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.
Even though the respondents had not applied to strike out either of the proposed claims, the CAT considered it was obliged to consider (of its own initiative) whether the applicants had reasonable prospects for making the claims. The CAT's concerns were focussed on the issue of causation. Specifically, the articulation of the causal link between the Commission's FX cartel decisions and the alleged market-wide harm affecting the proposed classes. Due to the level of generality or abstraction in the pleadings, the CAT considered the claims could be struck out.
However, as the applications raised novel and difficult questions, the CAT did not exercise its discretion to strike out. The CAT did not consider it should do so in an area of law subject to some uncertainty and in a state of ongoing development. This was to allow the applicants an opportunity to address the concerns. However, absent significant amendment and revision, the CAT noted a future strike-out application "may very well be on the cards."
The CAT panel was not unanimous in its views and Mr Lomas dissented from the majority regarding the opt-in v opt-out issue. His judgment referred to the fact that access to justice has to be more than notional (citing the saying "open to all, just like the Ritz"). Mr Lomas criticised the majority ruling and proposed an alternative approach to the opt-in v opt-out determination, setting out his assessment in a schedule to the judgment. He considered the CPO should be granted on an opt-out basis.
In refusing opt-out certification, the CAT has stayed the applications and granted the two PCRs permission to submit a revised application for certification on an opt-in basis within three months of the ruling. However, both PCRs intend to appeal. Both Evans and O'Higgins' position was that proceeding on an opt-in basis would stifle the claims and lead to them not being pursued in any form, because it would not be possible to get sufficient individual claimants to sign up to make them viable.
The FX decision is timely. Last month, the Court of Appeal heard BT's appeal against the CAT's opt-out certification of the collective proceedings brought by Le Patourel. BT's appeal is the first time the opt-out determination has been specifically considered at appellate level (as the issue was not relevant to the Merricks appeals in either the Court of Appeal or Supreme Court). Important points of principle will be set down by the Court of Appeal in its forthcoming judgment, given two of BT's three grounds of appeal related to the opt-out basis of the CAT's certification. Its ruling is expected soon. The Court of Appeal was urged to hear BT's appeal on an expedited basis, particularly given the elderly demographic of a portion of the proposed class.
The opt-out feature is seen as fundamental to the success of the class action regime and enabling access to justice for those harmed by competition infringements. It is often only on an opt-out basis that collective proceedings are financially viable and can attract third party funding. Previous opt-in class actions, such as the Replica Football Kits claim brought by Which? under the old regime, were largely deemed failures due to poor levels of take-up. Whether opt-out competition class actions can serve as a potential blueprint for other areas of law remains to be seen.
Read the full judgment here.