CAT to Roll-Out its Collective Settlement Procedure

19 October 2023. Published by Chris Ross, Partner and Leonia Chesterfield, Of Counsel

In the fledgling class action regime for competition claims in the UK's Competition Appeal Tribunal (CAT), many aspects of the regime remain untested. One such aspect is how the CAT's settlement approval procedure will be approached in practice.

Last week, it was announced that settlement terms had been agreed in the McLaren claim (concerning Roll-on/Roll-off maritime car carriers) between the Class Representative and the smallest of the five defendant groups.  The CAT will scrutinise the terms of the proposed settlement at a hearing to be listed in December. 

It will be the first settlement approval hearing to be held in the CAT's collective proceedings regime.  We take a closer look at what the process entails. 

Quick overview

In the context of certified opt-out collective proceedings, the CAT’s approval is required to settle proceedings.  To ensure the interests of the represented class members are protected, there are various procedural requirements regarding the overall process and the factors to be taken into account by the CAT in deciding whether to approve a collective settlement.  There is considerable uncertainty as to the CAT’s approach to those requirements in practice, as no collective settlement applications have been heard by the CAT to date.  

Settling opt-out proceedings

Given represented class members are included automatically in opt-out proceedings (unless they take steps to opt-out), there are various rules designed to protect the interests of the class and ensure any settlement agreed to by the Class Representative (CR) acting on their behalf is considered fair. 

Under the rules, individual settlements are not permitted in relation to opt-out proceedings. Only a collective settlement is possible (section 49A and B of the Competition Act 1998 (CA98)).  

There are two distinct forms of collective settlement envisaged under the rules, both requiring the CAT’s approval: 

  • Collective settlement after a collective proceedings order (CPO) has been made for opt-out collective proceedings (section 49A CA98); and 
  • Collective settlement before a CPO has been made (section 49B CA98). 

In McLaren, the claim is already certified and an opt-out CPO is in place. Therefore, we focus on the approval process applicable to certified opt-out collective proceedings.

Joint application for CAT approval

Rule 94 of the CAT Rules details the application process for collective settlement where an opt-out CPO has been made.  A collective settlement is only binding if approved by the CAT, by issuing a collective settlement approval order (CSAO). 

The first step involves a joint application to the CAT for a CSAO by the CR and the defendant(s).  The application for a CSAO contains certain information including:

  • Details of the claims to be settled;
  • The settlement terms including provisions as to the payment of costs, fees and disbursements;
  • A statement that the applicants believe that the terms are just and reasonable, supported by evidence (such as an independent expert opinion or an opinion of the legal representatives as to the merits of the settlement);
  • Details of how sums received are to be paid and distributed;
  • A draft of the CSAO; and
  • How the CR proposes to give notice of the application.

The CAT has a broad discretion to give any direction it sees fit regarding the CSAO application, including setting pre-hearing deadlines and may direct notice to be given to publicise the hearing. There are notice requirements to ensure there is publicity around the settlement hearing taking place and allowing the chance for those affected to make submissions. 

Settlement panel composition

In a departure from the original procedure envisaged (drafted prior to the CAT’s experience of its class action regime), in 2022 the CAT issued a new Practice Direction regarding the conduct of collective proceedings post-certification.  Now the trial tribunal will normally continue to be the original case management tribunal which had determined the issue of certification.  If a settlement is proposed, a separate settlement tribunal will need to be constituted to hear the settlement approval application. The settlement panel is distinct from the trial tribunal which can continue to hear the subsequent trial, if necessary (i.e., if the settlement is not approved).

CAT scrutiny of the proposed settlement

The CAT’s approval of the collective settlement is intended to ensure that the interests of all class members or represented persons are protected.  Given represented class members (who have not opted out) will be bound by the terms of any CSAO, the CAT's approval role is key to ensure class members' interests have been sufficiently protected.  Therefore, the CAT will closely scrutinise the proposed settlement and must be satisfied that the terms of settlement are ‘just and reasonable’ (s49A(5) CA98 and Rule 94(8)). 

In determining whether the settlement terms are ‘just and reasonable’, the CAT will take into account all relevant circumstances, including the specific factors as set out in Rule 94(9).  These include: 

  • The amount and terms of the settlement, including as to the payment of costs, fees and disbursements. This would include legal fees, any funder’s return and any non-monetary settlement.
  • The estimated number of persons likely to be entitled to a share of the settlement.  This would include how persons will be required to claim any entitlement.
  • The likelihood of judgment being obtained for an amount significantly in excess of the settlement amount. The CAT Guide refers to this as a ‘broad brush’ assessment, having regard to the prospect of success and estimated quantum of damages.
  • The likely duration and costs of the proceedings, if they proceeded to trial.
  • Any opinion by an independent expert and any legal representative of the applicants.
  • The views of any represented person or class member.
  • The provisions regarding the disposition of any unclaimed balance of the settlement.

Unlike in the case of an award of aggregate damages, unclaimed funds can revert to the defendant(s).  As average take-up rates have been low in other jurisdictions, it has been considered that this aspect could provide an incentive to settle for defendants. The CAT Guide clarifies that reversion to the defendant will not, of itself, be considered unreasonable.

It is recognised in the CAT Guide that the CAT will not require the settlement to be ‘perfect’ and there is likely to be a range of reasonable settlements which could be approved.  How the various factors will be taken into account by the CAT and the evidence required is currently untested. Certain factors may be considered more important than others in the CAT's assessment. As we have seen with the CAT's consideration of the various certification assessment criteria under the rules, some of the listed factors may prove to be more significant than others in the overall 'multifactorial' assessment.

Watch this space

Given it will be the first occasion when the CAT will apply the settlement approval rules in practice, the forthcoming settlement hearing in McLaren is certainly one to watch.  While there has been a continued flurry of certified cases in the CAT since Merricks was first certified now over two years ago, and many new collective proceedings cases currently awaiting certification, we are still at relatively early stages in relation to the certified cases.  This early settlement development is a first in the regime.

In light of the ramifications for third party funding as a result of the Supreme Court's ruling in PACCAR, it will be of particular interest to see how the issue of any funder return as part of the proposed settlement terms is handled. 

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