT Group PLC¹ commenced in the U.K. Competition Appeal Tribunal, or CAT. The trial is scheduled to be heard over eight weeks.

Le Patourel is notable because it is the first trial in the U.K. of an opt-out collective action, a form of class action, under the U.K. Competition Act 1998. The outcome of the trial is likely to provide much-needed guidance on the application of the law on excessive and unfair pricing in a highly regulated telecommunications sector.

However, and perhaps of more general interest, the outcome and subsequent steps following the trial are likely to clarify the tribunal's attitude to damages and funder returns in collective actions, which could have a significant impact on the wider class action landscape in the U.K.

The Claim

Le Patourel alleges that BT abused its dominant position, in breach of the prohibition in Section 18 of the Competition Act, by charging excessive and unfair prices to two groups of customers:

• Residential purchasers of voice-only landline phone services without any associated purchase of broadband internet; and
• Split-purchase customers who acquire landline phone services and broadband, but not as a single bundle.

The claim has been brought on behalf of a class of over 2 million U.K.-domiciled purchasers of voice-only and split-purchase telephony services from BT. It is not a follow-on claim based on the decision of a competition authority. However, it relies in part on a provisional conclusion by the U.K. communications regulator Ofcom, which, following a review concluded in October 2017, found that prices BT charged to voice-only customers had been above competitive levels.

The CAT certified the claim as an opt-out collective proceeding in September 2021, following the second certification decision in Walter Hugh Merricks v. Mastercard Inc. on Aug. 18, 2021.² The CAT's September 2021 certification decision in Le Patourel v. BT Group PLC³ was upheld by the Court of Appeal of England and Wales in a May 2022 decision⁴ that — along with the second certification decision in Merricks — paved the way for certification of a number of subsequent claims.

Since certification, the claim has proceeded expeditiously to a trial, likely in part because of the nature of the members of the class, many of whom are elderly or fall into other vulnerable demographic categories.

Like other collective proceedings, there have been numerous obstacles for the class to overcome before reaching trial, not least the U.K. Supreme Court's July 2023 decision in R (on the application of PACCAR Inc. and others) v. CAT,⁵ which puts at risk all the funding arrangements in collective proceedings.

Wider Implications

The Le Patourel trial is being watched closely by those with an interest in collective actions both for guidance on the law and to understand the CAT's attitude to funder returns. The outcome of the trial is likely to have wider implications for the collective action regime in the U.K., and the development of the U.K. class action regime more generally.

The CAT's Decision: The Legal Points

The judgment following the trial in Le Patourel is likely to provide guidance on a number of legal issues.

Le Patourel's claim asserts a somewhat novel stand-alone claim of abuse of dominance through the charging of excessive and unfair prices. However, as BT asserts, this is not a claim where BT's margins sit significantly above costs, like, for example, in previous cases related to
pharmaceutical pricing. Instead, as BT characterizes the claim, it is effectively an attempt to impose an after-the-event price cap.

The judgment should provide guidance on the application of the test laid down in the European Court of Justice's judgment in United Brands Co. v. Commission of the European Communities on Feb. 14, 1978,⁶ outside of the circumstances that it has tended to be applied in the past. It may well provide guidance on the application of cost-plus methodology and its appropriateness in an excessive and unfair pricing case of this nature, and, in particular, on the calculation of cost-plus benchmark prices and the threshold over those at which any overcharge arises.

The case is one in which the Competition and Markets Authority has intervened. To date, the CMA has intervened in a number of collective proceedings in the CAT including other claims raising excessive pricing allegations.

The CAT's attitude to the stand-alone nature of this claim will also be of interest. BT operates in a regulated sector, and the regulator Ofcom intervened on pricing in relation to the conduct that is addressed in this claim only on a limited basis. Notably, Ofcom did not take enforcement action on price in connection with split-purchase customers at all.

The decision of the CAT in connection with these matters will be of interest to those firms operating in highly regulated sectors that face stand-alone claims where a regulator has not stepped in. It remains to be seen if the CAT will take an interventionist approach in these circumstances, and the outcome of Le Patourel will likely provide some guidance on the approach the CAT might take in future claims.

Damages and Funder Returns: Whether Collective Actions Will Be Worth It

For some, the events that follow it, if the claim is successful, are more important than the judgment on the legal matters arising from the Le Patourel trial.

Underpinning any opt-out collective proceedings is a commercial decision to fund the claim. This funding is needed because the overwhelming majority — if not all — of the members of the class in an opt-out claim will not participate in the claim, and may not even be aware of it.

This means that the claims invariably have to be funded by a litigation funder. The funding provided can be significant, and in exchange the funders will expect a return. Collective proceedings will therefore remain attractive only so long as potential returns to funders are as or more attractive than the returns available elsewhere.

For funders, it is therefore of critical importance that the claim is successful, and that damages are ordered above a threshold that makes the claim potentially economical for them. However, regardless of the agreements reached between the funders and the class representative in a given case, the tribunal has the final say over any return that might be paid to the funder of a successful collective action.

This is because the actual return that the funder will achieve will come from any damages that remain undistributed at the end of the period provided for distribution to members of the class. The default position is that these undistributed damages are paid to charity, but we can expect, if Le Patourel is successful in his claim, he will apply for a payment to his funder. The CAT's decision in response to such an application will be watched with great interest, in particular for the potential ramifications on access to justice for consumers.

If Le Patourel's claim is successful, the CAT's approach to damages and funder returns in this case will not be the final word on this, but it will very likely provide some useful guidance as to how the CAT will approach the question of funder returns and what funders can expect in future successful cases.

