Competing opt-out claims refused certification in CAT's FX decision

Since the first opt-out certification last summer in Merricks, a steady stream of collective claims has been certified by the CAT. There have now been four opt-out certifications with many more applications in the wings. Last week's FX decision is the CAT's first certification refusal following Merricks. 

The CAT's ruling concerns two competing applications for an opt-out collective proceedings order (CPO). One CPO application was brought by Michael O'Higgins FX Class Representative Ltd (O'Higgins PCR) and the other by Phillip Evans (Evans PCR). The claims seek damages on a class-wide basis following the European Commission's infringement decisions regarding foreign exchange (FX) spot trading (referred to as the Three Way Banana Split Decision and the Essex Express Decision, named after the cartelists' chatrooms on Bloomberg). 

There were three issues determined by the CAT: the certification issue; the opt-in v opt-out issue; and the carriage issue. 

The judgment was split, with Sir Marcus Smith and Professor Neuberger delivering the majority opinion and Paul Lomas dissenting. 

1. The certification issue

Although the certification issue was relatively uncontentious as between the parties, the CAT considered that it was incumbent on it to reach its own conclusions on certification. The CAT went through the certification criteria in detail and found that the Authorisation Condition and Eligibility Condition were both satisfied in relation to each application. Had each application been the only one in issue, the CAT confirmed it could - and should - be certified as collective proceedings. 

Both applications were therefore successful on certification, although the CAT acknowledged it had not been presented with much of an argument on the issue. The "real battle" turned on the basis of certification (i.e, opt-in v opt-out). 

2. The opt-in v opt-out issue 

Both PCRs had sought certification on an opt-out basis. In opt-out proceedings, the claim binds all the proposed class apart from those who choose to opt out. Opt-out is a novel feature of the competition class action regime. By contrast, in opt-in proceedings class members must sign up to the claim in the usual way. As pointed out in the majority ruling of the CAT, opt-in claims have "buy-in" from the relevant class members whereas opt-out ones do not. 

The CAT explained that the Authorisation Condition and the Eligibility Condition (which had already been considered for the purposes of the certification issue) were to be considered again for the opt-in v opt-out issue. The various certification factors must be considered afresh: they are likely to have different relevance and carry different weight. 

In its analysis, the CAT majority concluded that a number of factors pointed weakly in favour of opt-in. These included: i) neither the O'Higgins PCR nor the Evans PCR were a pre-existing body; ii) the level of funding available to the applicants; and iii) the existence of the Allianz proceedings (a separate claim brought by a number of institutions originally in the Commercial Court) which potentially overlapped. The CAT considered that, by themselves, these factors were "pretty marginal" but cumulatively they pointed away from opt-out. In relation to funding, the CAT noted that O'Higgins had obtained funding of £29.4m and Evans of £22.5m. It concluded that, taking into account ATE insurance premia and other costs, O'Higgins had £16.6m of that and Evans £14.1m left for the remainder of the claim. Although describing the funding as "impressive", the CAT concluded both sums were too low, and that both parties should have budgeted for an additional spend of at least a further £25m. Given the potential shortfall, the CAT was concerned the applicants would likely come under pressure to settle before trial. Those are clearly very significant sums. 

Those factors were reinforced by the two specific factors relevant to opt-in v opt-out as set out in the legislation: "strength" and "practicability". Both factors pointed clearly and strongly away from certifying on an opt-out basis:

• "Strength" – the CAT clarified this cannot simply be equated to the test for strike out. A weak claim could be certified on an opt-out basis. Although it decided not to do so, the CAT found that the claims pleaded in the applications were so weak that they were liable to be struck out. While the claims were not struck out, the CAT noted it seemed perverse to permit a claim unsupported by "reasonable grounds" to proceed on an opt-out basis. 

• "Practicability" – this was assessed from the standpoint of the class members. The CAT considered there was no reason why it was not practicable for the putative class to join on an opt-in basis, given all the circumstances and in particular the general sophistication of the putative class, the class knowledge and the potential size of the claim. There was evidence that members of the putative class had not chosen to opt in when given the option. The CAT observed that where the proposed class members appear to be choosing not to participate, "access to justice should not be forced upon an apparently unwilling class."  

Therefore, the CAT refused to certify the proceedings on an opt-out basis. 

3. The carriage dispute

FX involved a carriage dispute between two competing PCRs (the Evans PCR and O'Higgins PCR). As both applications had been brought on an opt-out basis, the proposed classes overlapped and only one claim could have continued.  

Given the majority concluded that certification on an opt-out basis was not appropriate, it was not necessary for the CAT to determine the carriage dispute (i.e., which of the competing PCRs should be granted carriage of the proceedings). However, the CAT nevertheless stated that if it were minded to certify on an opt-out basis, the carriage of the proceedings should be granted to the Evans PCR whose application was "better thought through" and a "marginally better attempt at capturing an elusive loss."  

While there was no determination of the carriage dispute, the CAT set out useful guidance as to how such determinations would be made. It noted the Authorisation Condition has a relative aspect which would enable consideration of the relative suitability of each PCR. While there is no express relative element in the Eligibility Condition, the CAT clarified that the condition of "suitability" involves both an absolute and a relative test. 

The CAT stated that relative timing of the two applications was immaterial in this case. As this was the first carriage dispute, the CAT took the opportunity to make some general observations on timing. The CAT noted that a late applicant who does not attend the first CMC in another certification application should be under no illusions that the first in time will have a significant advantage in any carriage dispute. So while it seems we are unlikely to see a "first to file" race as happens with US class actions, timing will be a relevant consideration.