Recent CAT rulings consider distribution concerns
With two collective settlements now approved by the UK's Competition Appeal Tribunal (CAT) and the outcome of the first substantive trial in the case of Le Patourel v BT anticipated shortly, it is an important time for the competition collective proceedings regime as the first sums start to be paid out to affected classes.
In two recent CAT rulings handed down in May 2024, the tricky issue of damages distribution was considered. We take a closer look at how the recent decisions clarified distribution issues.
1. Spottiswoode – certification ruling
In the Spottiswoode claim, the defendants had not opposed certification, choosing instead to draw the Tribunal's attention to a number of matters to consider when deciding whether to certify the claim. Distribution was not one of those matters and it is of note that the Tribunal decided of its own motion to consider the class representative's damages distribution methodology.
The Tribunal considered that there may be particular challenges to effective distribution of any damages to the class given the size of the class and given the difficulty in evidencing claims over a lengthy infringement period. Further, the affected class were not direct customers of the cartelists. Therefore, the Tribunal raised the need for the class representative to plan an effective method for the distribution of any damages or settlement. Recognising its broad case management powers, the Tribunal noted there is scope for "innovative and creative" methods of distribution to be explored. For instance, the Tribunal considered whether an account credit using electricity suppliers' records could be appropriate.
As to timing, the Tribunal did not consider it premature to have regard to a class representative's proposed distribution method at certification stage, as it was relevant to the Tribunal's assessment of the cost/benefit criteria as part of its certification assessment. In particular, concerning the "fundamental question" as to whether the collective proceedings offer a real prospect of benefit to the class members, as distinct from lawyers and funders.
The Tribunal insisted on consideration of a detailed distribution plan at the certification stage to enable the Tribunal to make a properly informed assessment of the costs/benefit analysis. It considered it would be unsatisfactory to defer the issue and explained that early sight of a distribution plan would enable consideration of the distribution proposals before the majority of the litigation costs have been incurred.
The Tribunal noted that the absence of an effective method of distribution would call into question the suitability of the claims to be brought in collective proceedings. While it certified the claim nevertheless, the Tribunal made clear that if the class representative failed to provide a distribution proposal to address its concerns within 3 months, that could lead to revocation of the collective proceedings order (CPO).
In concluding its comments on the distribution plan, the Tribunal made clear that if it approved a distribution method which did not leave any undistributed damages, such as account crediting, provision for payment to the funder would be necessary. The litigation funding agreement (LFA) in question specified that the funder would be paid from undistributed proceeds of the damages award. The Tribunal noted that it would have the power to make an order for payment to the funder out of damages awarded to the class (citing Le Patourel and Gutmann v Apple1). The LFA in question required the class representative, if successful, to use best endeavours to obtain orders from the Tribunal that the funder's entitlement be paid.
It is an interesting case involving far more detailed scrutiny of distribution methods by the CAT and at an earlier stage in proceedings. No longer can proposed class representatives defer consideration of damages distribution methodology. Detailed distribution methodologies will likely be required in litigation plans going forward in order to secure certification of a CPO claim, particularly in cases in which distribution is likely to be a challenge.
2. Gutmann (train ticketing) – collective settlement approval ruling
In its recent collective settlement approval ruling in the Gutmann train ticketing case, the CAT scrutinised in detail the settling parties' proposed distribution plan.
It is only the second time the CAT has approved a collective settlement. It was, however, the first time the CAT was asked to approve a settlement distribution plan and a settlement structured as an 'up to' amount (in the previous collective settlement approved in McLaren, there was a fixed settlement sum and the Tribunal was not asked to approve the distribution plan).
The Tribunal raised various concerns as to the proposed settlement initially put forward by the parties (in advance of and at the hearing). The parties therefore modified the settlement to take account of the Tribunal's concerns. The Tribunal considered the revised terms "just and reasonable" and noted "it is most likely there will be sufficient compensation for class members who make valid claims."
In overview, the settlement approved involved a total settlement fund of up to £25 million allocated to 3 'pots' each with different evidential requirements for claims to be made. Pot 1 (the largest pot) requires a higher level of proof, whereas the evidential requirements for claims made to pots 2 and 3 are less onerous.
In the initial proposal, it was proposed that each journey had to be identified in order to make a claim on pot 3. However, the Tribunal required changes to be made to allow self-certification in order to make claims easier. Class members making a claim can certify the number of journeys in the relevant period (up to 6) and would be paid £5 per journey (up to £30). For claims over £30, the CAT noted that other forms of evidence other than bank statements may reasonably satisfy the administrator. The changes made by the settling parties to the requirements for pot 3 claims (and ensuring more funds were available to the pot) were key to the CAT's approval of the settlement. The CAT noted otherwise the approval application "probably would have been rejected."
In reaching its decision on whether to approve the collective settlement, the Tribunal was keen to move fast given the costs that would have been incurred by the parties, including brief fees, as trial 1 (on the issue of abuse of dominance) was due to commence very shortly afterwards, on 17 June 2024. Had there been more time prior to trial, the Tribunal commented that it would have required empirical research as to the likelihood of class members making a claim and whether such claim would be on Pot 1, 2 or 3 given the different evidential requirements. In absence of that, the Tribunal considered evidence from North America, including the Federal Trade Commission report from 2019 suggesting the take up rate could be lower than 10% figure given by the settling parties.
In future cases, the Tribunal made clear the types of information the Tribunal will expect to be given in relation to damages distribution. That includes likely take up rates so the Tribunal can assess the likely range for the total amount claimed by class members. In addition, it will expect information as to the sums likely to be ultimately made available to lawyers and funders under various scenarios, depending on take-up.
In practical terms, the changes the CAT insisted on as part of the settlement distribution, including the various evidential requirements and the ability for class members to self-certify, are of particular note. It is also a helpful ruling in clarifying what information as to damages distribution the Tribunal will expect to see in applications for collective settlement approval orders going forward. The Tribunal reiterated that it is "not a rubber stamp".
By dealing with the practicalities of damages distribution methods at an early stage, no doubt the Tribunal wishes to avoid low damages take-up rates that have been the experience in other class action regimes. Ensuring damages reach class members at sufficient levels is key to the regime's success in delivering its aim of access to justice.
With the substantive outcome in Le Patourel v BT expected shortly, distribution of the first award of aggregate damages to the affected class might well be on the cards soon. Query what form damages distribution will take if Mr Le Patourel succeeds in his claim. We continue to watch this space.
For discussion as to how Le Patourel v BT may shape the UK class action landscape, see our blog here.
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