If Le Patourel loses, it is very unlikely to signal the death of the collective action regime. However, the attitude of the CAT to novel claims may well dissuade those at the margins on the merits, or those that are particularly novel or unusual, from issuing or proceeding.

Collective Settlements: Opening the Doors

Despite the relative growth of the opt-out collective action regime in the U.K., settlement of these proceedings has, to date, been rare.

The CAT must approve the settlement of opt-out collective proceedings to ensure the interests of the class members — who will likely have taken no part in the proceedings — are protected. As a result, there is substantial publicity and information that surrounds settlement of collective proceedings.

To date, the settlement in the 2023 CAT case in Mark McLaren Class Representative Ltd. v. MOL (Europe Africa) Ltd.⁷ is the only approved settlement in opt-out collective proceedings, with one out of six defendants in those proceedings.⁸ That settlement is for a total sum of £1.5 million ($1.9 million), which is a tiny amount in the context of the overall sums claimed across all the issued collective proceedings.

In other jurisdictions, settlements are a common feature in class actions. For class representatives and their backers, a settlement is often desirable in order to achieve a return for less time and, therefore, money invested. For defendants, a settlement can provide financial clarity and an end to time-consuming and expensive litigation.

In part, the reticence of parties in the U.K. to settle may simply arise from the relatively early stage of most collective proceedings. However, it may also represent a desire to understand how the liability and damages landscape, and funder returns, in collective proceedings might play out in practice. The outcome in Le Patourel, and subsequent steps, will likely provide some clarity on this.

For class representatives and their backers, a decision in Le Patourel may provide guidance on the CAT's attitude to liability, damages and, crucially, funder returns that are potentially on offer in claims of this nature, all of which will inform how to approach settlement discussions.

For defendants, the outcome in Le Patourel is likely to help them understand the true risks to them of claims under the collective actions regime.

We expect the possibility of further settlements of collective proceedings to increase following a decision in Le Patourel, no matter the outcome, and subsequent trials of collective proceedings, although the moral hazard for the defendants — many of whom face multiple actual or threatened collective proceedings — in agreeing settlements may mean that a flood of settlements is unlikely to follow immediately.

The U.K. Class Action Regime: Potential Continued Growth

Class actions in England, and the U.K. more generally, have been a far less prominent feature of the litigation landscape than in some other jurisdictions, such as the U.S. However, in recent years that has begun to change, and the outcome of the trial in Le Patourel will likely signal further change.

While group litigation is an established feature of English litigation and representative actions have been available in England for many years, the former is not well suited to consumer class actions as it requires claimants to opt in to the claim, and the latter is tightly circumscribed by the difficulty in reconciling the usual requirement that damages for each represented individual have to be assessed and calculated on an individual basis with the nature of a representative action.

Collective actions, which have their own separate statutory foundation in the Competition Act that addresses these issues, therefore remain the most viable way of bringing an opt-out class action in the U.K.

Indeed, the U.K. collective action regime has gained significant steam since the certification of Le Patourel. There are currently as many as 15 separate collective actions that have been certified at the time this article was written, with over 20 other claims issued and awaiting certification.

Since the Supreme Court's decision in Merricks, which overturned the CAT's initial rejection of certification, the CAT has taken a permissive attitude to certification. Even in those limited claims where certification has been rejected initially, the CAT has offered proposed class representatives the opportunity to rework their claim and try again. For instance, in a Feb. 15 judgment in Dr. Liza Lovdahl Gormsen v. Meta Platforms Inc.,⁹ the CAT certified a collective action against Meta on the class representative's second attempt.

While the collective action regime is the most permissive opt-out regime in the U.K., it requires a claim to have a basis in U.K. competition law. Class representatives and their backers in the U.K. have, to date, acted creatively in seeking to find a competition element to their claims, often based on novel theories of harm.

As more cases progress to certification and then through to trial, we can expect further clarity on how far the CAT will permit the boundaries of competition law to be pushed. Le Patourel will turn on its facts and the legal issues relevant to it, but, if Le Patourel is successful, it could galvanize potential class representatives and their backers to pursue more claims.

Some lawmakers in the U.K. have already indicated a desire to create a broader collective proceedings regime by permitting collective redress for a greater range of consumer harms. While there are no concrete proposals from the government for a broader regime, those with an interest in pursuing this are likely to use the decision in Le Patourel to push this agenda forward, no matter how it is decided.

This article was originally published on Law360.

¹Justin Le Patourel v. BT Group PLC, Competition Appeal Tribunal, case no. 1381/7/7/21.
²Merricks v. Mastercard, [2021] CAT 28.
³Le Patourel, [2021] CAT 30.
⁴[2022] EWCA Civ 593.
⁵R (on the application of PACCAR Inc. and others) v. CAT, [2023] UKSC 28.
⁶United Brands v. Commission, Judgment of the CJEU in Case C-27/76, EU:C:1978:22. In broad terms, this set out a two-limb test for excessive and unfair pricing. The first limb is whether the difference between the costs actually incurred and price actually charged is excessive (the excessive limb). The second limb is whether a price has been imposed which is either unfair in itself or when compared to competing products (the unfair limb). These limbs have been the subject of much subsequent interpretation (notably in England in CMA v. Flynn Pharma [2020]  EWCA Civ 339), and the CJEU acknowledged in United Brands that there may be other ways than this to establish an excessive and unfair pricing abuse.
⁷Mark McLaren Class Representative Limited v. MOL (Europe Africa) Ltd., Competition Appeal Tribunal, case no. 1339/7/7/20.
⁸[2023] CAT 75.
⁹[2024] CAT 11.